Tax Management Estates, Gifts and Trusts Journal™

Reproduced with permission from Tax Management Es- tates, Gifts, and Trusts Journal, xx, 03/13/2014. Copy- right ஽ 2014 by The Bureau of National Affairs, Inc. (800- 372-1033) http://www.bna.com

Couples who are comfortable with their state’s de- Prenuptial Agreements fault rules may think they can skip the step For Same-Sex Couples — of entering into a — but this could be problematic for same-sex couples so long as Taking Nonrecognition the majority of states in this country still refuse to rec- ognize same-sex unions. For this reason, same-sex Into Account couples who marry should consider entering into an agreement, if for no other reason than to ensure that if By Susan von Herrmann, Esq.1 Schiff Hardin LLP they live in or relocate to a non-recognition state they San Francisco, California can divorced down the road if the relationship and Fred Hertz, Esq.2 does not survive, and to agree on a venue and lock in San Francisco, California the law that will apply in the event of a dissolution. Some of the same considerations may apply in the event the couple moves to a state with different de- fault rules and later . Now that the U.S. Supreme Court has extended These agreements — often called nonrecognition federal recognition to married same-sex couples, prenuptial agreements — should address at least four many gay and lesbian couples are heading to the altar. critical issues, plus an additional issue if the couple Along with their different-sex counterparts, many of has or plans to have children. these couples will choose to enter into prenuptial The first issue is choice of venue for status jurisdic- agreements for all of the usual reasons — to confirm tion. As of January 1, 2014, 18 jurisdictions permit that property owned before the marriage is separate same-sex marriage, which means a same-sex couple property and to alter the default rules that apply to can also obtain a in these states. The other community and marital property and spousal support states currently do not allow same-sex couples to in the event of a divorce. marry, which generally means that courts in those states will not entertain an action for a same-sex di- 1 Susan von Herrmann is a partner in the Private Clients, Trusts vorce. While a few non-recognition states have al- and Estates group at Schiff Hardin LLP and is based in the firm’s lowed same-sex couples living there to obtain a di- San Francisco office. Susan advises individuals, families and pro- vorce, the law in these states is uncertain and will fessional fiduciaries on all aspects of estate planning and estate likely remain so for some time. Moreover, every state and trust administration, including wealth transfer, charitable and has some type of residency requirement for filing a di- business succession planning. She has significant experience as- vorce petition. The transient nature of our society — sisting nontraditional and blended families in estate planning mat- ters. plus the fact that none of the states that permit same- 2 Fred Hertz is an attorney-mediator, and author of Making It sex marriage has a residency requirement for marriage Legal: A Guide to Same-Sex Marriage, and Domestic — means that there are many married same-sex Partnerships (Nolo Press 2014). couples living in states that would not grant them a

Tax Management Estates, Gifts and Trusts Journal ஽ 2014 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc. 1 ISSN 0886-3547 divorce if the relationship dissolved. Similar problems Further, if these courts do have jurisdiction, it is not exist for many couples bound together by a marriage- clear that they are best suited to decide these issues. It equivalent civil union or regis- therefore makes good sense to include a provision tration. stating which state court will have jurisdiction over Recognizing this, four states (California, Vermont, the agreement and all issues related to the marriage. Delaware, Minnesota) and the District of Columbia So, where a couple plans to rely on a non-domicile have enacted laws that waive the residency require- divorce statute to ensure that a status dissolution is ment for a couple who married in that state, but at the possible regardless of where they are living at the time of a dissolution are living in a state that will not time, they may choose their state of residence to grant them a divorce because they are a same-sex handle matters related to property and support. Since couple. Note: Vermont’s non-domicile divorce is not the parties to the agreement would not be considered available if the couple has any minor children. married in this second state, they would seek to en- Given these concerns, it is best for a same-sex force the agreement as a civil between two couple to marry in one of the states that permits non- unmarried people. A word of caution here: if the domicile divorce — particularly if the couple already couple is not entering into a comprehensive marital resides in a state that will not recognize their mar- agreement covering all issues of property and support, riage. But this is not always practical — or a couple a civil court in a non-recognition state may be unwill- may proceed to marry unaware of the benefits of ing to apply marital law to a couple, even when their choosing one of these states, only to learn of the ben- agreement states that this is what they wish to occur. efits later. The next issue to consider when drafting a prenup- A non-recognition prenuptial agreement (or any tial agreement for a same-sex couple is which state’s same-sex prenuptial agreement for that matter) should law will apply. This is a particular concern for couples designate a venue for dissolution of the marital status who travel to a recognition state to get married. If, for if the couple is living in a non-recognition state at the example, a couple living in Arizona marries in Cali- time that the marriage breaks up. If the couple mar- fornia, which law will apply to decide their property ried in a state that permits non-domicile divorce, that disputes: California, where they got married and is ideal and the agreement should confirm that elec- where the court has statutory jurisdiction for purposes tion. If there is no connection to a state that permits of divorce, or Arizona, where they live, but which cur- non-domicile divorce, the couple should address the rently might not process their dissolution? situation in which one spouse will need to relocate to And if this couple does decide to enter into a pre- satisfy a residency requirement. For example, the nuptial agreement, are they free to choose California agreement could specify that any dissolution of the law to govern the agreement? If the contract is nego- marital status will take place in New York, identify tiated and executed in Arizona, is California law even which spouse would be required to move to establish relevant? Can the couple agree to be bound by state residency or provide that the spouse who files the ac- law that neither they nor their lawyers are familiar tion will move, and provide that the costs associated with? These questions will be appropriately answered with the move will be shared by the couple equally. under the contract law of the couple’s state of resi- Because it is not possible to ascertain at this time dence. It should be noted that in some states there which states will still not allow for same-sex dissolu- may be unauthorized practice implications for lawyers tions in the future, some couples may prefer to defer who are not licensed to practice in the state of choice, the choice of venue, but rather, describe in their pre- and practitioners should consult local counsel where nuptial agreement a process for resolving this issue. necessary. The next issue that same-sex couples should con- It remains uncertain whether an Arizona court that sider addressing in their prenuptial agreements is what is asked to enforce the agreement would be willing to state will have jurisdiction over any money and prop- do so utilizing California marital law, and if it did, erty disputes. While in most cases status dissolution whether it would do a good job applying these rules. and division of assets occurs in one jurisdiction, this In most instances, it is preferable for the court to ap- does not necessarily need to be the case. In fact, there ply the laws of the state in which the court is located. may be times when asking a court other than the Lawyers in recognition states who are asked to status-dissolution court to decide issues of property draft pre- and post-nuptial agreements for out-of-state and support will prove to be advantageous. clients need to be particularly mindful of these com- For example, while a number of states will permit plex issues. The best practice is for the recognition- non-domicile divorce, it is not clear that courts in state lawyer to review the work of a lawyer licensed those states will have subject matter jurisdiction over in the couple’s home state, or if the recognition-state property disputes between spouses who do not reside lawyer does the drafting, a home state lawyer should there — particularly if the couple never lived there. review the draft for the purpose of insuring that the

