Premarital Agreements and the Second (Third, or Fourth . . .) Marriage

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By Megan Meyers

For couples who marry later in life or who have children from a prior relationship, Premarital Agreements often incorporate waivers of spousal rights at death to ensure that previously created wealth is protected for children, grandchildren and charitable endeavors.  As Premarital Agreements continue to increase in popularity and acceptance for these couples, we have found there to be a fairly consistent misunderstanding common among clients – that is the relationship between the Premarital Agreement and the Will (or Revocable Trust). 

Many clients initially view the Premarital Agreement and the Will as interchangeable documents with similar contractual qualities and are primarily focused on the Premarital Agreement in the event of divorce.  Clients often do not initially understand the importance of including provisions in the Premarital Agreement regarding obligations at death between spouses, and simply state “we plan to just take care of that in our Wills”. 

We have found that it is extremely important to carefully walk through the differences between the Premarital Agreement and the Will with our clients.  Specifically, it is important to discuss that the Premarital Agreement is a contractual document which sets the minimum obligations that each spouse has to the other in the event of death, whereas the Will can be but one of many vehicles used to satisfy these Premarital Agreement obligations and which can provide additional benefits to the less-propertied spouse.  It is also important to note that the Will and other estate planning documents are changeable and in the full discretion of the other spouse during the marriage (provided that waivers of spousal rights are included in the Premarital Agreement).

Related to this issue of Premarital Agreement versus Will is that of the expectations and understanding of any adult children from a prior marriage.  These children may incorrectly view themselves as third party beneficiaries of the Premarital Agreement.  In other words – that the limitations on spousal rights at death which are included in the Premarital Agreement are limits that cannot be exceeded and that all other assets are protected for the benefit of the adult children from the first marriage.  While not all clients want to share these discussions with their adult children, it is important to ensure that clients understand that the Premarital Agreement merely sets the floor in terms of the obligations between spouses at death and that additional gifts may be made in the estate plan without any need to amend the Premarital Agreement.

The Premarital Agreement versus Will discussion also ties to the inevitable issues of capacity for these clients – particularly those who marry again later in life.  We have found that it is helpful to discuss and make explicit the expectations of these clients as to whether an agent or guardian appointed for the incapacitated spouse – particularly, the adult child – should have the authority to (i) amend or revoke the Premarital Agreement or (ii) pursue a dissolution of marriage action during a client’s incapacity. 

The Fall of Colorado’s Same Sex Marriage Ban

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By Kelly Cooper

Starting on Monday, marriage licenses were issued in Colorado to couples regardless of sexual orientation.

This change came because the U.S. Supreme Court refused to hear cases from Indiana, Oklahoma, Utah, Virginia and Wisconsin.  What do these five states have in common?  Each of them had banned same sex marriage and had those bans declared unconstitutional by a U.S. Court of Appeals. 

In refusing to hear these cases, the U.S. Supreme Court has upheld three U.S. Courts of Appeal’s decisions declaring the same sex marriage bans unconstitutional and making same sex marriages legal in Indiana, Oklahoma, Utah, Virginia and Wisconsin. 

The impact of the U.S. Supreme Court’s refusal to hear these cases has reached far beyond the borders of those five states.  This is because every state in the U.S. is subject to the decisions made by one U.S. Court of Appeals.  For example, Colorado is situated in the 10th Circuit and the 10th Circuit U.S. Court of Appeals declared Utah’s ban on same sex marriage unconstitutional.  Since Utah and Colorado are both bound by 10th Circuit’s decisions, it is likely that Colorado’s same sex marriage ban would also be declared unconstitutional by the 10th Circuit.  As a result, various county clerks began issuing marriage licenses to same sex couples in Colorado.

