|Carol||:||We’re back and my next guest has been on my show many, many times before, but it’s really great information for people out there. I have Bob Howard. He’s with Stewart Law Group, and we’ve been changing the name a little bit. People are hearing it but now we have a new name to it. Welcome back to the show.|
|Bob||:||Hi Carol, how are you?|
|Carol||:||I am fantastic.|
|Carol||:||Let’s talk a little bit about you, about the group, and what you can do for everybody out there looking to get divorced.|
|Bob||:||Well, looking to get divorced or for that matter, looking to get married. Today we’re going to talk a little bit about prenuptial agreements.|
|Bob||:||Our firm specializes in all aspects of family law and we’re there to provide a consultation if you just need some information.
The do’s and don’ts of prenuptial agreements. What is that?
|Carol||:||Okay, here’s what we’ve got. We’ve got four offices throughout the valley, and write this number down because this is the kind of thing that you might be thinking about. You might be ready, you might be getting married, you might be thinking about what you want to do before you get married just in case. Their number is 602-548-4600. The website is www.arizonalawgroup.com . We’re also going to give away the book; their book is the “Arizona Divorce Handbook.” I love the book. It’s an easy book for everybody to look up, whether you need it now, later, or before you even get married. Your step-by-step guide to navigating an Arizona divorce. Scott David Stewart did write it, and so we’re going to give it to everyone who calls in. Our number here is 602-277-5369, and toll-free it’s 1-866-536-1100.
The do’s and don’ts of prenuptial agreements. What is that?
|Bob||:||Well, there’s plenty of things you should do, plenty of things you shouldn’t do, but one of the things is to remember that a prenup is done prior to the marriage, not after the marriage. It can be a very practical plan for the future. What I found over the years, Carole, there’s two big reasons why people get divorced. One of them is that they just don’t get the money side of it. They don’t talk about who’s going to save the money, who’s going to spend the money, how it’s going to be handled during the marriage, so when the money runs out, wow.|
|Bob||:||Stress in the marriage, that’s the big one. The other, second biggest one? Custody of the children, how to raise the kids. Those are the two big reasons why people get divorced. Well, if you do a prenup, what does that require? Discussion of money and budgets and so forth. If anything, whether you eventually do the prenup or not, at least you’re broaching the subject and two people are talking about it. The likelihood of a divorce after that? Not as high, really.|
|Carol||:||Now, when you do these consultations and you’re going to sit down with somebody and do a prenup, I would think that most people out there right away when you think of a prenup, they think, “Oh God, I would never, I wouldn’t even marry a man if he said he wanted me to sign one.” What are your thoughts on all of that?|
|Bob||:||Well, there’s a lot of good reasons for signing prenups. Frequently, the people these days are getting into second and third marriages. They’re bringing in substantial property to that marriage. They have children from a prior marriage. I would think most people want to protect those children from the first marriage. They would want to protect the property they’ve already acquired and make sure that that doesn’t get transmuted into community property so that it’s retained by them and/or their children if there’s a death or a divorce because prenups also deal with what happens on death. It’s a big important planning tool.|
|Carol||:||What is the difference then between, and I’m saying this because you said that I’m just going to speak for the audience|
|Carol||:||For a minute. What would be the difference then between a prenup and then if you said if it’s their choices of what would happen for death, in an estate plan, let’s say. Is it similar?|
|Bob||:||It is similar and the problem is if you don’t do a prenup, you are stuck with Arizona’s community property laws. An understanding of the community property law is really important for anyone getting married, so even if you don’t do a prenup, you probably should talk to an attorney about what is going to happen to your property. Under Arizona law, all the property you own prior to the marriage is called separate property. The property you acquire the marriage, unless you do a prenup, becomes community property. Why is that important? In a divorce, you get to keep your separate property but the community property is split 50/50.
