A Tale of Two Celebrity Marriages and One Prenuptial Agreement

Prenuptial agreements can make a world of difference in a divorce. Two very different stories follow and highlight the difference.

Actors Johnny Depp and Amber Heard were married in February 2015. Their marriage lasted approximately 15 months. They did not have a prenuptial agreement.

A Primer on Prenups

Heard filed for a divorce in May 2016 and sought spousal support from Depp. After several highly public and emotionally charged court proceedings, Heard is reported to be receiving a $7 million settlement. In hindsight, a prenuptial agreement would have better protected Depp from such a sizeable financial settlement. The prenuptial agreement may have even helped to avoid the very public litigation battle that many of us have read about.

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Interestingly enough, Heard is contributing the settlement to charity. While a charitable donation should be applauded and encouraged, it may also indicate that litigation itself was fueled for reasons other than money, such as for earlier perceived wrongs or even revenge.

The point is that a divorce is emotionally charged and involves many issues beyond just the financial settlement. We have all heard stories of cars or even houses being destroyed to prevent the asset from going to the ex-spouse. Decisions are often made for reasons other than those centered on logic or common sense. Establishing the boundaries for divorce can help prevent a great deal of financial and emotional pain later.

Then there is actor Kelly Cuoco, star of hit television Show "The Big Bang Theory." Cuoco divorced professional tennis player Ryan Sweeting earlier this year. In 2015, Forbes named Cuoco TV's highest paid actress, tied with Sofia Vergara. She enjoyed $28.5 million in earnings, including a salary of $1 million per episode, according to published reports. Her ex-husband has an estimated net worth of $2 million, about $42 million less than Cuoco's reported net worth, according to Forbes.

Unlike Depp and Heard, Cuoco and Sweeting signed a prenuptial agreement approximately one month before their marriage. This binding agreement governed how the assets and finances would be handled, in the event of a divorce. The agreement gave Cuoco full control and protection from claims for greater support or assets. Agreements such as this one help to avoid drawn out financial battles, such as over spousal support, when marriages fall apart.

Prenuptial agreements are particularly important for the following persons who may be getting married:

People with children from a prior relationship
Older couples
People getting married with significant assets prior to marriage
People or public figures seeking to keep such matters private
People seeking to protect their partner from her of her debts or liabilities

If you fall in any of these categories, you should take a lesson from the two celebrity divorce cases above and think about entering into a prenuptial agreement before marriage. Here are six other protections to consider, too:

1. Pair the prenuptial agreement with a confidentiality agreement for greater privacy.

2. Identify separate assets that are acquired prior to the marriage. Consider whether income from those separate assets will be community or separate property.

3. Consider whether the wages or earnings from work or efforts during marriage are community or separate property.

4. Are debts to be considered community or separate? An often overlooked alternative for a prenuptial agreement is to insulate one spouse from the debts and liabilities of his or her partner.

5. If one spouse has substantially greater assets or income (which is frequently the case), consider designating certain assets to go to the less wealthy spouse over time so that a divorce after a long-term marriage does not otherwise leave one spouse with insufficient assets. Such a provision in some cases substantially enhances the effectiveness of the prenuptial agreement.

6. Consider pairing the prenuptial agreement with an Asset Protection Trust, which provides a second, considerable layer of protection from lawsuits, divorce and other claims. This trust, which should be created and funded before the prenuptial agreement, is a trust specifically designed to provide greater creditor and asset protection for the creator or grantor of the trust. An Asset Protection Trust can be domestic and, currently, sixteen states, including Nevada, have laws which permit these trusts. Additionally. Foreign Asset Protection Trusts or Hybrid Bridge Trusts can be used such as Trusts settled under the laws of the Cook Islands. A Hybrid Bridge Trust begins life as a domestic Asset Protection Trust but converts to a foreign offshore trust in the event of a crisis.

John M. Goralka is the founder of The Goralka Law Firm, an estate planning, trust administration, business and tax firm.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Founder of The Goralka Law Firm, John M. Goralka assists business owners, real estate owners and successful families to achieve their enlightened dreams by better protecting their assets, minimizing income and estate tax and resolving messes and transitions to preserve, protect and enhance their legacy. John is one of few California attorneys certified as a Specialist by the State Bar of California Board of Legal Specialization in both Taxation and Estate Planning, Trust and Probate. You can read more of John's articles on the Kiplinger Advisor Collective.