(Dow Jones) Prenups and pensions are like oil and water or, say, Brad and Jennifer. Things can get messy with time.
Acknowledging that prenuptial contracts may become snarled in the complex terms of pension plans and deferred compensation agreements, a New York court recently gave some relief to the lawyers who draw them all up. It said a man's original intent for his retirement benefits in case of divorce was valid, despite a challenge by his former wife.
The case, Strong v. Dubin, marks "an important new development," according to Phyllis C. Solomon, a matrimonial lawyer in New York. It confirms that, in New York state at least, courts will uphold properly written prenups even when the federal Employee Retirement Income Security Act (ERISA) could scuttle them.
The case, decided by a New York appeals court last week, involved a woman's challenge in 2005 to the agreement she had signed before getting married in 1992. The court found that she had read the contract before signing it, and while the woman said she "did not understand the legalese," according to court documents, "she did understand that the parties' properties would remain separate." It also found that the prenup contained a valid waiver of her interest in the retirement assets.
These days, retirement benefits can loom large for the kinds of wealthy doctors, lawyers and corporate executives who favor prenuptial agreements. They may even be the biggest asset in an estate. Someone who accumulated, say, a $2 million pension plan in earlier times may not wish it to go to a new spouse in a divorce.
So, in addition to a prenup, the spouse typically is asked to sign a document that waives any rights to the retirement money and puts employers, plan administrators and anyone else involved on notice. This is done a week or two after the wedding because, under ERISA, only a spouse can waive certain benefits to qualified retirement plans, according to Jill Heitler Blomberg, a partner at Greenwich, Conn., law firm Schoonmaker, George & Colin.
Prenups, for this reason, often come part and parcel with attached agreement forms to be signed within a specified time after the couple ties the knot.
Lawyers have to worry about how they could run afoul of federal rules. ERISA is a complicated federal statute that establishes minimum standards for pension plans in private industry. Done wrong, a pension waiver could result in a legal challenge--and a malpractice suit against the lawyers who helped draw it up, said Marlene Eskind Moses, founding partner of Moses & Townsend, and president of the American Academy of Matrimonial Lawyers.
Asking people what they intend to do with retirement benefits is a key part of the prenup process, according to Moses. A lawyer should talk to the prospective spouses "about ERISA law and the need for waivers."
Prenups are on the rise, as more people view them as good business and necessary estate planning, rather than "something negative in preparation for a failed marriage," said Moses.