If there is a death and they haven’t done any estate planning, the surviving spouse gets all the community property. They get to keep their half-share and they get the half-share from the deceased party. The separate property is split 50% to the surviving spouse and 50% to children from the first marriage.
|Carol||:||Here’s what we’re going to do. We have our lines open here and everyone is going to get their book. It’s the “Arizona Divorce Handbook,” your step-by-step guide to navigating an Arizona divorce. In here, and I can’t remember right now because I’ve read it before and I love this book. Is there stuff about the prenup in here too?|
|Bob||:||You know, I don’t think there is.|
|Carol||:||There may or may not be.|
|Bob||:||I think it focused more on the divorce side of it.|
|Carol||:||They will give you the information on all of that.|
|Carol||:||But still it’s a great book for everybody to have, I say, even if somebody’s getting married to have it too because it does come up a lot and again you can call in here. Our number here is 602-277-5369. Toll-free it’s 1-866-536-1100. We’re going to give it to everyone. Okay, things to consider, all right?|
|Bob||:||One of the things you just brought up, you’ve heard the old expression “You can pay me now or you can pay me later.”|
|Bob||:||Well, if you have a prenup agreement, the divorce is usually not as contentious. It’s usually much straightforward because everything’s been spelled out ahead of time. Who’s going to get what? How much spousal maintenance, if any, is going to be paid? What property goes to whom? How long do you get to stay in the house? That sort of thing can all be spelled out in the prenup. In a divorce, or leaving it up to the judge and the law, the law is kind of murky on some of those things, on how much temporary support and who gets to stay in the house, and that sort of thing.|
|Carol||:||In your practice, when you’re dealing with doing these prenups, do you do a lot of them, I mean, because I remember years ago it came up and people would be astonished by it, you know, but now do you see a lot of them being done?|
|Bob||:||In my practice, I’d say I do 10 to 20 a year.|
|Bob||:||That’s up. You’re right, earlier in my practice, I don’t think I saw as many but since 2000, I think I’m seeing a lot more than we used to see.|
|Carol||:||I like this here, you say when not to do it, and that is when? Say it.|
|Bob||:||Well, don’t try to spring it on your fiancé or anyone the night before the marriage. That’s the classic, “Come on down to my lawyer’s office. Here’s a prenup. Sign it or we’re not getting married tomorrow.” Well, that prenups not going to be enforceable, Carol. It’s just been entered under duress and any good attorney is going to tell you, “Don’t even try it.”|
|Carol||:||Do people have to do this within a certain time? Are there parameters?|
|Bob||:||There’s not a magic date but we like to recommend that the prenups be signed at least 30 days before the marriage, if possible. It’s not always possible. I have signed them sooner than that but if you’ve got enough time to do the planning, there’s enough stress two days before the marriage with all the other things going on. Why not get the prenup out of the way early and get it behind you, and sign it, put it in that drawer, and you probably never have to look at it again.|
|Carol||:||Right. You know what? It is important for people to realize that you don’t think about these things. You fall in love and that’s all you want to do is get married, right? Well, but there’s a lot of people out there that have gotten married, that have second families, there’s thirds and fourths going on now, homes and things like that. Go on.|
|Bob||:||That happens so often, and again, it requires you to have that discussion about money habits. What are we going to do? Are we going to create a joint account and each contribute to it? Are we going to keep our funds separately? We basically have two types of prenup agreements. The first type is an agreement where we pretty much throw out the community property laws and say that everybody, whatever they earn, is their own separate property. Whatever debts they incur are their separate debts.
We often see prenups done because somebody is bringing in a lot of debt into the marriage or IRS obligations and so forth, and they want to avoid those liens so by doing a prenup, we can declare that each party’s property is their separate property and there is no community debt, no community property.
|Carol||:||I remember the one time you were on where somebody, and I’m not sure if a prenup goes in with this, they had called up and they were very, very surprised, I should say it that way, about their, I don’t know if it was their 401(k) or whatever.|
|Bob||:||It was their pension plan, that’s right.|
|Carol||:||Okay. Would this, and we’re going to go to a break soon, but would a prenup have saved him from having any of those issues?|
|Bob||:||Absolutely. If we had done a prenup for that gentleman, his pension would have been totally his. Her pension would have been totally hers. As it was, he had a mixture situation where part of his pension was separate property earned prior to the marriage, but the majority of it was community property and his spouse was going to get half of it.|
|Carol||:||He was upset.|
|Bob||:||I find most spouses are a little bit upset when their hard-earned pension plan that they scraped and scrimped for, regardless of whether it’s a man or a woman, they’re all upset, yeah.|
|Carol||:||Here’s what we’re doing. We’ve got our lines open. You can call in. You can even ask questions if you want. Our number here is 602-277-5369. Toll-free it’s 1-866-536-1100. We’re going to give everybody the “Arizona Divorce Handbook.” It’s your step-by-step guide to navigating an Arizona divorce. They do consultations. They’ve got four offices throughout the valley. Their number is 602-548-4600. We’ll be back in just a minute.
