Same-Sex Couples and Premarital Agreements: Until Congress protects the same-sex couples, they will need to be proactive about family and finances.
By Linda J. Ravdin
With the advent of marriage equality, a same-sex couple will have the same reasons for thinking about whether to enter into a premarital agreement as an opposite-sex couple. There are additional reasons for same-sex couples to consider a premarital agreement, and several drafting issues require special attention. This article will address both aspects of same-sex premarital agreements.
Why a Premarital Agreement?
A premarital agreement is a contract that determines spousal rights when the marriage ends by death or divorce. A premarital agreement substitutes the parties’ contract for the spousal rights that would otherwise apply under state law at the end of the marriage. Some couples choose to predetermine their financial rights and obligations rather than rely on state law. When a party has children from a previous marriage or relationship, or other family members he or she wishes to provide for at death, it can make sense to have a premarital agreement to allow for allocation of property among them in a way that is tailored to the needs and wishes of the parties. Many persons considering marriage prefer to decide in advance about their property and support rights if the marriage does not work out, rather than subject themselves to the uncertainties of a court-based resolution.
Why It Matters More to the Same-Sex Couple
If an opposite-sex couple marries without a premarital agreement, state law will step in to determine their rights at the end of the marriage. Opposite-sex marriage is recognized everywhere; therefore, there will be a court that has the power to determine their rights. Not so when a same-sex couple marries. If a spouse moves to a state that does not recognize their marriage, if they move together to such a state, or if a spouse owns property in a state that does not recognize their status as spouses, they may not have meaningful access to a court to resolve issues arising from a death or dissolution. For example, a Texas court refused to divorce two women who had married in Massachusetts and later moved to Texas. As a result, there was no court available to them to decide on equitable division of property or consider a spousal support claim. There was no state law to fall back on.
A premarital agreement can remedy this problem because it can predetermine parties’ financial rights; they do not need to fall back on state law. If there is a dispute about their rights under the contract, they would be able to go into court to have a court interpret the contract. The court should not need to decide whether the marriage is valid in order to interpret a valid contract or decide a claim of breach. Alternatively, the parties could opt for another form of dispute resolution and stay out of court.
Drafting Issues Requiring Special Attention
Many of the issues requiring special attention in the drafting of a same-sex premarital agreement arise from the lack of uniform recognition of same-sex marriage and the possibility that one or both parties will move to a state that does not recognize their marriage or that a party will own property in a state that does not recognize their status as spouses. A premarital agreement can take account of this. Moreover, even if the couple lives in a state that recognizes their marriage, their rights will be affected by federal law in some fashion. The federal Defense of Marriage Act (DOMA), 1 U.S.C. §7, prohibits recognition of a same-sex marriage for all purposes under the U.S. Code. A premarital agreement can take account of these gaps in the law’s protection of marriage.
Validity. A basic requirement for validity of any contract is consideration. Consideration is something of value given or received in exchange for something else of value. The law deems marriage itself so valuable that it is sufficient to fulfill the requirement for consideration for a valid premarital agreement. In general, therefore, a premarital agreement may state that the consideration is the marriage; it need not identify any other consideration to be a valid contract. Marriage alone may not be sufficient, however, under the law of a state that considers the marriage void. A court in such a state could rule that the premarital agreement is void for lack of consideration because the marriage is void. A 2010 New Mexico case, Rivera v. Rivera, 2010 N.M.App. Lexis 96 (8/13/10) (unpub.), held that a premarital agreement would have been void had the husband succeeded in proving that the marriage was void. Therefore, a same-sex premarital agreement should identify additional consideration beyond the marriage itself so as to better protect the agreement from an attack on its validity. Some examples of other forms of consideration that may be applicable for a given couple include:
- Mutual waivers of spousal claims to division of property, spousal support, and rights as a surviving spouse;
- Mutual waivers of non-spouse claims, such as property claims based on other legal theories, e.g., oral contract, quasi-contract, unjust enrichment, or business partnership;
- Agreement to share economic resources;
- Agreement to share noneconomic resources, such as caring for a home and children, providing companionship, and other domestic activities;
- Financial and moral support for a career, education, or a business;
- Agreement to make contributions, monetary and nonmonetary, to acquisition of a specific asset, such as a home or a business.
