Tuesday, March 4, 2014

Pre-nups are always difficult

Theoretically, pre-marital agreements (pre-nuptial agreements, or pre-nups) make perfect logical sense. After all, the state has decided what is fair if you get divorced, why shouldn't you come up with your own rules if you don't agree? But every time I sit down to discuss and draft one with a client, it is a difficult thing to do. Here are some reasons why:

  1. Who needs a pre-nup? People who get their money through inheritance or have made most of their money before they marry usually have a pre-nup on their radar the second they think marriage, but actually much of that wealth is already protected by California law. The person who needs a pre-nup the most is the one who enters a marriage with little and builds an empire along the way. And you need a pre-nup not just to protect your money (though that is part of it) but to protect the empire you built. Whether you realized it or not half of your empire built during marriage (and control over it) belongs to your spouse. Unless you had a pre-nup (or a post-nup) and you followed it. 
  2. When you discuss a pre-nup you are already discussing your divorce. And you're not even married yet. This is uncomfortable at best, and sometimes reveals the bitter, insecure, stingy side of one or both the parties. If you don't know each other's financial ins and outs, you will discover everything through this process. Does he have millions in investments you never knew about and yet always insist on splitting the check 50/50? Has she defaulted on thousands of dollars of debt that she never bothered to mention? Ideally none of this is a surprise--after all you have decided to marry this person. I am surprised by how often it is.
  3. What if you want to be fair in your pre-nup? Be careful because things can go horribly wrong. The default position of a pre-nup is to keep everything separate and avoid all spousal support. This is probably the easiest plan to follow. Nothing goes in joint name--each party can of course pay for whatever they want during the relationship, but if you divorce you take the stuff in your own name and go your own direction. You're thinking maybe you want to buy things together, like a house? Did you think about who is going to pay for it and how much ownership interest each party will get? What if one of you puts down a large separate property down-payment? Under CA default law that person would be entitled to reimbursement when you sell or divide the house through a divorce, but the default rules don't necessarily apply here, because you are trying to avoid them through the pre-nup. What if you open an investment account together? Will it belong 50/50 to each of you or are you going to trace your contributions? This can get complicated very quickly. Want to allow for some spousal support? What if your businesses don't go the way you are expecting? Careful offering up a guarantee of a certain amount of support. Even if it seems minimal at the time of the drafting of the pre-nup, fortunes can turn and it may be a huge burden when you divorce. When you draft a pre-nup you are trying to predict the future. It is impossible to foresee and account for all possible outcomes.
  4. He won't marry me unless I sign the pre-nup--that's coercion and this won't be enforceable right? Wrong. You don't have to get married. Therefore there is no coercion. 
  5. So if I only have inheritance I don't need a pre-nup? Not necessarily. Your inherited funds could be used as a basis for a spousal support award. And what if you decide to put his name on an account to make it easier to handle bills and such? Could a court decide that you intended to transmute that account to community property? The answer today might not be the same as the answer tomorrow because the law can change. But if you have a pre-nup, you can decide that in advance and prevent the claim from even being made (as long as you follow your pre-nup).
  6. So if I have a pre-nup, I can sit back do whatever I want and know that I'm protected, right? Wrong again. Your pre-nup is in part a complicated instruction manual for how to keep property separate or create community property depending on your intentions. If you allow for community property to form, you better follow the rules you made for yourself depending on if you intend to create community property or to keep something separate. If your intentions and actions are not clear, you could end up in court arguing over what happens under your pre-nup the same as you might end up in court arguing over what should happen under the law. 
  7. The default rules (i.e. the law) are the most fair, right? Not always. The default rules become particularly problematic for couples who marry at a more advanced age, possibly with children from prior relationships, differing income levels or even ability to work, different funding levels on their retirement funds, etc. If you have children from a prior relationship a pre-nup needs to be part of your estate plan so that in the event of your premature death automatic inheritance rules don't cause a battle between your children and your new spouse. What if two people marry and one has already saved up a nice retirement and the other has only just started saving? Under the default rules, the spouse who already saved gets to keep all of their pre-marriage retirement and is also entitled to half of the retirement their less well-prepared spouse saves up during the marriage. I don't think this is a fair outcome, but this is what the law has to say about it in California. No rule is ever fair as applied to every possible situation. 
I recommend talking things through well in advance of your wedding and deciding if a pre-nup is right for you. If it's hard to talk things through before marriage, it's unlikely to get any easier after.