We’re back and we are talking with Bob Howard, and he’s with Stewart Law Group. Ooh, I’m going to say it right. We’re going to get it right. Now, you know, they have a lot, you’ve been in business for a very, very long time, I know. Stewart wrote the book. It’s the “Arizona Divorce Handbook” and we’re giving that to everybody who’s calling in. Our lines are open here. You can call in. You can ask questions. You can tell us what’s going on with you. You can get some free advice right here on Networking Arizona.
|Carol||:||Our number here is 602-277-5369. Toll-free it’s 1-866-536-1100. You do consultations. I love when you guys come on because it’s all about educating the public.|
|Bob||:||That’s the whole point of it, Carol. If you have knowledge, you at least know what’s going to be happening to you, and you know how you can control the future a little bit.|
|Carol||:||Right. Not only do I love talking about divorce because I’m a divorcee too, but especially when it comes to the money side of things and things like that that happened, but this prenup is really, really interesting and why, why to do it. Again, let’s talk about who needs them.|
|Bob||:||The person who probably needs a prenup more than anybody else is someone that has their own self-employed business because in Arizona, we treat self-employed people differently than regularly employed. I’ll give you an example. Let’s say, we’ll use an attorney. Let’s say you’re an attorney working for the Attorney General’s office. You make $100,000.00 a year. When you get divorced, the court is going to make you pay some child support, probably going to make you pay some spousal maintenance, divide your property, you’re done.
If you’re self-employed, the court’s still going to make you pay child support, sill going to make you pay spousal maintenance, but now they’re going to put a value on your business based on your income. They’re going to dip into your income stream again and they’re going to award the other spouse an amount for the business, whatever the goodwill value is. Does it matter that you can sell the business? No. Does it matter that nobody would pay you anything for that business? No. Arizona doesn’t distinguish those kinds of cases.
Here you are, getting hit with a double-whammy just because you’re self-employed. You’re not making any more money than the guy who’s working for the Attorney General’s office, but because you’re self-employed, you can get that double-whammy unless you have a prenup. In the prenup, you can provide that your separate business shall remain your sole and separate property, and there will be no community interest. Unfortunately, we have some case law in Arizona that says without a prenup, if your business goes up in value, your spouse may share in some of that increase. The law is so grey in this area, you’re going to spend 10s and 20s and 30 thousands of dollars in litigation because you’re going to have to hire a business appraiser and they’re going to hire a business appraiser and guess what? The numbers will be different.
|Carol||:||Any kind of business that this would affect you, any kind because there are a lot of people today who have started their own business.|
|Carol||:||Some of them are in their homes. Some of them are different types of businesses. Any kind of business, it would affect them?|
|Bob||:||Arizona’s in the minority view. Arizona says yes, every business has some goodwill even if it’s a personal service business. Most of the other states have gone to the idea of looking into personal goodwill and institutional goodwill. What is that? Institutional goodwill is like the car dealership down on the freeway. Everybody knows it’s a Chevy dealership. We don’t care who owns it. That’s where you go to buy your Chevys. That’s institutional goodwill. You can sell that. You can monetize it. You can buy it.
Personal goodwill is what I’ve got. People come to see me because I’m Bob Howard. I’ve been doing divorce work for 40 years. They get referred to me. If Bob Howard isn’t sitting in that seat, nobody comes. I can’t sell that to anybody, but Arizona divorce law makes no differentiation between the two. We stick a goodwill value on both those businesses.
|Carol||:||Wow, there are a lot of reasons. They do consultations. They’ve got four offices throughout the valley. Their phone number is 602-548-4600. The website is www.arizonalawgroup.com. Our number here is 602-277-5369. Call in, get yourself a book, and get some information right now. We want to get you connected with him.
Okay, some of the other things, like for instance, debt.
|Carol||:||I like that one. A lot of people bring debt to the plate.|
|Bob||:||This is such a common thing. The community property laws provide that both members of the community are equal partners. Either one combine the community, so if the husband has a bad debt habit, and opens up a bunch of credit cards, even if they’re in his name only, if they’re open during the marriage and the debt was incurred during the marriage, the wife is held responsible for half that debt.