Current status: There are 19 states that permit same sex marriages plus the District of Columbia.  Due to the U.S. Supreme Court’s decision not to hear these cases, five more states’ bans on same sex marriage will fall bringing the total number of states permitting same sex marriage to 24.  Due to the U.S. Supreme Court’s decision, an additional six states’ same sex marriage bans are effectively overruled, including Colorado’s.  The other five states are Wyoming, Kansas, North Carolina, South Carolina and West Virginia.  This will bring the total number of states allowing same sex marriage to 30.

 We can expect more developments and changes in this area in the near term, so stay tuned.

Colorado’s New Uniform Premarital and Marital Agreements Act

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by Megan Meyers

As of July 1, 2014, a new marital agreement statute with a primary legislative goal of providing greater protection to unrepresented parties will become effective.  The new statute, entitled the Uniform Premarital and Marital Agreements Act, Colo. Rev. Stat. §§14-2-301 et seq. (“Colorado’s New Act”) is Colorado’s adapted version of the Uniform Premarital and Marital Agreement Act. 

Enforceability Requirements

The following are the most significant requirements under Colorado’s New Act:

  • In writing.  A premarital or marital agreement must be in writing and signed by both parties.
  • Voluntary consent.  Parties must voluntarily consent to the terms of the agreement and not be under duress.
  • Access to Counsel.  Under Colo. Rev. Stat. §§14-2-309 of Colorado’s New Act, a premarital or marital agreement will be unenforceable if a party to the agreement did not have meaningful access to independent legal representation. Before signing the agreement, an unrepresented party must have had time to (i) decide whether to retain counsel to provide independent legal advice and (ii) locate counsel, obtain counsel’s advice and consider the advice provided.  If only one party is represented by counsel, the unrepresented party must either have the financial resources to engage counsel or the other party must agree to pay the reasonable fees for the unrepresented party to have independent legal representation.  Note, the practical effect of this new requirement will mean that the presentation and execution of an agreement under an expedited time frame will not be possible – particularly if one party is unrepresented.  Therefore, although independent representation by counsel for both parties is not specifically required under Colorado’s New Act, best practices still recommend this approach.  If either party is unrepresented by counsel, Colo. Rev. Stat. §14-2-309(1)(c) and (3) of Colorado’s New Act requires specific language which must be prominently included in the agreement.  Failure to include the language will invalidate the agreement. 
  • Financial Disclosure.  Adequate financial disclosure must be made which includes disclosure of income.  Specifically, a party must receive a reasonably accurate description and good-faith estimate of the value of the property, liabilities and income of the other party or have an adequate knowledge or a reasonable basis for having adequate knowledge of such property, liabilities and income.
  • Waivers of Maintenance and Attorney Fees.  Colo. Rev. Stat. §14-2-309(5) of Colorado’s New Act includes limitations on the ability of parties to prospectively determine, modify, limit or waive maintenance and the payment of attorney’s fees in the event of divorce.  While such terms may be included in an agreement, determinations as to whether such modifications or waivers are unconscionable will be determined by the court as a matter of law at the time enforcement is sought.
  • Waiver of Marital Rights at Death.  Of additional note, beginning July 1, 2014, a unilateral waiver of a marital right or obligation on the death of a spouse is unenforceable unless the waiver is made in a premarital or marital agreement consistent with Colorado’s New Act. 

Unenforceable Terms

Colorado’s New Act also specifically delineates unenforceable terms in a premarital or marital agreement.  Examples of unenforceable terms include, but are not limited to, terms that (i) adversely affect a child’s right to support, (ii) limit remedies available to victims of domestic violence or (iii) penalize a party for initiating a legal proceeding for legal separation or divorce.

Applicability to Prior Agreements

Colorado’s New Act does not affect premarital or marital agreements executed prior to July 1, 2014 and such agreements will continue to be enforceable subject to the laws in place at the time of execution.   However, amendments from and after July 1, 2014 to previously executed premarital or marital agreements must comply with Colorado’s New Act.  Consistent with existing law, Colorado’s New Act is also applicable to parties to a civil union.

