Premarital Agreements and Antenuptial Contracts

Premarital Agreements and Antenuptial Contracts

Terms:


Antenuptial/Pre-nuptial Agreement:
A contract between parties, signed before marriage, that sets forth the parameters for distribution of wealth and division of property should the marriage result in divorce.  The contract will state what each party’s rights and responsibilities are in the event of a divorce to assets and liabilities. 

Commonly, the Statute of Frauds requires the agreement to be in writing and signed to be enforceable.

Statute of Frauds
Originally an English statute passed in 1677, which has been adopted (in some form) in nearly all states.  It requires that certain contracts be in writing, and signed by the party against whom enforcement is sought.

Consideration:
Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.

Unconscionable:
An agreement or a contract is said to be unconscionable if it appears grossly inequitable or unfair to one party; courts may deny enforcement of unfair or oppressive contracts.

Uniform Premarital Agreements Act (“UPAA”):
Uniform legislation designed to make the rules pertaining to prenuptial agreements consistent throughout the country. This act is intended to be relatively limited in scope. 

Duress:
Any unlawful threat or coercion used by a person to induce another to act (or refrain from acting) in a manner he or she otherwise would not (or would). A contract entered into under duress by physical compulsion is void.  Also, if a party’s manifestation of assent to a contract is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

Void (contract):
A contract that has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force.

Voidable (contract):
A valid contract that can be legally voided at the option of one of the parties.

Coercion:
Where physical force is used to compel someone to act against one’s will. 

Introduction

Approximately 2.3 million people marry each year.  Of those, over half will end in divorce. When national divorce statistics illustrate that the probability of a marital breakup is greater than 50/50, it should come as no surprise that the use of premarital (sometimes called either “prenuptial” or “antenuptial”) agreements is on the rise.

A prenuptial agreement is contract that is made before and in contemplation of marriage. The purpose of the contract is to set out the terms of any assets and debts, including property and future earnings and how they should be distributed if the marriage is dissolved. When persons are engaged, their relationship is fiduciary in character.  Accordingly, there is an affirmative duty on each partner to disclose his or her assets and income.  Failure to do so renders the agreement invalid.  See, e.g., Kosik v. George, 253 Or. 15, 452 P.2d 560 (1969).

Although fairly common today, especially if one party has substantial assets or children from another marriage.  Historically, this was not the case. Courts have held that it was contrary to public policy to provide for a financial settlement in the event of a future separation or divorce.  The main reason was that such an agreement would be destabilizing to the marital relationship and might promote marital breakups.

Since about 1970 courts have held that agreements which set alimony, maintenance and property rights upon divorce or separation do not violate public policy so long as they are fair and reasonable and make adequate provisions for each spouse in view of the others needs and resources.  See, e.g., Posner v. Posner, 233 So.2d 381 (Fla. 1970); Osborne v. Osborne, 384 Mass. 591, 428 N.E.2d 810 (1981).

EXAMPLE: Before Tiffany and Mark marry, they sign an agreement that in the event of divorce or separation, Tiffany is to receive $75 per week alimony from Mark. Under prior state decisions this antenuptial agreement would be void.  The court held that, the old rule that such agreements are automatically void, is abolished. Specifically, the court recognized that divorce was a common occurrence and there was no evidence that prenuptial agreements encouraged divorce. Furthermore, changes in society render restrictions of prenuptial agreements inappropriate.  The agreement on alimony was valid, provided there was full disclosure, and provided the terms were not unconscionable, viewed as of the time of enforcement.  See, e.g., Edwardson v. Edwardson, 798 S.W.2d 941 (Ky. 1990).

Given each person’s unique circumstances, prenuptial agreements are not standardized.  Rather, they are tailored to the individual needs of the parties.  Furthermore, they are not necessarily ironclad, unless they are structured properly. 

