Until death do us part! Despite good intentions, over half of all marriages will end in divorce, and frequently, a divorced individual will remarry. Many times, this union is between individuals who have children from previous marriages, have developed a successful business, or have amassed considerable wealth. Having experienced the trauma and, in most cases, the unplanned and disruptive division of assets in the first marriage, the second time around these individuals frequently desire a more thoughtful and organized disposition of their assets in the event of divorce or death.

Prenuptial or antenuptial agreements are increasingly used as part of an overall estate plan. This trend is very likely to continue as tax advisors and financial planners become aware of the wide range of issues that can be covered in a prenuptial agreement.

ELEMENTS OF A PRENUPTIAL AGREEMENT

Prenuptial agreements are contracts executed by prospective spouses to define rights, duties, and obligations of the parties during marriage and in the event of death or divorce. In most states, prenuptial agreements entered into to establish property rights of the spouses at the time of death have long been recognized as legally enforceable contracts.1 However, until 1970, agreements used to predetermine property rights upon divorce were unenforceable in all states. Some courts believed that such agreements violated public policy by increasing the likelihood of divorce.

In the landmark case of Posner v. Posner,2 the Florida Supreme Court upheld the validity of prenuptial agreements that included provisions effective in the event of divorce, provided that such agreements are both fair and reasonable. For several years, a number of jurisdictions followed the reasoning in Posner. However, a lack of uniformity existed among the states. In 1976, the Uniform Premarital Agreement Act (UPAA) was drafted to provide uniform guidelines governing the issues that could properly be addressed in a valid prenuptial agreement.

The UPAA states that a prenuptial agreement may address, among other things, the modification or elimination of spousal support; the disposition of property upon separation, marital dissolution, or death, and ownership rights in and disposition of proceeds from a life insurance policy. Furthermore, the UPAA provides that a prenuptial agreement may address any other matter that does not violate public policy or a statute imposing a criminal penalty. However, under no circumstances can a child's right to support be adversely affected.3 For example, some courts have upheld the validity of a prenuptial agreement that provides for the religious upbringing of a child,4 but would not enforce an agreement that completely waives the right to receive child support.

In accordance with the UPAA, an enforceable prenuptial agreement must be written and signed by both parties. In addition, both parties must have contractual capacity and have entered into the agreement voluntarily. It is necessary for each party, before executing the agreement, to provide fair and reasonable disclosure of property and financial obligations. If, however, one party had or reasonably could have received adequate knowledge of the other's property and financial obligations, the agreement will remain enforceable. The agreement must not be unconscionable at the time it was executed.

Although many states have adopted some form of the UPAA, no standard set of rules applies in all states. Individuals about to enter into a marital contract should consult with legal counsel regarding their state's laws. For example, a few states require signatures either be notarized or witnessed; while almost all states agree that marriage itself constitutes sufficient consideration, but that the mere promise to marry in the future is insufficient consideration.

In determining whether both parties entered into the agreement voluntarily, the courts in most stages have ruled that an agreement presented the day before the wedding, even if discussed on previous occasions, was not entered into voluntarily.5 Therefore, to enhance enforceability, prenuptial agreements should be discussed and entered into well before the wedding.

Another issue that varies among states is the fairness of the agreement. While several states have adopted the UPAA's requirement that the agreement not be unconscionable at the time it was executed, other courts have held that the agreement must be fair at the time of divorce.6 New York, for example, requires that the contract be fair at the time of execution and not unconscionable at the time of divorce.7 Determining whether an agreement is unconscionable is based on the facts and circumstances of each case; certain provisions are more likely than others to be held unconscionable.

Some courts have scrutinized and adjusted child support provisions contained in prenuptial agreements before the time the agreement is executed (typically prior to the birth of children), it is difficult to perceive what constitutes necessary and reasonable support. In addition, courts may not enforce the terms of a prenuptial agreement when the provisions leave the spouse without reasonable means of support or when one spouse is released from his or her obligation to support the other spouse during marriage.8 The parties should be cautioned that the courts have been able to distinguish between an agreement that does not provide for a reasonable means of support and one that results in a bad bargain. For example, in Potter v. Collin 321 So. 2d 128 (Fla. 1975), the wife signed a prenuptial agreement waiving all rights to her husband's property. She hoped that her husband would soften up in time, but the marriage ended after 17 months and the court refused to alter the terms of the agreement. Similarly, in Cantor v. Palmer 166 So. 2d 466 (Fla. 1964), the court upheld the terms of a prenuptial agreement where the wife, who consulted with independent counsel before signing the agreement, waived all rights to her husband's estate, except what he provided her in his will. The court held that although upon his death the husband was actually wealthier than the wife anticipated, she had approximate knowledge of his wealth before execution of the agreement.

