November 1997

When should a non-moneyed spouse not sign a pre-marital agreement?

I was recently asked to review a pre-marital agreement for its financial and tax implications. The attorney who engaged me was representing a non-moneyed spouse (NMS). The moneyed spouse (MS) was a wealthy individual with substantial earnings capacity. The NMS was giving up a career to become a full time homemaker and traveling companion.

My approach to the financial review of this agreement was to compare my understanding of the financial rights that the NMS would have as a divorcing spouse under the Colorado Statutes with the rights granted under the pre-marital agreement.

Property Rights

As it relates to property rights, under the Colorado Uniform Dissolution of Marriage Act Section 14-10-113, there is a presumption that all property acquired subsequent to a marriage is marital property regardless of how title is held. As a practical matter, absent a pre-marital agreement, the Statute over time also creates a marital component to separate property and imposes a heavy burden of asset tracing on a spouse claiming separate property when the property has changed form during the marriage.

The net effect of Section 14-10-113 is to create, over time, a substantial amount of marital property and to reduce separate property by depletion, transmutation, and commingling with marital property. Under Subsection (2)(d) of Section 14-10-113, parties can modify their property rights by valid agreement. In my opinion, there are often good reasons to modify the parties' rights through the use of a pre-marital agreement. Protecting the rights of children from previous marriages or preserving certain specific assets of a party when entering the marriage come to mind.

The Colorado Statutes have a bias toward creating marital property. I have to presume the legislative intent was to give the court jurisdiction over as much of the marital estate as possible in order to preserve the court's ability to craft an equitable property settlement at the time of divorce. The statutory factors include all relevant factors including:

(a) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;

(b) The value of the property set apart to each spouse;

(c) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse having custody of any children; and

(d) Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.

The above standards and factors used by the court to arrive at an equitable division of property allow for the consideration of future events taking into account all relevant factors.

The drafter of this pre-marital agreement, in my opinion, was attempting to do more than modify the NMS's property rights under the Colorado Statutes. He had, in effect, methodically eliminated the NMS's rights.

The standards and factors used by the court to arrive at an equitable division of property allow for the consideration of future events taking into account all relevant factors. This Marital Agreement did not take any of these factors into account and instead applied a mechanical approach to a future property division. It, in effect, said that the MS would not take into account the NMS's contribution to the marriage as a homemaker and would not take into account the NMS's economic circumstances in the event of a divorce. What it did, with minor exceptions, was to assure that the NMS would give up all property rights under the Colorado Statutes. Without this agreement, based on the MS's financial information, the NMS's property rights after a few years could conceivably be in the hundreds of thousands or even millions of dollars.

Given the above analysis, strictly from a financial standpoint, I could not advise that the NMS sign the sections of the agreement related to property rights. In my opinion, there should be a way to protect a MS's current assets without asking the NMS to give up all rights and protection under the Colorado Statutes.

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