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Sign Here Before You Get To 'I Do'

Reprinted from the Oct. 24, 1997 Issue of City Business

Two years ago Ron and Linda Schlenker went through the hardest thing in their lives: Before they could get married they had to figure out how they'd get divorced.

Ron, 60, and Linda, 48, were both marrying for a second time. Up until last month, Ron was the owner of Schlenker and Associates, Inc., a successful manufacturing representative firm that handles molding plastic, wiring and other parts for companies such as Honeywell Inc. and 3M Co. While he had considerable assets, Linda did not. A prenuptial agreement, it was decided, would help Ron protect his estate in the event of his death or a divorce.

"This was all two months prior to our . . . large wedding, and to go through the stress of that situation and the stress of the prenup, is a horrendous task," Linda Schlenker said. "There were some touch-and-go moments—often I was at the point where I thought I should go back to Naples, Florida."

She survived the negotiations, and the wedding. They were interviewed by phone as they took their boat—named Caprice—down the St. Croix River. (Caprice refers to the first boat Ron ever worked on, not their relationship.)

Despite the difficulty of the negotiations, Linda wasn't against the prenuptial agreement. Even though it limited the claim that Minnesota law would otherwise give her to Ron's estate, she said she could understand the logic of setting lower limits than the state allows for. "I was the have-not, and he was the person who had the money," Linda Schlenker said. "And I believe the person who has the money wants to protect their interests. I tried to put the shoe on the other foot. If I was that person, I'd want my children protected—I can understand that."

While prenuptial agreements have been used recently by the likes of Donald Trump and Elizabeth Taylor, legal sources said people who are less fabulously wealthy can benefit from them as well. "It's no longer Daddy Warbucks protecting himself from Molly Golddigger," said Ed Winer, a matrimonial law attorney at the Minneapolis-based firm of Moss & Barnett who represented Ron Schlenker in crafting his prenuptial. "Instead it is Mr. and Mrs. Professional protecting their businesses from outsiders."

The asset-endowed spouse may appreciate the benefits of a prenuptial, along with family members and business partners who don't want the headache of dealing with the new spouse's claims. But for the "outsider," the effect can be chilling.

Rob Hill, an attorney at the Minneapolis-based firm, Larkin Hoffman Daly & Lindgren, sees the aftermath of marriages that began with prenuptials. His job is often to contest the agreements: "I don't make them, I break them," he said. He said he often sees wives who are disappointed in what they agreed to forgo in their prenuptials.

For Linda Schlenker, her prenuptial seemed attractive in light of how her last "horrible" marriage ended.

"I was married to an affluent, abusive person . . . I walked away with nothing, no money, no car," she said. "I had to start my life over. I saw a prenuptial as better for me, in that at least I'd have certain protections I didn't have before."

Tailored marriage
Prenuptial agreements have grown more common as people have started marrying later in life, and as they've married more often, said Bronwen Cound, an estate planning attorney at the Minneapolis-based firm of Fredrickson and Byron. "They're wildly fashionable," Cound said. "It used to be hard for people to approach one another. I've been practicing 10 years—when I started this, I did maybe one a year. Now I've always got one or two on my desk. People are just much more comfortable dealing with these issues."

In planning to marry, few things sound as coldhearted as the cold-cash assessment involved in a prenuptial, where one spouse protects his or her assets from the other. But that perception may ignore what marriage itself is about, Cound cautions. "The truth is, there is nothing romantic about marriage," Cound said. "What marriage is—people don't like thinking of it this way—is a contract, recognized by the state."

"Everyone has a prenuptial agreement, whether custom-made or not. If you and your wife get divorced, the state says, 'Here is how you're going to divide up marital property and non-marital property,'" Cound said. "If you do not have a separate premarital agreement, you've basically agreed that in the event of death or divorce you're comfortable with the state's rules."

By customizing their own agreement, couples can avoid the hassle of figuring out how to divide things up after the marriage has already gone sour, Winer said.

"It is safe to say a prenuptial agreement can set up the provisions of an agreement so people don't have to deal with those provisions when they're hurt and aren't thinking clearly," he said.

Hill mentioned a couple where the woman had been an entry-level flight attendant before a marriage to someone with "significant assets." After signing the prenuptial agreement and getting married, the two still kept their finances very separate. They've even had a line marked inside of the refrigerator separating the two's food. "They're hoping to make any subsequent divorce less painful," Hill said.

The question is whether such a predisposition to separation—even going so far as to have separate groceries—could make a divorce all the more likely.

Who needs one?
Business owners can find prenuptial agreements particularly helpful, Winer said. Without the protection a prenuptial provides, their death or divorce could leave both their estates and any business partners vulnerable.

While many business owners don't know about prenuptial agreements' advantages, Winer is one of those spreading the word. "I feel like I'm a missionary," he said.

Take a woman who owns a business for 10 years and then marries. During the next two years, the value of her business, which she remains involved in, doubles. Then her husband, who hasn't been involved in the business, says he wants a divorce. "That increase in value would probably be found to be marital, meaning if there was a division, the non-owning spouse might receive one-half of the increase in value," Winer said. "In the worst case, when there is no way to pay that person off, that person may have part-ownership."

The divorcing spouse's entry as a business partner is very rare, as is the sale of a business to pay off a divorcing spouse. "Much less rare is that the non-owning spouse will share the [increased] value," Winer said.

A divorce proceeding can involve a determination of whether there has been any so-called marital components to a business' increased value. That kind of investigation can be costly and invasive for a business owner and any partners. "The result is a loss of privacy and disruption and a number being affixed to the business' value by outsiders, which might be a hindrance to the owners," Winer said.

A similar situation can involve a doctor who has worked creating patented devices for years or a writer who's been working on a novel. Say the patent is received or the book is published during a new marriage: If the marriage ends, the spouse can claim the revenue from those creative efforts as marital. The solution, of course, is a prenuptial. The spouse would not even be able to have the interest valued," he said. "It is going to be kept out of the divorce."

The pressure for a prenuptial to protect a business interest can come from co-owners, including other family members. Some families reportedly threaten wayward members with being cut off from inherited wealth if a prenuptial isn't signed.

"Dad is saying, 'I've worked hard for this money or business,'" Cound said. "Maybe the child is going to be involved and get some ownership interest, but he's also saying, ‘I worked hard for this money, and I don't want this going off to your ex-spouse, who has been married to you for six months.'"

Children and grandchildren can have a similar concern about their parents' estate, whether or not they work at the family business.

The pressure of family members demanding that their relative secure the protection of a prenuptial is also an easy cover for what can sound like a rude request.

Some people may never get through the process: In two cases, Cound has worked with couples who were negotiating prenuptial agreements and then decided not to get married. That may be an example of how prenuptials can contribute to the institution of marriage—by ensuring it starts with a similar understanding. "My response is, if you can't talk about these things involved with a prenuptial, you shouldn't get married," Cound said.