Conclusion

The use of premarital and marital agreements continues to grow for all types of couples as these agreements can be as broad or as narrow as desired by the parties.  For younger couples, such agreements can be the best way to ensure that current and future interests in gifts, inheritances and interests in trusts are protected and remain separate.  For couples who are marrying later in life or with children from a prior relationship, agreements with a broader scope can ensure that previously created wealth is protected for children, grandchildren and charitable endeavors.  Colorado’s New Act enables couples to contract prior to or during their marriage or civil union regarding their property rights in the event of the death of either party or in the event of a legal dissolution of the relationship.  In addition to the statutory requirements, practitioners should follow three basic best practice points for a valid premarital or marital agreement:  (i) allow sufficient time to review, consider and negotiate the agreement: (ii) provide financial disclosure including all assets, liabilities and income sources; and (iii) obtain independent counsel for each party.

Colorado’s New Law on Mandatory Reporting of Elder Abuse Goes into Effect July 1, 2014

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by Elizabeth Meck

Colorado’s new mandatory reporting of elder abuse law will require certain helping professionals to report any suspected or observed abuse or exploitation of an elderly individual to law enforcement within 24 hours.  The bill was signed into law on May 16, 2013 and takes effect on July 1, 2014.  The bill, as a result of an elder abuse task force established to develop the legislation, makes Colorado the 48th state to have mandatory reporting legislation on the books. 

Under prior law, certain professionals were encouraged to make reports of any suspected or known abuse of an at-risk adult, defined as a vulnerable individual due to mental or physical disability or aged 60 years or older.  The new law incorporates several modifications and additions to the existing law.  Specifically, it adds the definition of an at-risk elder as an individual over the age of 70 and increases the age of an at-risk adult to 70 years or older.  Colo. Rev. Stat. §§ 18-6.5-102(2)-(3).  It also clarifies the definitions of crimes against at-risk adults or elders to include undue influence resulting in conversion and caretaker neglect.  Colo. Rev. Stat. §§ 18-6.5-103(6), (7.5).  Further, the new law sets forth the reporting and response requirements, mandating that not only must the initial report be filed within 24 hours of the suspected abuse, but also that the law enforcement agency must provide notice of the report to the appropriate county agency within 24 hours of the report.  Colo. Rev. Stat. § 18-6.5-108(2)(b). 

The exhaustive list of helping professionals mandated to report under the new law includes a wide variety of professions such as health care professionals, pharmacists,  psychologists and mental health care providers, social workers, long-term care providers, clergy members, law enforcement officials and personnel, court-appointed guardians and conservators, and certain financial professionals.  See Colo. Rev. Stat. § 18-6.5-108(1)(b)(I)-(XVIII).  An individual who fails to report under the statute or one who knowingly files a false report commits a Class 3 misdemeanor.  Colo. Rev. Stat. §§ 18-6.5-108(1)(c), (4).  Upon filing a good faith report, a reporting individual is immune from any related civil action, unless he or she is the alleged perpetrator of the abuse or exploitation.  Colo. Rev. Stat. § 18-6.5-108(c)(3). 

In order to raise awareness among the public and the reporting professionals, the Colorado Department of Human Services was required to implement an awareness program by January 1, 2014.  Colo. Rev. Stat. § 26-1-105.  Further, to prepare law enforcement officers to recognize and respond to incidents of elder abuse and exploitation, the Department of Law’s Peace Officer Standards Training board (“P.O.S.T.”) was required to implement training standards and programs by January 1, 2014; and, as of January 1, 2015, local law enforcement agencies will be required to employ at least one peace officer  who has completed the training.  Colo. Rev. Stat. § 24-31-313.   No later than December 31, 2016, the Colorado Department of Human Services shall prepare a comprehensive report to assess implementation of the new law.  Colo. Rev. Stat. § 26-3.1-110. 

While attorneys are not on the list of professionals mandated to report, they will certainly come into contact with individuals who meet the definition of at-risk elders as well as professionals required to report.  This should cause us all to be increasingly alert and mindful of the provisions set forth in the new law.