For consideration to be legally sufficient, it need not be equal in monetary value or of the same character. So, for example, a premarital agreement in which one spouse agrees to provide more financial resources and the other agrees to manage a home and children should be valid as a contract.
Broadening the Scope: The agreement could be broadened in scope and called a “Premarital and Domestic Partnership Agreement.” The majority of states’ laws recognize the general validity of domestic partnership agreements; courts have acknowledged that unmarried cohabiting adults have a right to enter into a contract governing the financial incidents of their relationship. The agreement should state the parties’ intent that the agreement be a valid contract regardless of whether the marriage is recognized in the state where a dispute may arise. A broader agreement of this type need not be recognized as a premarital agreement in a state that does not recognize the marriage; it can still be a valid domestic partnership contract.
Defining Marriage and Divorce/Dissolution: A premarital agreement does not usually define the word “marriage” because the term has had a universally understood meaning. However, because a court in a non-recognition state may interpret the term in a contract to refer only to a marriage that is legal in that state, the same-sex premarital agreement should define the term. The definition can embrace: the legal status of marriage as recognized where celebrated; a registered domestic partnership if the parties’ legal status is recognized as such under the laws of a state where a dispute arises; and the parties’ contractual relationship as defined in the agreement.
Similarly, the word “divorce” does not usually need to be defined. However, in a same-sex premarital agreement, it is appropriate to use a more inclusive term, such as dissolution. Further, the term can be defined to include a formal divorce in a state that recognizes the marriage as well as dissolution under a different statutory scheme, such as a domestic partnership statute. It should also include a decision to end the relationship without formality insofar as no formal procedure is available at the time and in the place where the parties end their relationship.
Creating Parentage: Many same-sex couples intend to make children a part of their family and they may wish to establish legal parentage in both partners. The law regarding the rights of de facto parents varies and it is in flux. Same-sex couples who choose to enter into a premarital agreement may wish to foreclose litigation over parentage in favor of contractual terms that, to the extent permitted by law, predetermine their parentage rights. Nevertheless, a contract alone may not be sufficient to fully protect both parties and their children. Some terms to consider:
- Agreement to a second-parent adoption, if permitted by state law;
- An agreement by the legal parent to a consent joint custody order during the marriage so as to create custodial rights in the other parent if permitted by law;
- A provision that both parties will be financially responsible for any child they agree to bring into their family during the marriage and in the event of dissolution.
- An acknowledgment that the parties intend that each spouse be considered the de facto parent of a child born to or adopted by the other.
When a party already has a child, he or she may wish to consider some of the same options so that a spouse will have parental rights in the event of death or dissolution. Alternatively, a parent may not want a new spouse to acquire de facto parent status. In that event, the agreement could express that intent.
Parties who enter into an agreement for parentage need to understand that once parentage is created, a parent cannot be divested of his or her parental rights simply because the parties are no longer a couple or the biological parent decides that the other parent is unsuitable.
The discussion of parentage is distinct from the question of a court’s authority to resolve a dispute between legally recognized parents regarding allocation of time and decision-making authority incident to dissolution. A contract cannot predetermine custodial rights before a dispute arises, especially of an unborn child, regardless of the gender of the parents.
Agreement Terms for Buyout of a Marital Home: When an agreement will give one spouse the right to buy out the interest of the other in a home or other real estate they may acquire together, the agreement should require the buyer to refinance the mortgage to remove the other as a debtor Most mortgages have a due-on-sale clause that requires immediate payoff upon sale or transfer to a third party. Federal law prevents a lender from invoking the due-on-sale clause when the property is transferred to a spouse. However, because of DOMA, the law does not protect a same-sex couple. The agreement should therefore require a payoff or refinance simultaneously with a buyout, and for a sale in the event a refinance is not possible.