Tax Management Estates, Gifts and Trusts Journal 2 ஽ 2014 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc. ISSN 0886-3547 agreement is a valid contract under that state’s laws. allow binding arbitration to substitute for the jurisdic- In addition, the home state lawyer would be familiar tion of the family courts, this should not be a concern with any special rules that might serve to invalidate for couples living in non-recognition states. So long the marriage itself, such as a marriage evasion statute. as one can be assured that the arbitrator’s award can While originally designed to deal with the issue of un- be enforced in the local courts, this might be a cost- derage or interracial marriage, these statutes could efficient method of avoiding the uncertain fate of pro- possibly be interpreted to apply to a same-sex mar- ceeding in a hostile civil court in a non-recognition riage entered into by a couple that resides in a non- state. recognition state at the time of the marriage. For couples who have or contemplate having chil- Finally there is the issue of enforcement. Even as- dren, there are additional concerns. Issues with re- suming a couple is able to obtain a divorce and settle spect to and custody will always be their property issues under the laws of the state of handled by the courts in the state in which the chil- their choosing, will the courts in their home state en- dren are living. For these families, the most signifi- force the judgment? It is conceivable that an Arizona cant issues will arise if the non-biological (or non- court asked to enforce a judgment obtained in divorce legal) parent did not obtain a second-parent , court in California will refuse to do so, on the grounds thus raising the possibility that the home state will not that it does not recognize the marriage in the first recognize both spouses as legal parents. place. This is yet another reason for a couple to con- As demonstrated by this brief review of the pos- sider bifurcating the process — obtain a status disso- sible uncertainties regarding dissolutions in non- lution in a recognition state and deal with property is- recognition states, this is an arena that is fraught with sues in the home state, by enforcing the agreement not challenges for the drafter of agreements for same-sex as a prenuptial agreement, but as a contract between couples. The agreement should openly disclose that unmarried persons. the divorce-access issue is uncertain, and that the at- Couples who decide to follow this latter route will torneys cannot guarantee that the provisions of the want to ensure that their prenuptial agreements are ex- agreement will be enforceable. The attorneys’ retainer tremely detailed, as there will be no marital law avail- agreements with clients should reiterate these con- able to fill in the blanks. The parties to the agreement cerns, so that clients are fully aware of the risks they should agree on jurisdiction and governing law and are taking. One hopes that these will outlast specifically agree not to contest the enforcement of the remaining barriers to full marriage equality — and any judgment. in light of the recent court decisions invalidating mar- One option to consider is to elect binding arbitra- riage bans there is reason for such hope. But for cli- tion in a local setting to resolve any financial or prop- ents with complex lives and significant assets, a ‘‘non- erty issues, including the determination of spousal recognition’’ marital agreement can be a prudent support. While some states (such as California) do not safety net.

Tax Management Estates, Gifts and Trusts Journal ஽ 2014 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc. 3 ISSN 0886-3547