Tax Certainty for Civil Unions in Colorado

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by Kelly Cooper

Couples in a civil union that are permitted to file federal income tax returns jointly can now file their Colorado income tax returns jointly as well.

Governor Hickenlooper signed the bill into law last Thursday (February 27, 2014).  It requires couples in a civil union to file their Colorado taxes using the same filing status used on their federal tax return.  The intent of the legislation is to align Colorado with updated federal tax law that permits joint filing for married same sex couples.

The new law will apply to tax years beginning on January 1, 2013 and any other income tax years that are still open under Section 39-21-107 or 39-21-108, C.R.S.

2014 Cost of Living Adjustment of Certain Dollar Amounts Under Colorado Probate Code

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by Peter J. O'Brien

At the beginning of every year, the Colorado Department of Revenue publishes a  list of cost of living adjustments for certain dollar amounts under the Colorado Probate Code.  It is important for probate practitioners to be aware of the change in figures related to the intestate share of a decedent's surviving spouse, supplemental elective-share, exempt property, lump sum exempt family allowance and collection of personal property by affidavit.

The 2014 figures are as follows:

Statute

Description

2014 Amount

C.R.S. § 15-11-102(2)

Intestate share of decedent's surviving spouse if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent

$320,000, plus fractional share pursuant to statute

C.R.S. § 15-11-102(3)

Intestate share of decedent's surviving spouse if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has one or more surviving descendants who are not descendants of the decedent

$240,000, plus fractional share pursuant to statute

C.R.S. § 15-11-102(4)

Intestate share of decedent's surviving spouse if one or more of the decedent’s surviving descendants are not descendants of the surviving spouse

$160,000, plus fractional share pursuant to statute

C.R.S. § 15-11-201

Supplemental elective-share amount

$53,000

C.R.S. § 15-11-403

Exempt property

$32,000

C.R.S. § 15-11-405

Lump sum exempt family allowance

$32,000

C.R.S. § 15-12-1201

Collection of personal property by affidavit

$64,000

Probate and Trust Issues in Colorado’s Upcoming Legislative Session

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by Kelly Cooper

Colorado’s General Assembly will reconvene on January 8, 2014.  At this time, it appears that at least two probate and trust related issues will be the subject of debate by the Assembly.

The first is a proposed change to the Colorado Civil Unions Act that would permit partners to a civil union to file joint income tax returns if they are permitted to do so by federal law.  Under the current proposal being considered by the Colorado Bar Association, there would be changes to both the Civil Unions Act and Colorado’s income tax statutes.  This is partly in response to the issuance of Revenue Ruling 2013-17 by the Internal Revenue Service, which permits married same sex couples to file joint federal income tax returns. 

The second is a proposal to codify a testamentary exception to Colorado’s attorney-client privilege.  The necessity and proposed scope of the testamentary exception are currently being discussed by a subcommittee of the Statutory Revisions Committee of the Trust & Estate Section of the Colorado Bar Association and will likely be discussed later this week at Super Thursday meetings.

The Colorado Supreme Court has previously recognized that the attorney-client privilege generally survives the death of the client to further one of the policies of the attorney-client privilege – to encourage clients to communicate fully and frankly with counsel.  The Colorado Supreme Court has also held that a “testamentary exception” to the privilege exists, which permits an attorney to reveal certain types of communications when there is dispute among the heirs, devisees or other parties who claim by succession from a decedent so that the intent of the decedent can be upheld.

Fiduciary Solutions Symposium Recap

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by Kelly Cooper

Last week, we held our first Fiduciary Solutions Symposium.  We want to thank each of you that came and participated.  We enjoyed seeing all of you and getting a chance to catch up with you over breakfast.