Post-Dissolution Support: Some premarital agreements predetermine an amount and duration of support for a spouse in the event of divorce. Because of DOMA, a same-sex couple will not be able to take advantage of income tax laws that allow the payor to deduct these payments from income and to shift the income to the recipient. Other parties may want the agreement to allow for a spouse to seek post-dissolution support, but may not wish to predetermine an amount or duration, preferring to allow this decision to be based on the circumstances existing at dissolution. The agreement could provide for this decision to be made in binding arbitration so as to take account of the possibility there will not be a court available to them to make a decision about support. They may also want to provide in advance for using the services of a CPA to advise about how to structure support to take account of the tax consequences for both parties.
Tax Consequences of Property Transfers: There are tax consequences when a married couple transfers or divides property between them as part of a divorce. The tax consequences of property transfers between same-sex divorced or divorcing spouses are different. A premarital agreement can anticipate this. The parties could agree in advance that any division of property will adjust for tax consequences so that each party bears an equal or other agreed share. This could mean, for example, determining, based on current tax rates, the amount of tax one party will bear upon sale of an asset in the future and adjusting the value of that asset down to reflect that future cost. The parties could agree in advance on appointment of a neutral CPA to help them figure it out or could even agree to treat the CPA’s decision as binding. Similarly, the agreement could anticipate the different tax consequences that apply to same-sex spouses when one spouse dies and provide for a fair mechanism to address them.
Retirement Benefits: Some premarital agreements provide for sharing retirement benefits earned during the marriage. If there is likely to be a disparity in value, so that there will need to be an equalizing transfer in the event of dissolution, the drafting stage is the best time to consider implementation. A court will not be able to order a plan administrator to make direct payment of retirement benefits to a same-sex former spouse; this mechanism is only available to opposite-sex spouses. Therefore, the agreement could provide for another means to allocate the value of these benefits. For example, the value of the nonparticipant’s share of the plan could be determined and the nonparticipant would receive other property to equalize. The agreement should also anticipate tax consequences, as discussed above, and provide for making an appropriate adjustment. When one party has a defined contribution account, such as a 401(k), and the other has a defined benefit pension plan, the agreement could provide for hiring, and sharing the cost of, an actuary to determine the present value of the pension so as to have a basis for comparison of value of these two different forms of benefit.
Dispute Resolution: Parties to a same-sex premarital agreement should consider including provisions for resolution of a dispute regarding implementation of the agreement. They may wish to provide for mediation or for a collaborative process. Collaborative law is ideally suited to same-sex couples because one of its hallmarks is a process that respects the needs and interests of all members of the family, including the children. Neither mediation nor collaborative law imposes a resolution on either party. Thus, even when parties elect one of these processes as their first step to resolving a dispute, they may wish to consider binding arbitration as a last resort to resolve a dispute about the meaning of the agreement or their obligations under it. A provision for binding arbitration of a dispute about validity is not a good idea. A decision of an arbitrator is not appealable. A party who will be disadvantaged by a decision to void an agreement should retain his or her access to the appellate courts to rectify the error.
What a Premarital Agreement Cannot Do
One thing that neither a premarital agreement nor any other contract can do is to constitute a divorce from the bond of matrimony. Take, for example, a couple who marries in the District of Columbia, moves to Missouri, decides to go their separate ways, and carries out a division of property as provided in their premarital agreement. In Missouri, and states that do not recognize their marriage as a marriage or any other legal status, they are two unmarried people. In the District of Columbia and Massachusetts, they are still married; neither is free to remarry without getting a divorce. Most states have a residence requirement, so that, for example, in the District, one spouse must be a resident for six months in order to file for divorce. There may not be a readily available forum to dissolve the marriage.
Until such time as state legislatures and Congress provides full protection for the marriages of same-sex couples, these couples will need to be proactive about putting the appropriate legal documents in place to provide as much legal protection for their family and financial interests as the law allows.
Linda Ravdin practices family law exclusively with the Bethesda, Maryland, law firm, Pasternak & Fidis, P.C. She is the author of Premarital Agreements: Drafting and Negotiation (2011), published by the American Bar Association Family Law Section, available at www.ababooks.org.
Reprint with permission. Copyright 2011, Pasternak & Fidis, all rights reserved
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