Elements of an Enforceable Prenuptial Agreement

There are three basic requirements for prenuptial agreements:

  1. the contract must comply with the Statute of Frauds,
  2. there must be consideration, and
  3. there must be ascertainment that there is no overreaching in the contract.

The Statute of Frauds, which is in effect in most states, requires that a contract made in consideration of marriage or a promise to marry, other than mutual promises to marry, must be in writing and signed by the party against whom enforced is sought.  See Restatement (Second) of Contracts §§ 110 (1) (c) (1981).  Thus, where marriage is the entire consideration or only part of the consideration for the contract, the agreement must comply with the Statute of Frauds. 

The reason there is a writing requirement for prenuptial agreements is because of the assumption that when parties are marrying they will give less attention or consideration to the marriage contract than they would with ordinary contracts.

EXAMPLE (1): Mick induces Jerry to come to the United States from Europe and marry him under an oral prenuptial contract. Their marriage lasts for only 55 hours; Jerry sues to enforce it. Enforcement of the agreement is denied, because the Statute of Frauds requires that a prenuptial agreement be in writing.

The consensus of the case law seems to be that the marriage itself does not constitute sufficient part performance as to justify the enforcement of the oral antenuptial agreement, even when a party has undergone a change of position other than the change of marital status.  See, e.g., Hutnak v. Hutnak, 78 R.I. 231, 81 A.2d 278 (1951).

EXAMPLE (2): Donald and Ivana are contemplating marriage.  Ivana is a former New York fashion model and champion skier. She owns her own apartment in Manhattan.  Donald is a budding real estate tycoon and has already acquired several buildings.  Donald does not feel comfortable not having a written prenuptial agreement. Despite his qualms, Donald and Ivana agree to an oral prenuptial agreement in which they both fully disclose their current property holdings.  After they married, Ivana gave up her career to raise their three children. Fourteen years later when they decide to divorce (Donald had an affair), the judge disallows their oral prenuptial agreement because in order for a prenuptial agreement to be valid, it must be written and signed by both parties.  Instead, after hearing all the evidence, the judge proceeds to dissolve their marriage and separate the assets of both parties in an equitable manner, as required by state law. 

Yet, as is true under other clauses of the Statute of Frauds, a writing properly signed may make the oral antenuptial agreement enforceable even though it is executed subsequent to the oral agreement and subsequent to the parties’ marriage.  See, e.g., Ayob v. Ayob, 74 Cal.App.2d 236, 168 P.2d 462 (1946).

EXAMPLE (3): Donald and Ivana are contemplating marriage. Ivana is a former New York fashion model and champion skier.  She owns her own apartment in Manhattan.  Donald is a budding real estate tycoon and has already acquired several buildings.  Donald does not feel comfortable not having a written prenuptial agreement. Despite his qualms, Donald and Ivana agree to an oral prenuptial agreement in which they both fully disclose their current property holdings.  After they married, Ivana gave up her career to raise their three children. In addition, on their first-year anniversary, they memorialized their oral agreement with a written one.  Fourteen years later when they decide to divorce (Donald had an affair), the judge allows the subsequent writing of their oral prenuptial agreement to determine how to distribute their property. 

Some states require a prenuptial agreement must not only be in writing, but must also be formally witnessed (as do other documents, such as a will).

There are exceptions to the rule requiring written agreements, however, where courts have been willing to enforce a prenuptial agreement that has not been written because of the parties’ sufficient part performance or detrimental reliance.

EXAMPLE: Thomas had orally promised that if Catherine changed her plans to go to New York City for a job as a nurse and to give up her baby for adoption, he would treat the unborn child “as if it were his own.”  Thomas even went as far as listing his name on the child’s birth certificate.  In addition, during their four-year marriage, Thomas kept his promise.  When they separated, however, Thomas claimed he had no further duty to support the child - due to the oral promise.  The court held for Catherine because she detrimentally relied on Thomas’s promise.  As such, he was estopped from raising the Statute of Frauds to defeat an oral prenuptial agreement.  See, e.g., T v. T, 216 Va. 867, 224 S.E.2d 148 (1978).