PRENUPTIAL AGREEMENTS

The following is a brief discussion of the advantages and various uses of prenuptial agreements.

Avoiding Litigation Costs

Prenuptial agreements can eliminate litigation costs associated with contesting the will of a deceased spouse. They can be used to facilitate the divorce process and to provide assurance that the property will be distributed the couple's wishes. Individuals who have experienced a lengthy, messy divorce realize that a considerable amount of wealth can be lost during a legal battle, including legal fees and the fees charged by appraisers and expert witnesses.

Fears of Family Members

Second marriages can result in family problems caused by the fears of children over how family wealth is going to be divided. These fears can be eased by executing a prenuptial agreement that sets forth the details of property dispositions in the event of either divorce or death. As a legally enforceable contract, a prenuptial agreement can be as detailed and lengthy as necessary, and can cover as many specifics as the parties desire.

Family Assets

If one spouse has substantial interest in a family business, it is often the desire of that spouse, as well as the family members engaged in the business activity, to keep ownership within bloodlines. This could also be the case with family heirlooms and other assets of the family. It is not uncommon for parents and grandparents in wealthy families to be concerned about protecting family assets from the claims of an unintended heir, such as a decendent's spouse. A prenuptial agreement can be written to provide that such assets are immune from claims by the new spouse.

Most states include a provision in their probate laws preventing one spouse from completely disinheriting the surviving spouse. These laws usually give the surviving spouse the right to elect against what was provided in the will and instead takes a set percentage of the deceased spouse's assets. Typically, the elective share is one-half or one-third of the estate Unified Probate Code Sec. 2-201, 8 U.L.A. 74 (1983).

Example: Jay and Sarah are contemplating marriage. Sarah has children from a previous marriage, with whom she has built a highly successful family business. Sarah would like to leave ownership in the business to her children. If Sarah executes a will leaving the family business to her children, then Jay could elect against the will and, depending on which state they reside in, take a fairly substantial portion of the business away from Sarah's children.

Prenuptial agreements in which a surviving spouse gives up his or her right to an elective share have been held to be enforceable.9 To ensure the terms of a prenuptial agreement will be enforced, the agreement should provide that the new spouse agrees to waive all claims against specific assets (e.g., any right to the decedent's interest in the business), and instead agrees, that in the event of divorce or death, to satisfy any marital property rights only with other assets.

Example: To increase the likelihood that Jay could not elect against Sarah's will, Jay and Sarah could enter into a prenuptial agreement wherein Jay agrees to waive any claims against the business upon Sarah's death and, in return, Sarah agrees to transfer, at the time of her death, a percentage of her assets into trust with the income to go to Jay for the remainder of his life and the property to go to the children upon his death. The remainder of Sarah's estate would go directly to her children. In the event of Sarah's death, Jay would be unable to elect against the provisions in the will.

Protecting Business Assets

In cases where a business is owned by a small number of parties (e.g., a closely held corporation or a partnership), it is not uncommon for the owners to want to prevent a spouse from obtaining voting rights or claims against the business. In such cases, the owners can enter into an agreement that requires each, in the event that they marry, to execute a prenuptial agreement that provides for the prospective spouse to waive all rights to the owner-spouse's interest in the business in the event of divorce or death. The business associates may also wish to enter into a buy-sell agreement, where upon the death of a shareholder or partner, the remaining owners are required to purchase the decedent's interest in the business for a specified amount over a specified period.

Protection Against Creditors

If one spouse incurs substantial debts before marriage, there may be a desire to protect the assets of the new spouse from the creditors of the debtor spouse. This can be accomplished in a prenuptial agreement by having the debtor spouse waive any claims to the new spouse's assets, except in the event of divorce or death.

Child Custody and Support

A prenuptial agreement can designate responsibility to provide support for children of a previous marriage, as well as children of the upcoming marriage. This may be especially important in instances where one spouse intends to give up a career as part of the marriage arrangement. The agreement can also cover issues concerning custody of all children. In the event of divorce, IRC Sec. 152(e) grants the dependency exemption for income tax purposes to the custodial spouse, unless both parties agree otherwise.10 Since the noncustodial spouse is commonly the one who contributes a substantial portion of the children's support, the prenuptial agreement can be used to provide, that in the event of divorce, the custodial spouse will agree to release (by signing Form 8332) his or her right to claim the children as dependents.