For those of you that couldn’t attend, here is a brief recap.  When we discussed topics that we wanted to present at the Symposium, we kept coming back to the constantly evolving and changing nature of our practices.  Whether it is taxes, ADR or changes in state laws, things never stay the same.  As a result, we decided to discuss a variety of topics and the trends we are seeing each day in our practices.  It was difficult to narrow down the topics to two hours of content, but we ended up discussing the following issues:

  • Digital Assets
  • Social Media and Use in Litigation
  • Gun trusts
  • Civil Unions/Same Sex Marriage and related tax issues
  • Reformation and modification of trusts and decanting
  • Apportionment and allocation of taxes and expenses in administration
  • Baby boomers and the “Silver Tsunami”
  • Migratory Clients and Differing State Laws
  • Trends in Alternative Dispute Resolution
  • Assisted Reproductive Technology

 We had so much fun that we are taking the show on the road and will be in Salt Lake City on November 12th.  We hope to see you there.

Description or Condition?

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by Kelly Cooper

Lawyers that regularly litigate in the probate world always have an improbable story to tell.  Here is one of those stories that ended up in front of the North Dakota Supreme Court last year: 

A couple, Lee and Robyn, were engaged and planned to be married on July 18, 2009.  On June 26, 2009, Lee and Robyn signed a prenuptial agreement that required Lee to make gifts to Robyn and her daughter upon his death. 

Also on June 26, 2009, Lee executed a Will that contained the provisions to comply with the requirements of the prenuptial agreement.  The Will gave property to Robyn, describing her as “my wife, Robyn.”  The Will also stated, “My spouse’s name is Robyn Risovi and all references in this Will to “my spouse” are to her only.”  However, a footnote followed stating, “This Will has been prepared in anticipation of the upcoming marriage of …Lee Paulson and Robyn Risovi set for July 18, 2009.” 

Lee died on July 15, 2009 – three days before the wedding. 

Before you read any further, answer this question: should Robyn receive the gifts under the Will even though she was not yet Lee’s wife?

Technically, one of the questions before the North Dakota Supreme Court was whether the term “wife” being used to describe Robyn in the Will resulted in a conditional gift or whether the term “wife” was a merely a description.  In addition, the North Dakota Supreme Court had to determine whether the prenuptial agreement, which was not effective since the marriage did not occur before Lee’s death, had any impact on the interpretation of the word “wife” in the Will. 

The North Dakota Supreme Court held that the Will was unambiguous, the term “wife” was only descriptive, and ordered distribution to Robyn.  The Court held the prenuptial agreement had no effect on the interpretation of the Will for a variety of reasons.

This is just one more example of the ways that the best laid plans are derailed by unexpected events.

Dangers in Charitable Giving – Colorado’s Attorney General Takes Action Against Charities

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by Kelly Cooper

Normally, when the topic of charitable giving comes up with a client, the discussion is a positive one.  The client is excited about the great work being done by a charity, wants to ensure that their charitable work is continued after their death or has a desire to create a legacy.  However, when representing clients that are fiduciaries who are making distributions for charitable purposes, a danger lurks – donating money to a corrupt or fake charity.

This danger was brought to the forefront last week in Colorado when Attorney General John Suthers filed suit against Boobies Rock! Inc., the Se7ven Group, Say No 2 Cancer and owner Adam Cole Shryock.  In the lawsuit, the Attorney General has claimed that these charities deceived consumers into thinking they were donating money to a cancer-related charity when consumers were actually giving money to a for-profit business that provided only small amounts to charity.  Allegedly, the charities would hire models to take donations on behalf of Boobies Rock! at various venues and events and tell people that their donations would go to other charities fighting breast cancer.  The Complaint filed by the Attorney General also alleges that these charities used the names of other legitimate charities in its fundraising efforts without their consent and that Mr. Shryock used a portion of the funds collected to pay for an online dating service, buy a BMW, pay for his cleaning service, and pay his bar tabs.

This is a harsh example, but is a good reminder to counsel clients to thoroughly investigate any charity they wish to give to and any charitable solicitation they receive.  To read the Complaint filed by the Attorney General, click here.