August 2013 Archives

What Part of Your Asset is Protected by an Antenuptial Agreement

In Minnesota, antenuptial agreements (also called "prenuptial agreements" or "preunps") are useful tools for a number of reasons. One such use is to protect assets acquired before marriage. But depending on the language of the antenuptial agreement, not all of the asset may be protected from division in divorce. Law schools teach that property should be looked at as a "bundle of sticks." Each stick represents a certain component associated with the property--for real property, such "sticks" include the rights to sell, build, and obtain income, etc. These rights are divisible and can be sold or leased separately. Property brought into a marriage has different components too. For example, stock in a corporation owned before the marriage includes the value of the stock at the date of marriage, any appreciation or increase in value of the stock, and any income (typically in the form of dividends) derived from the stock. In the absence of proper language in the antenuptial agreement, the increase in the value of the stock through "marital effort" and the dividend income (even if reinvested in more company stock) would be marital and divisible in a divorce setting. Sometimes this is done intentionally in the antenuptial agreement, but sometimes it the unintended consequence of a poorly worded document. Now, if the stock is in a public corporation and you don't work there, it is unlikely that the appreciation in value of the stock owned before marriage is through "marital effort." But if the stock is in a family business which you work at, your spouse may very well be entitled to some of that appreciation. When discussing an antenuptial agreement with your lawyer, consider discussing the following in detail: 1. What property that I own today will and will not be divided if I divorce? 2. Will the income from that property be divided or not? 3. Will the appreciation in the value of the property be divided or not? 4. Will it matter whether the appreciation is through marital effort or not or whether the appreciation is "passive" or "active" appreciation? Your attorney should be able to answer all of these questions and advise you as to how the antenuptial agreement will be likely be interpreted upon enforcement, as well as whether or not it makes sense to try to include or exclude some of these "sticks" in the document. Andrew M. Tatge is a partner and chair of the Family Law and Divorce Practice Group at Gislason & Hunter LLP (www.gislason.com). He regularly represents farmers, business owners, professionals, and other high earning and high net worth individuals (or their spouses) in divorce and related actions. Andrew can be reached at atatge@gislason.com or (507) 387-1115. This information is general in nature and should not be construed as tax or legal advice.

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