Disposition of Property

Frequently, disputes arise over how marital property should be allocated. Prenuptial agreements can be used to provide assurance that a couple's property will be disposed of according to their intentions. Through such an agreement, parties can designate ownership of property in the event of divorce, separation, or death of either spouse. The prenuptial agreement may provide for certain property to be transferred from one spouse to the other to create separate or joint property rights. These dispositions, and the contingencies on which they would occur, can be set forth in an organized and thoughtful manner in a properly drawn prenuptial agreement.

TAX CONSEQUENCES

In addition to ensuring that the prenuptial agreement will be enforced in the event of divorce or death, it is essential that the parties entering into an agreement be advised of tax ramifications of property transfers made pursuant to the agreement. Since tax laws are constantly changing, it is recommended that the agreement be examined periodically to ensure that the desired results are achieved. For example, the tax laws regarding alimony drastically changed in 1985. Therefore, agreements entered into before 1985 may have been written with the understanding of prior law, but would be subject to current tax law should divorce occur.

The execution of a prenuptial agreement usually does not result in any immediate tax consequences. Instead, tax concerns arise with the occurrence of one of two events that activate the terms of the contract, namely divorce or death. To ensure that the desired tax consequences are properly planned for, those entering into a prenuptial agreement should be advised of the tax consequences of all property transfers made pursuant to the agreement. This not only involves transfers made upon cessation of the marriage or death of either spouse, but also includes transfers made at the time the agreement is executed and those made during the marriage.

Prior To and During Marriage

Typically, the consideration involved in a prenuptial agreement is the transfer of property rights from one party to another in exchange for the other party's release of marital rights of support or their rights against a will. The tax consequences of property transfers made pursuant to a prenuptial agreement will depend on whether the transfer occurs before or after marriage. In general, property transfers made before the marriage may have adverse income and gift tax consequences, while transfers made during marriage are not subject to gift or income tax. Accordingly, the prenuptial agreement should stipulate that any transfer of property occur after the wedding.

Prior to the enactment of Sec. 1041, the Supreme Court ruled that the transferor recognized gain for income tax purposes equal to the difference between the fair market value of the property transferred and its adjusted basis when such property is transferred in exchange for the release of property rights.11 No income tax was recognized by the party who released the marital rights, as both the IRS and the courts have held that for income tax purposes, the value of marital rights is equal to the value of the property received.12 However, for estate and gift tax purposes, marital rights are not considered full and adequate consideration, and consequently, the transfer of property is treated as a gift (Sec. 2043(b); Reg. Sec. 25.2512-8).

Sec. 1041 was entered to override the court's decision to tax the gain on property transferred between spouses and former spouses when the transfer is made incident to divorce. Transfers within six years after divorce that are pursuant to the terms of a divorce decree are deemed to be incident to divorce Reg. Sec. 1.71-1T(b), Q&A-7. A transfer between prospective spouses, however, is still treated as a sale and the transferor will recognize gain if the value of the property exceeds his or her adjusted basis.

Example: Bob and Patty are contemplating marriage. Patty has substantial assets she wishes to protect in the event of divorce or death; therefore, she and Bob execute a prenuptial agreement that provides for Patty to transfer $250,000 to Bob in exchange for his release of all marital claims against any of Patty's property in the event of divorce or death. One month before the wedding, Patty transfers stock worth $250,000 to Bob. Patty had purchased the stock several years ago for $50,000. The transfer of the stock causes Patty to have a taxable gain for income tax purposes of $200,000. In addition, Patty has made a gift (subject to the gift tax rules) of $250,000 and Bob's basis in the stock is $250,000.

If the transfer of the stock had occurred after the wedding, then Patty would have not recognized gain on the transfer, as Sec. 1041(a) provides that property transfers between spouses do not result in recognition of gain or loss. In addition, she would not have been subject to gift tax because Sec. 2523(a) provides for an unlimited marital deduction for gifts between spouses. As noted earlier, the prenuptial agreement should provide for property transfers to occur after the wedding.

If terms of the prenuptial agreement provide for a series of payments by one spouse in return for the other spouse's release against the transferor's assets in the event of divorce or death, then no income or gift tax consequences result as long as the couple is married during the entire stream of payments. If the couple divorces before the last payment, remaining payments may constitute gifts made outside marriage.