Consideration is always an essential element to a contract.  If there is not adequate consideration, a contract is invalid.  In the marital realm, the mutual promises to marry serve as adequate consideration.

In determining whether the prenuptial agreement is inequitable to one of the parties, courts have considered the following factors.  The acronym F.A.I.R. provides a guideline for potential overreaching:

  • Fairness
  • Assets and liabilities disclosure
  • Independent counselReasonable time

Fairness

A premarital agreement is considered unfair and therefore not likely to be enforced, if it is “unconscionable.”  Courts investigate whether an agreement lopsidedly favors one spouse or the other on a case-by-case basis.  Furthermore, people and circumstances change, so that an agreement that is fair at inception might become less so over time. As such, unconscionability is tested at the time enforcement of the agreement is sought, as opposed to when it was executed, because blindly enforcing an outdated agreement can result in unforeseen economic hardship to a spouse that may “shock the conscience” of the court.  Besides, public policy mandates against the enforcement of unconscionable support agreements.  See, e.g., Lewis v. Lewis, 69 Haw. 497; 748 P.2d 1362 (1988).

EXAMPLE: Brittany and Ted are both 25 years old when they decide to marry. They signed a premarital agreement that awarded all the assets of the marriage to Ted in the event that they divorced. In addition, the agreement waived Brittany’s right to alimony.  During the course of their marriage, Ted starts a software company that makes him a billionaire.  Brittany stays home to raise their six children. When they divorce 15 years later, the court would probably not enforce the prenuptial agreement on the ground that it was unconscionable to deny Brittany any of the couple’s wealth accumulated during the marriage or support upon its dissolution.

Assets and Liabilities Disclosure

At the heart of any valid premarital agreement is the requirement of disclosure.  Parties must fully and accurately disclosure all assets and liabilities prior to the writing of the contract.  Without adequate disclosure it is difficult to create a binding contract, especially if material facts have been concealed. Thus, the best way to ensure that the validity of the agreement is to exchange current net worth statements, setting forth each spouse’s assets and liabilities.

EXAMPLE: Throughout the time Lucy and Ricky dated, he always represented himself as a man with no money and lots of debts.  Lucy believes that Ricky truly is poor and decides that she and Ricky will work together once they get married to run their household.  If Ricky was lying the entire time and deliberately concealed the fact that he owns a bar (to avoid listing it in the prenuptial agreement), the agreement will be invalid because Ricky purposely hid the true amount of his wealth from Lucy.

Independent counsel

Another potentially problematic area is the idea of having joint counsel to prepare and review the proposed prenuptial agreement.  To protect the interests of both parties, it is strongly advised that each party have separate counsel.

EXAMPLE: Angela and Kevin are madly in love.  Due to their positive relationship, Angela decides to also use Kevin’s lawyer to advise her on their prenuptial agreement.  Angela will not be adequately protected by using Kevin’s lawyer because Kevin’s lawyer only has a duty of loyalty to his client, Kevin, not Angela.  To make sure Angela fully understands the agreement, it is best that she consult her own lawyer.

Even the practice of recommending several names for the other spouse to choose from should be avoided, to avoid the appearance of undue influence or other impropriety. Although a signatory to a premarital agreement can knowingly waive the right to counsel, it is prudent for attorneys to insist on separate independent representation for each party.  Ideally, each party should be responsible for the payment of her or his counsel fees.  However, if one party pays for the other’s fees, whether by loan or by gift, the relevant facts should be explicitly set forth in the agreement.

Reasonable time

The last key is the circumstances surrounding the negotiation and execution of the agreement should be devoid of duress.  The most common example of unacceptable pressure is the presentation of a draft agreement, on the eve of the contemplated marriage, or, in the most extreme case, literally on the actual date of the wedding.  Instead, the agreement should be prepared and ready to review in a reasonable amount of time before the big day.