Wednesday, February 19, 2014

Veracity in Family Law Court

Recently I've been inundated with calls from potential clients who are very concerned with proving the other party has not told the truth about something. I have to blame TV and movies for this somewhat because courtroom dramas often culminate in a satisfying climax where a witness is shown to be a liar and the protagonist wins the case. In real life and in real court, true vindication is rare. I would say it's even rarer in family law court. Here are some reasons why.

Rollins Band - Liar
for your enjoyment

What effect did that lie have?

Many people tell half-truths or misstate information that really is of little importance. If you are in court over custody and someone was late for a pick-up, if the other party presents facts to make it seem like it was your fault, and you refute that and present your facts indicating that it was the other party's fault, have you proved the other party a liar? No. You've shown the judge that you and the other party don't like one another and argue a lot. And the judge is probably concerned not so much with who is telling the truth, but rather how he can get you both to stop talking and keep you out of her courtroom as much as possible. Which leads me to another reason...

Everyone is telling the truth in family law court.

This is the presumption that the judicial officers start with. They assume that everyone is telling the truth, though quite probably in the light most favorable to themselves. However, it is often impossible to reconcile both party's stories with each other, which leads the judicial officers to the position that...

Everyone is a liar in family law court.

Often judges do not decide which party is the liar and which one is the truth teller and make judgments accordingly, but rather they do not trust either side. This means that the judge might believe you on one item, but take the other side's story on the other. In a jury trial you would have people off the street determining whether a statement or a witness is truthful or not. In family law court you have a judge making these determinations and you can bet that in most cases that judge hears every single day, that judge is being told by both parties that the other party lies. When this is your audience, it's hard to win on veracity.

What about evidence?

Clear admissible evidence of your perspective of how things happened is rare. If there is such evidence--good for you, your case might be the exception. If you are talking about how much money was in a checking account on a certain date, then the judge is only going to want to look at direct evidence and not take anyone's word for it. Anything less concrete is often open to interpretation. And to go back to the first point--what effect does the lie have anyway? Is this a fact on which you will even have an opportunity to present evidence? And even if you did, does the judge care? Or is it a fact so incidental to the underlying issue that the judge will think you are just wasting her time? You have to pick your battles wisely.

Successfully proving the other party lied about something does not necessarily prove your case.

Even if you succeed, it will only directly affect issues involving the subject of the lie. Proving someone lied does not deem them a "liar for all purposes" in your family law case. Judges know that the parties often manipulate the truth and memories are fallible. The judge is therefore still free to believe the other party on other matters, particularly if you don't have any evidence to the contrary.

So what lies are worth the effort?

Lies that will adversely affect your case need to be addressed, but only expect to be able to prove a a lie where there is direct conflicting evidence--you can only do so much and then you have to let it go. No one likes to be lied about. But when it happens you need to first vent in private and then analyze whether or not you will benefit from attempting to disprove the lie. If your attempts to clear your name result in the issue dissolving into a bickering match in front of the judge, the attempt to clear your name might damage your reputation with the judge more than the original lie or half-truth. 

Wednesday, January 29, 2014

Finances and Divorce

Divorce is a financially traumatic event. When the financial resources of one family unit are cut in half, it is impossible to support two separate residences at the same level as the unified family. So if you are about to be separated or initiate a divorce, it's important to take stock of your income and expenses and figure out what obligations and resources might come out of the divorce. I have listed below some personal considerations that separating individuals would ideally think about prior to separating or initiating a divorce. These are not legal considerations but rather some of the factors to consider in planning financially for a post-divorce life.

Thursday, January 9, 2014

Documentaries about family law

I've recently learned of two documentaries coming out soon about the family law system:

"Divorce Corp" hasn't released yet. It sounds from this review that it skewers both the court system and family law attorneys.