In Harris v. Comm.,13 the court held that a gift is taxable in the year in which the obligation arose. Consequently, the taxable gift in the case of a stream of payments is the actuarial value of the recipient's right to receive the annual payments. The same conclusion was reached in Rev. Rul. 69-347, 1969-1 C.B. 227. As long as the obligation occurs after marriage, no gift tax will be imposed on the transfer.

Example: Tom and Marcia are contemplating marriage. Tom, who has children from a previous marriage, owns assets he wishes to leave to his children. On July 1, 1992, Tom and Marcia enter into a prenuptial agreement, wherein Tom agrees to pay Marcia $20,000 a year for five years in return for Marcia's releases of all marital claims she may have against any of Tom's property in the event of divorce or death. The first of the five payments is scheduled for October 1, 1992, two weeks after the wedding. Even if Tom and Marcia divorce before October 2, 1996, no income or gift tax consequences will result from this arrangement.

After Cessation of the Marriage

In the event that the marriage ends in divorce, the prenuptial agreement often specifies the property rights and obligations of both parties. Property transfers between former spouses pursuant to a prenuptial agreement are classified as property settlements, alimony, or child support. Unlike alimony, which is taxable to the recipient and deductible by the payor, property settlements and child support are neither taxable to the recipient nor deductible by the payor.

Because the payor spouse benefits from payments being classified as alimony, while the payee spouse benefits from payments being classified as either child support or a property settlement, for federal income tax purposes, alimony is objectively defined. All payments meeting the seven objective criteria are classified as alimony payments, regardless of the parties' intent. This is true even if the payments do not satisfy the payor's support obligation under state law. Similarly, payments that do not meet the objective criteria for alimony for tax purposes are not deductible to the payor, even if such payments qualify as alimony under state law or the parties intend for them to qualify as alimony.

Alimony Payments. To be deductible for tax purposes, alimony payments must meet the seven objective criteria provided in IRC Sec. 71. Payments that do not meet these criteria are recharacterized as either child support or a property settlement. Consequently, if the parties wish to have certain payments qualify as alimony, it is essential that the terms of the prenuptial agreement be structured so all criteria are satisfied. Each of the objective criteria is provided below.

1. Payments must be made in cash.

2. Payments must be received by or on behalf of a spouse under a divorce or separation instrument. Further, if the parties have entered into a prenuptial agreement providing for the support of either spouse, and the divorce decree or written separation instrument refers to the prenuptial agreement for the determination of alimony, then the prenuptial agreement will be treated as pursuant to a divorce instrument.

3. The payor's obligation to make payments must end with the death of the payee spouse.

4. The instrument must not specifically designate that the payments are not alimony.

5. The filing of a joint tax return is prohibited.

6. In the case of legally separated spouses, the payor and payee spouses must not be members of the same household at the time of the payment.

7. Payments cannot be fixed as child support or treated as fixed as child support.

When reviewing the tax consequences of the terms provided in a prenuptial agreement, it is necessary to keep each of the seven criteria in mind. Some of the common problems encountered causing alimony payments to be classified as a property settlement for tax purposes are discussed below.

First, non-cash spousal support payments made pursuant to the terms of a prenuptial agreement, even those that satisfy the payor's obligation for alimony under state law, are not deductible. Accordingly, the prenuptial agreement should specify that all alimony is to be paid in cash.

Second, the terms of the prenuptial agreement should be structured so the payor spouse has no obligation to make any payments after the payee spouse's death. If such payments are permitted to occur, then none of the payments, even those made before the death of the payee spouse, qualify as alimony.

Example: Under the terms of the agreement, Ed is required to pay Carol $20,000 per year for 15 years or until her death, whichever is earlier. The agreement also provides that if Carol dies before the end of 15 years, Ed will pay Carol's estate the difference between the $300,000 that Carol would have received over the 15 years, less the amount that she actually received. The fact that Ed is required to make a lump sum payment to Carol's estate upon her death suggests all payments are a substitute for a $300,000 lump sum payment. Consequently, none of the annual $20,000 payments qualify as alimony.

When the prenuptial agreement is silent with respect to this issue, state law determines whether the payee spouse has any continuing obligation to make payments. In most states, support payments automatically cease upon the payee's death; however, it is possible for payments that were not classified as alimony, for state purposes, to have qualified as alimony for federal income tax purposes. Such payments would not cease upon the payee's death and all payments, even those made before the payee's death, would be recharacterized as property settlements. To ensure that payments are characterized as alimony for federal income tax purposes, the prenuptial agreement should contain a formal statement that the obligation to make payments terminates at the recipient spouse's death.

