Ask any young couple headed for the altar about their top priority and you’re unlikely to hear the words “premarital agreement.” After all, they assume theirs will be the marriage that lasts.
It’s All About Love…Or Is It?
In their optimism, the young couple often overlooks their greatest asset in life – the capacity to earn money. Wealth is primarily created through two means: earning money and foregoing consumption. Most couples who marry both work and defer parenthood until after marriage. If things don’t work out, they assume they’ll simply divide the wedding gifts and resume the single life. For many, formal education pays off with a first meaningful job that starts them down a path toward greater earning capacity. Several years later, they may add home ownership and parenthood, and the dynamic starts to change. If both partners keep working at their full earning capacities, they may have financial and custody issues to dispute should the marriage dissolve, but they both leave with the ability to be self-supporting. But what happens when one partner takes time away from the workforce?
.And Baby Makes…for Uncertain Earnings Potential
Married couples often plan to have children and for one partner to stay home with them for some period of time. Now their earning capacities, once quite equal, begin to diverge. A parent who leaves the workforce for more than a few months is making a massive sacrifice in long-term earning capacity. In domestic law, one of the largest areas of dispute in divorces is expectations around returning to work. Most people who discuss premarital agreements are thinking primarily about their current assets, not those they might acquire in the future. But the engine of asset accumulation is income, and far too many young people fail to realize that once that engine is silenced, it is very difficult to restart.
Craft Future Plans With Care
Many parents work with estate attorneys to craft plans that transfer wealth to their children, but for a child receiving the gift, a divorce can result in money falling due to a daughter- or son-in-law. This becomes more complicated when family business interests are involved. Typically, parents give their children shares of stock in a family business as part of a gifting plan. If the business increases in value, each of those gifts may need to be valued to determine what “increase” is part of equitable distribution in divorce. If the business or the donee child can’t raise the funds to acquire the “outlaw” interest, the corporation may end up with their former spouse as a shareholder – not a pretty prospect. Premarital agreements can address these issues. They can also address questions related to loss of earning capacity related to childrearing.
These subjects are best addressed before a marital split. So if you or your children hear wedding bells, stop and smell the roses…but first, call your attorney to make sure you and your child are covered by a strong premarital agreement-just in case.
For more information on these and other questions regarding divorce in New Jersey, contact Fox Rothschild Family Law attorneys resident in the Morristown office, Eric Solotoff at esolotoff@foxrothschild.com or (973) 994-7501; or Sandra Fava at sfava@foxrothschild.com or (973) 994-7564.