Sean Penn and Robin Wright Penn are breaking up (again). I know, it’s difficult for us all to fathom. Sean Penn seems like such a reasonable guy (just ask the paparazzi). Nevertheless, this got me thinking about prenuptial agreements. Sure, Robin Wright Penn was already of the Princess Bride fame, but Sean Penn had Fast Times at Ridgemont High. There was some money at stake.
I don’t know about you, but when I think of prenuptial agreements, I think of two things: (1) you’re already preparing for divorce before the taking the plunge, and (2) Jessica Simpson.
Regarding (1), as a lawyer my job is always to think of the worst case scenario. After all, we sign rental agreements, leases, and credit card applications for the same reason – to provide clarity in the event the agreement goes sour. It’s simply a business decision, and when you’re a multi-millionaire who is marrying someone with considerably fewer assets there’s always the threat that person is marrying you for the money. Why not prepare for the worst case scenario? Do you really think you’ll be as objective and fair after a failed marriage? If you’re so concerned about hurting your future spouse’s feelings or setting a bad tone for the impending marriage, hire third-parties to hash out the details and provide you with a final agreement. But I’m getting ahead of myself…
Regarding (2) – Jessica “Chicken of the Sea” Simpson – you never know how your status is going to change. Jessica Simpson infamously made the last minute decision to not sign a prenuptial agreement with now ex-husband Nick Lachey. At the time, Lachey was still glowing from his 98 Degrees stardom and Simpson was just a newbie to the entertainment industry. Clearly Lachey is in the limelight and Simpson has become a superstar. While reports are that Lachey eventually agreed to accept less than the half he was entitled, the lack of a prenuptial agreement cost Simpson millions.
There are two types of states for dividing assets upon divorce – community property states and equitable property states. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), all property acquired during the marriage is considered “community property” and is subject to a 50/50 split upon divorce unless there is a prenup saying otherwise. In states like California, this does not mean a 50/50 split of the assets, just the value of the assets. So you don’t have to worry about loggers chopping the boat in half. In states like Texas, the 50/50 split is subject to what “the court deems just and right;” thus, outside factors (i.e. one parent’s full custody of the children) may impact the final tally (Tex. Family Code Ann. § 7.001) .
An exception to the “community property” accounting is property acquired before the marriage or property acquired during the marriage as a gift or inheritance specifically earmarked for only one of the spouses. On the bright side, the debt your client accumulated during the marriage is now your client’s ex’s concern as well, as it constitutes community property debt.
In equitable property states this presumption of equal property does not exist. That is, courts equitably divide all of the property owned by the parties at the time of divorce except inherited property and gifts received by one spouse. Thus, the total pot includes property acquired before marriage.
Because California is where entertainment industry clients generally are and California is a community property state, we’ll focus on that.
For the most part, the same rules of formation, validity and interpretation used in contract law apply for prenups. Interestingly, there is a California case, Hall v. Hall, that found an exception to the written requirement of prenups. There the court found that the decedent’s wife’s actions (she quit her job and retired early in anticipation of the financial security of having an interest in her husband’s home) constituted part performance and created an exception to the in-writing-requirement of the “statute of frauds.” Make your client’s potential divorce a lot simpler and have the prenup in writing. Of course, you also want that prenuptial agreement signed before the marriage occurs. Otherwise, you’ll need your client to sign a post-nuptial agreement. Different rules apply for those.
California’s prenup law is rooted in the Uniform Premarital Agreement Act. It has some unique laws, such as a requirement that couples looking to limit spousal support in a prenup must be represented by independent counsel (§1612(c)). However, the prenup may not limit child support (§1612(b)). This latter provision applies to all states. A California prenup can also affect probate issues (wills and trusts) (§1612(a)(4)) and the death benefits in a life insurance policy (§1612(a)(5)).
The real impact of a prenup for a California couple is the fact that California is a community property state. The agreement overrides the 50/50 split aspects of the community property law. Not only does this protect your client’s assets, but it mitigates the messiness of divvying up assets upon divorce (See: Federline, Kevin) as well as create some form of predictability in financial planning. Prenups are also opportunities for attorneys to be creative. Not everything needs to be parced out. Maybe your client merely wants to protect his or her prized vintage car collection or his or her precious Malibu estate. There can be a sunset provision that nullifies the agreement after a certain amount of years. There can be a negotiating procedure established (i.e. arbitration) to hash out unresolved issues amicably. Remember, simple contract law guides prenups, so as long as it fits within basic public policy concerns, the provision is likely to be enforced.
Sadly, there are plenty of websites out there keeping track of celebrity divorces. Here’s one way to limit the damage.