She has no control over how much he spends, when he spends, how many credit cards he opens. She’s responsible for half the debt, and vice-versa. With a prenup, you can provide that his debt is his and her debt is hers, and avoid that being blindsided at the end of the marriage with a bunch of debt.
|Carol||:||Does doing a prenup cost a lot of money because people probably think that?|
|Bob||:||It can vary. I mean, some attorneys charge flat fees and I would say you probably need to plan on spending about $2,500.00 on the low end. There are some attorneys where you might be spending $10,000.00 or more, but generally speaking, $2,500.00 to $5,000.00 is probably the range to have a prenup done. Unfortunately, whether you like it or not, both parties need to be represented by an attorney. I know that sounds like we’re mixing business.|
|Bob||:||Separate attorneys, because otherwise the party who doesn’t have an attorney comes back in years later and says, “I didn’t know what I was signing. I didn’t understand it.” We often have cases where one party has most of the money and pays for both the attorneys because the attorney for the new spouse is really an insurance policy that the agreement will be upheld and that is enforceable, because we don’t want anybody to be forced to sign these things. We don’t want to have them sign it and not understand it.
The goal is that both parties have an arm’s length ability to negotiate and understand what they’re signing, and they’re not signing under duress, and so our prenup statute in Arizona actually requires both parties to make full and fair disclosure of all their assets and liabilities.
|Carol||:||It’s amazing because it’s not really all about how much money you have because that’s what everybody thinks, that it’s all about if he’s bringing in a lot of money or she’s bringing in a lot of money to the plate before they get married, I don’t want you to get my money. Go ahead.|
|Bob||:||Well, and that is one aspect of it but another aspect of it is just plain fairness. Take the spousal maintenance area. Again, Arizona’s law is murky. We give the judges about 10 or 12 different factors to consider in awarding spousal maintenance but there’s no precise formula. We have 50 different judges. Guess what? We get 50 different decisions depending on what judge you drew that day.|
|Bob||:||For that privilege, you get to pay your attorneys to litigate this. When you don’t have any precise formula for figuring our spousal maintenance, you’re increasing the litigation cost, you’re dragging out the divorce which is, well, you’ve been through a divorce, I’ve been through a divorce. You’re in limbo.|
|Bob||:||You’re in limbo when you’re in divorce. The worst thing is to have a divorce that drags out. You want to try to get it done as quickly as possible with the least amount of pain.|
|Bob||:||Well, if spousal maintenance is an issue, that happens to be one of the areas where we go to trial more often than not because there is no guidance. With a prenup, in certain cases where both parties have a decent earning, we might throw out spousal maintenance all together, so it’s not even on the table and it won’t be an issue at the divorce.
In other cases, we set up precise formulas. If you’ve been married so many years, you will get so many dollars for so many months. We can set up things like that, something that sounds fair to the parties. We get very creative with prenups. Sometimes we have provisions where the higher earning spouse makes annual contributions to the lower earning spouse, which is then designated at that spouse’s separate property, so they pay the spousal maintenance during the marriage.
|Carol||:||Oh, I get it.|
|Bob||:||Yeah, and if there’s a divorce, well, they’ve got a nest egg to walk away with. I had an interesting case one time where my client, who happened to be the wife, had a very good career, make $200,000.00 or $300,000.00 a year. The husband happened to be worth about $30 million. He wanted to travel the world and have a traveling companion. Well, that all sounded well and good but what happens when she leaves her field and can’t get back into it if he dumps her after two or three years? The solution? He gave her a million dollars as soon as they got married. That was her sole and separate property.|
|Carol||:||I wish she would have called me.|
|Bob||:||I would have married him at that point, yeah, sure. That was their solution to protect her and make sure that she’d have a nest egg and could leave her field of endeavor and not be worried about being left alone without any support.|
|Carol||:||You know what? It’s really interesting and we could talk forever about all of these, and I’m going to let you stay, but I want to say that this is something that really is good for both parties. It really can be very good for both parties.|
|Carol||:||Especially even though it sounds like why would anyone want to spend that kind of money before you get married, but look at how much a divorce could cost, and in the long run it doesn’t just end right after that divorce. It goes on and on and on.|
|Carol||:||What are some of your final words for today?|
|Bob||:||The other thing I’d have people think about is there are death situations and let’s say there was a house that the husband owned prior to marriages, and he keeps the title in his name. It’s his separate house and then he dies. How long does the wife get to stay? What if the children by the prior marriage want her out so they can sell the house? In a prenup, we can provide that she can stay there for her life, that we can provide that the trust that’s established with his estate pays for all the expenses. It’s a real planning tool. People should explore prenups. They’re not the unromantic thing everybody wants to think.|
|Carol||:||Somehow when I listen to you, I think that really it should almost be an obligation that people do because it sounds like it makes life easier in the long run, doesn’t it.|