EXAMPLE: Professor Klutz hands his bride-to-be, Felicia, a paper a few minutes before she is about to walk down the aisle.  When she asks him what it is, he downplays the significance of the paper and simply states: “it is just a little agreement I thought would be helpful for us in the future.”  Given the timing, Felicia did not have the time to thoroughly review the agreement, or, more importantly, have a lawyer look at it. Felicia signs the agreement.  Once the couple is married, Felicia finds time to read over the agreement.  Infuriated at the terms, she contacts a lawyer.  The lawyer advises her that under the circumstances the agreement would likely be considered invalid because it was signed under duress.

Uniform Premarital Agreements Act of 1983 (“UPAA”)

The Uniform Premarital Agreements Act of 1983 (“UPAA”) was promulgated by the National Conference of Commissioners on Uniform State Laws as a model law to standardize the drafting and administration of premarital agreements.  To date, it has been adopted by 28 states:

  • Arizona
  • Illinois
  • New Mexico
  • Arkansas
  • Indiana
  • North Carolina
  • California
  • Iowa
  • North Dakota
  • Colorado
  • Kansas
  • Oregon
  • Connecticut
  • Maine
  • Rhode Island
  • Delaware
  • Montana
  • South Dakota
  • District of Columbia
  • Nebraska
  • Texas
  • Hawaii
  • Nevada
  • Utah
  • Idaho
  • New Jersey
  • Virginia
  • Wisconsin

A review of select sections of the UPAA shows some of the areas it addresses:

Section 1.  Definitions. 
Defines a “premarital agreement” as “an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage.”  (Agreements between persons living together but not contemplating marriage and postnuptial agreements are outside the scope of this Act.)

Section 2.  Formalities.
A premarital agreement must be in writing and signed by both parties.  It is enforceable without consideration.

Section 3.  Content. 
(a) Parties to a premarital agreement may contract with respect to:

  1. the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
  2. the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
  3. the disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
  4. the modification or elimination of spousal support;
  5. the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
  6. the ownership rights in and disposition of the death benefit from a life insurance policy.

(b) The right of a child to support may not be adversely affected by a premarital agreement.

Section 4.  Effect of Marriage. 
A premarital agreement becomes effective upon marriage.

Section 5.  Enforcement. 
(a) A premarital agreement is not enforceable if the party against whom enforcement is sought proves that:

1. that party did not execute the agreement voluntarily; or

2. the agreement was unconscionable when it was executed and, before execution of the agreement, that party:

  1. was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
  2. did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and
  3. did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.

Since these agreements are governed by state law, it is advisable to revise (or at least review) the agreement after a move to another state.

EXAMPLE: On the day before Jacqueline (a 23-year-old unemployed nurse) and Ari (a 39-year-old neurosurgeon) marry, Jacqueline signs a prenuptial agreement in which Ari’s support payments in the event of separation or divorce are $200 per week (but in no event more than $25,000 total).  Ari earns $90,000 per year and has a net worth of $300,000.  Subsequently, Ari and Jacqueline separate.  While divorce proceedings are pending Jacqueline seeks additional support; the $25,000 limit was quickly reached.  The court held that so long as there was full disclosure the prenuptial agreement was enforceable.  Paternalistic presumptions to shelter women from perceived inferiority were not valid and must be discarded, especially in light of the Equal Rights Amendment adopted in this state.  Therefore, the court will not inquire into the reasonableness of this agreement any more than it would for other contracts.  See Simeone v. Simeone, 581 A.2d 162 (Pa. 1990).

As stated in Simeone, courts require full disclosure or full knowledge and understanding of the nature, value, and extent of the prospective spouse’s property.  If the agreement gives one party a disproportionate amount of assets upon dissolution, the financially disadvantaged party is advised to consult with counsel.  Furthermore, if the assets are distributed disproportionately upon death, the burden of proving full disclosure of assets falls on the party asserting the validity of the agreement.  

