While the process for divorce is the same regardless of how much you have in your bank account, the fact remains that high-net-worth individuals will likely have a far more complicated case since they have more to lose—or gain—in the settlement.
For this reason, a properly drafted and enforceable prenuptial agreement is crucial for high-net-worth marriages to protect the assets of the party bringing the majority of the wealth into the marriage, as well as ensure all parties are taken care of if the marriage results in divorce.
Since courts have the ability to toss out the agreement if they feel it was not drafted in good faith or the other party successfully disputes its validity, the prenup must be crafted carefully to ensure it is enforceable.
A Tale Of Two High-Net-Worth Divorces
Comparing the resulting divorce settlements of powerful businessmen Harold Hamm and Ken Griffin shows just how important it is for high-net-worth individuals to have a bulletproof prenup.
Hamm founded the Continental Resources oil company in 1967, and he had a net worth of around $16 million when he married Sue Ann Arnall in 1988. They did not secure a prenuptial agreement.
Fast-forward 26 years later, and Hamm’s net worth is now estimated between $11-17 billion when Sue Ann files for divorce. In an extensively litigated case that lasted years, Hamm ended up being ordered to sign over a check just shy of $1 billion.
Given that Oklahoma—the state of jurisdiction for the Hamms’ divorce—is an equitable distribution state, meaning that all property acquired during the course of the marriage is divided in a way the court finds “fair and equitable,” the lack of a prenup left Sue Ann with a legitimate argument that she was entitled to a larger share of the fortunes amassed during the marriage. She appealed the ruling; however, it ended up being dismissed because she cashed the check.
On the other hand, Griffin’s recent divorce shows how a prenup can be a beneficial tool for the extremely wealthy but also why it does not necessarily make for a cut-and-dry case.
Griffin founded the hedge fund Citadel in 1990 and had an estimated net worth of around $650 million when he married Anne Dias in 2003. They did sign a prenup.
When he filed for divorce 11 years later, his net worth was estimated around $6.9 billion. The recently settled case made headlines as Anne claimed the prenup was invalid because she was coerced into signing and that the amount awarded by the prenup represented less than 1 percent of Griffin’s net worth. However, the two sides were able to reach an agreement before the trial started, and though not all the details were released, it appears the prenup was upheld.
While the cases are both similar in that there was significant wealth generated during the course of a long-term marriage, the results for Griffin are obviously favorable as the case was settled much more quickly and with an assumed far lesser impact on his accumulated wealth.
Drafting An Enforceable Prenuptial Agreement
The first step in drafting an enforceable prenup is to ensure you are open and honest with your financial disclosure. The number one argument a party will use in an attempt to toss out a prenuptial agreement is all assets were not disclosed at the time the agreement was reached. You must have full disclosure and attach the appropriate documentation to the agreement.
It is also important to have the document drafted and ready to be signed at a time when there is no pressure. Having the agreement signed the night before the wedding can make it appear as if coercion was involved. It would be best to have everything completed before wedding invitations are even sent out, as that demonstrates both parties are aware it is a condition preceding the wedding.
Additionally, you want to ensure the other party has their own attorney, as it is inviting a judge to overturn an agreement if the party did not have legal advice.
Another aspect that will help ensure enforceability is if the records show there was active negotiation and changes are made at the suggestion of the wife. When a party just signs an agreement compliantly, they could argue that they had no negotiating power and that it was an adhesion contract. You should be willing to make concessions here and there, as it shows the other party had a true understanding of the terms being discussed.
Finally, courts will look at the overall terms of the agreement to determine whether the deal was conscionable. If the agreement essentially leaves a party nothing after a divorce, this can be a factor to overturn the prenup. The safest option is to avoid being greedy in the agreement and simply be generous, which will help avoid having a judge actively looking for reasons to sympathize with the other party and overturn the deal.
Remember to also consider whether the state where the divorce is taking place has adopted the Uniform Premarital Agreement Act, which includes provisions for whether a premarital agreement is enforceable.
These provisions include whether the parties were in voluntary agreement, that there was fair and reasonable disclosure of property and several other key factors. Currently, 27 states have adopted a version of the UPAA, which makes enforcing or not enforcing a prenup much easier.
A Financial Advisor’s Role In Prenuptial Agreements
The financial advisor for a high-net-worth individual will provide key insight into the drafting of a prenup by assisting with gathering supporting documentation and advising their client on the financial implications of the disclosures.
The financial statements need to be presented in a way that is organized and comprehensible to the other party and their attorney. These documents can be complex when there are many different forms of assets involved, so the information must be presented in a manner that is clear and understood by all sides involved.
Additionally, a financial advisor is in a better position than the party’s attorney to project future scenarios for reasonable needs for various situations, such as having children at some point in the marriage.
A prenuptial agreement is a valuable tool for high-net-worth individuals to protect their accumulated wealth if their marriage dissolves. While it is not necessarily an airtight solution, a properly drafted prenup can help to reduce conflict and time spent in expensive litigation while ensuring all parties have sufficient means to continue on after the divorce.
Joseph E. Cordell is the principal partner of Cordell & Cordell, a domestic litigation firm focused on representing men in divorce. Since co-founding the firm with his wife, Yvonne, in 1990, he and his team of almost 200 attorneys spread across more than 100 offices in 29 states and the United Kingdom have helped tens of thousands of men going through divorce.