Third, if the parties wish to treat cash payments as something other than alimony, the prenuptial agreement must which payments the parties do not want treated as alimony. For federal income tax purposes, all payments that qualify as alimony will be treated as such unless the payments are specifically designated as child support or a property settlement. It is a good idea for the prenuptial agreement to contain a provision that allows the spouses to change the designation of those payments from non-alimony to alimony in future years. This gives the parties some flexibility in case the circumstances of the parties change in future years.

Finally, the terms of the prenuptial agreement should be structured to avoid any language that could be construed as representing child support. If it is possible to determine, by reference to the prenuptial agreement, what portion of a payment was intended as child support, then that portion of the payment will be treated as child support and only the remainder will be considered alimony. Payments are treated as child support to the extent that they are subject to reduction on the happening of a contingency specified in the instrument relating to the child; or at a time that can be clearly associated with a contingency related to the child.

Contingencies relating to a child include, but are not limited to, the child attaining a specific age or income level; the child marrying, dying, or gaining employment, and the child leaving school or the spouse's household Reg. Sec. 1.71-1T(c), Q&A-17. A payment reduction associated with a contingency with respect to a child is a much more ambiguous standard and depends on an analysis of the facts and circumstances of the situation. See Reg. Sec. 1.71-1T(c), Q&A-18, for specific instances that are deemed to be associated with a contingency with respect to a child.

Example: Scott agrees to pay Debbie $2,000 per month until she dies. Debbie has custody of their child, Eric. The agreement states that upon Eric attaining the age of 16, the monthly payment will be reduced to $1,200. Of each $2,000 payment, $1,200 is alimony and the remaining $800 is treated as child support.

Alimony Recapture. Payments that would otherwise qualify as alimony that decreases rapidly in the first three years following separation or divorce, may be recharacterized as a property settlement. After the terms of the prenuptial agreement have been analyzed to determine which payments qualify as alimony for tax purposes, it is necessary to check whether the alimony recapture provisions apply. Recapture does not apply to payments reduced due to death of either spouse; the remarriage of the payee spouse where payments cease under the terms of the divorce decree; temporary support payments; or fluctuating payments from a pre- existing formula (e.g., percentage of gross income from a business), when the formula is fixed under the terms of the divorce or separation instrument and is effective for at least three years.

If the recapture rules apply, then before signing the prenuptial agreement the parties need to revise the terms of the agreement so payments are not subject to alimony recapture. Payments recharacterized under the alimony recapture rules become income to the payor spouse and a deduction to the recipient spouse.

Alimony recapture, if applicable, occurs in the third post-separation year and is the sum of the excess payments made in both the first and second post-separation years. The second-year excess payment is determined first and is calculated as the amount by which the second year's payment exceeds the third-year payment plus $15,000. The first- year excess payment is then calculated as being the amount by which the first-year payment exceeds the average of the adjusted payments from the second year and the payments from the third year, plus $15,000.

The recapture rules apply only to excess payments made in the first three post-separation years. Consequently, payments made after the third year may be reduced without recapture. Payments increasing from year to year do not trigger recapture.

Property Settlements. When the parties intend to use a prenuptial agreement to designate each spouse's property rights and obligations in the event of divorce and want to ensure that all transfers made after divorce avoid both income and gift tax, the prenuptial agreement should include a provision that makes all payments conditional on their being included as part of the divorce decree. Sec. 1041 provides that no gain or loss is recognized for income tax purposes on the transfer of property incident to divorce and that such transfers are treated as gifts. In situations where there is nonresident alien spouse, extreme caution is necessary as the benefits of Sec. 1041 are sharply curtailed Sec. 1041(d).

The code also states that transfers occurring within one year after the cessation of marriage are deemed to be incident to divorce, and the regulations provide that transfers made within six years after a divorce are deemed to be incident to divorce, only if the transfers are made pursuant to the terms of the divorce or separation instrument Reg. Sec. 1.71-1T(b), Q&A-7.

Child Support. If the parties intend for certain payments to qualify as child support, rather than alimony, then the amount of the payment constituting child support should be specifically stated in the terms of the agreement. In situations where payments are reduced in violation of the terms of the agreement (i.e., the payor spouse is delinquent), payments are first treated as child support payments before any alimony income is reported by the recipient.14

Example: Under terms of the separation agreement, Jack is required to pay Lisa $1,000 per month, $600 of which is designated in the agreement as support for their minor child. If Jack only pays Lisa $9,000 during 1992, then $7,200 will be considered child support and the remaining $1,800 will qualify as alimony.

