These days, prenuptial agreements aren’t just for Hollywood stars and Wall Street moguls. With divorce rates remaining high and blended families on the rise, more of your clients are likely taking a pragmatic approach to marriage. With the input of a CPA, prenuptial agreements can affirmatively define spouses’ financial rights, duties and obligations. Properly drafted, they can reduce stress and disagreements for your clients — before, during and after a marriage.
Attorneys and CPAs can best accomplish a client’s prenuptial goals by collaborating closely. Several areas in particular call for a joint effort. Early on, you should ensure the parties make full disclosure of their respective assets and liabilities. These disclosures should cast a wide net — catching not only property and employment compensation, but also furniture, vehicles, jewelry and intellectual property rights.
CPAs can develop a schedule of the parties’ debts. These might include mortgages, student loans, accounts payable, promissory notes, credit card obligations and contingency liabilities associated with litigation or similar circumstances.
Although language used in the agreement would seem to fall in your purview, CPAs, who have an in-depth understanding of the implications of financial language and terms like assets, liabilities, revenue, expenses, and income, can lend a hand. Precise financial language is essential to capturing the client’s intent. CPAs also can offer valuable input on the proper selection of measures, such as absolute, book or fair market value, as well as when to use each measure.
Consulting with CPAs regarding income tax issues related to prenuptial agreements and divorce ensures that they take into account the latest developments in tax law and which assets and payments are taxable, to whom and at what rate. The proper classification of payments as, for example, spousal support or child support often is critical to producing the desired tax consequences.
Let no man tear asunder
A single inappropriate provision could void an entire prenuptial agreement, triggering an avalanche of trouble. With tax and trust laws regularly evolving, both attorneys and CPAs should review prenuptial agreements at least annually to ensure the agreements continue to accomplish the parties’ goals. Even if a prenuptial agreement ultimately isn’t upheld, it will provide strong evidence of the parties’ intents.