In situations where the prenuptial agreement requires a specific payment for both alimony and child support without separately stating the amount of each, the entire payment will be treated as alimony.

Example: Hal agrees to pay Wanda $600 per month until she dies. Wanda has custody of their child, Chris. The agreement states that as long as Hal continues to make monthly payments to Wanda, he is relieved of all support obligations for Chris. Even if Wanda can show that the entire amount was used to support Chris, the entire $600 qualifies as alimony since it cannot be determined from the agreement how much of each payment is for child support.

In the Event of Death

When a prenuptial agreement takes effect due to the death of a spouse, the property is included in the decedent's gross estate and the recipient spouse takes a basis in the property equal to its fair market value Sec. 2043(b). As previously discussed, most states give the surviving spouse the right to elect against what was provided in the will and instead takes a set percentage of the deceased spouse's assets. This problem is eliminated when the parties address the issue in an enforceable prenuptial agreement.

Example: Richard and Molly are contemplating marriage. Richard, who was previously married, has accumulated a considerable amount of wealth that he wishes to leave to his children. Richard and Molly enter into a prenuptial agreement wherein Molly agrees to waive any claims against Richard's assets upon his death. In return, Richard agrees to transfer, at the time of his death, a percentage of his assets into trust with the income to go to Molly for the remainder of her life and the property to go to his children upon her death. The remainder of Richard's estate goes directly to his children. In the event of Richard's death, Molly would be unable to elect against the will provisions and the executor of Richard's estate could elect to treat the trust as a QTIP trust, since the property in the trust is qualified terminable interest property and Molly is entitled to the income from the property for life. Thus, the estate would receive a marital deduction for the value of the trust assets Sec. 2056(b)(7).

UNTIL DEATH (OR DIVORCE) DO US PART!

Marriage does not last forever. It terminates with either death or divorce. With the incidence of divorce on the rise and an increasing number of divorced persons remarrying, prenuptial agreements in the 1990s may become the rule, rather than the exception. Prenuptial agreements are becoming increasingly acceptable by states whose courts are crowded with divorce cases and are looking for ways to reduce litigation.

Prenuptial agreements can provide the parties with the certainty they and their loved ones are being provided for in the manner in which they intend. Also, like any legal contract, prenuptial agreements can be amended or modified to meet the parties' current needs as conditions change during the marriage. Tax advisors and financial planners with high income clients, as well as those of more modest means, need to be aware of the uses and tax implications of prenuptial agreements to stay current with the rapidly changing marital environment.

1 Freeland v. Freeland, 128 Mass. 509 (1880); Estate of Warner, 144 Cal. 615, 78 p. 24 (1904).

2 233 So.2d 381 (Fla. 1970), rev'd on other grounds, 257 So.2d 530 (Fla. 1972).

3 Sec. 3, UPAA. 9B U.L.A. 371, 373 (1976).

4 Ramon v. Ramon, 34 N.Y.S.2d 100 (1942); Shearer v. Shearer, 73 N.Y.S.2d 337 (1947).

5 See Norris, 419 A.2d 985 (D.C. 1980); Lutgert v. Lutgert, 338 So. 2d 1111 (Fla. 1976).

6 For example, see Osborne, 384 Mass. 591, 599, 428 N.E.2d 810, 816.

7 NY Domestic Relations Law Sec. 236(b)(3) (McKinney's Supp. 1984).

8 Belcher v. Belcher, 271 So.2d 7 (Fla. 1972).

9 Estate of Tibbs, 580 So.2d 1337 (Ala. 1991); Estate of Lopata, 641 P.2d 952 (Colo. 1982); Estate of Edington, 489 N.E.2d 612 (Ind. 1986).

10 Unless otherwise indicated, all references to the Internal Revenue Code are to the IRC of 1986, as amended.

11 U.S. v. Davis, 370 US 65 (1962).

12 Rev. Rul. 67-221, 1967-2 C.B. 63; Rev. Rul. 79-312, 1979-2 C.B. 29; Howard v. Comm. 447 F.2d 152 (5th Cir. 1971).

13 178 F.2d 861 (2d Cir 1949), rev'd on other grounds, 340 US 106 (1950).

14 Bodine, T.C. Memo 1984-143; Hau, T.C. Memo 1983-473.