The Simeone court said if full disclosure is recited in the agreement, the presumption is in favor of the proponent, and can only be rebutted by clear and convincing evidence.  It is to be noted that the burden of proving fraud, duress, coercion, or overreaching remains with the challenger of the agreement.  I would omit this last portion as this is fairly unique to this courts holding. As correctly stated in the courseware above, many courts would not enforce this because it would be considered unconscionable.

In comparison, nothing in Section 6 of the UPAA makes the absence of assistance of independent legal counsel a condition for the unenforceability of a premarital agreement.  Lack of assistance, however, may well be a factor in determining whether the conditions stated in Section 6 may have existed.  See, e.g., Del Vecchio v. Del Vecchio, 143 So.2d 17 (Fla. 1962).

EXAMPLE: Ted and Jane were contemplating marriage.  Three months before their wedding date, Ted suggested they prepare a prenuptial agreement. Ted consulted his long time attorney for assistance.  Jane trusted Ted completely, so she did not bother to seek independent counsel.  Their proposed prenuptial agreement only gave her a flat $250,000 settlement in the event they divorced.  The agreement fully disclosed that Ted owned assets worth $1 billion.  The fact that Jane did not seek independent counsel is an insufficient argument to negate the prenuptial agreement, if there was full disclosure and she had knowledge of Ted’s assets.

One might think that where a party did not have the advice of counsel, a court should subject the agreement to a higher level of scrutiny.  Yet, the California Supreme Court concluded that, while the ability of the party challenging the agreement to obtain independent counsel was a factor in determining the voluntariness of the agreement, failure to have counsel does not permit the trial court to expose the agreement to heightened scrutiny.  Specifically, the failure of a spouse to secure independent legal representation during negotiations with the spouse who was promoting entry into a prenuptial agreement does not, per se, invalidate the agreement at the time of divorce.  See, e.g., Bonds v. Bonds, 24 Cal. 4th 1, 5 P.3d 815 (Cal. 2000).

EXAMPLE: Barry Bonds and his bride-to-be, Sun, made a stop at his lawyer's office in order to sign a prenuptial agreement.  The stop occurred as they drove to the airport for a scheduled Las Vegas wedding.  At the signing, Bonds had his financial adviser and two lawyers in attendance while Sun had only a friend from Sweden with her.  This occurred in 1988 when Bonds was earning $106,000 a year playing for the Pittsburgh Pirates. Under the terms of the prenuptial agreement, when the couple divorced six years later, Sun received $10,000 per month in child support for each of their two children, and $10,000 per month in spousal support which ended in 1998.  At the time of their divorce, Bonds was not only earning $106,000 a year, rather, he was earning $8 million a year with the San Francisco Giants.  Because California is a community property state, Sun would have been entitled to half of his earnings.  Because she signed the prenuptial agreement, she received a mere fraction of what she would have otherwise received.  See, e.g., Bonds v. Bonds, 24 Cal. 4th 1, 5 P.3d 815 (Cal. 2000).

In addition, prenuptial agreements often have a sunset provision - they expire after a certain number of years - thereby prompting the need for postnuptial agreements.

Postnuptial Agreements

Couples may turn to postnuptial agreements to update and extend the provisions originally agreed to in the prenuptial agreement, especially when they contain sunset provisions that make them invalid after a set number of years.  In fact, when Donald Trump was married to Ivana, he changed their prenuptial agreement three times before they divorced in 1990.

EXAMPLE: Donald and Marla are contemplating marriage. Marla, a fledging actress, is pregnant with Donald’s baby.  Since this will be Donald’s second marriage (he lost $25 million to his first wife, Ivana) he is even more adamant about preparing an enforceable agreement. The sunset provision states that if he and Marla are married more than five years when they divorce, Marla will get a $10 million settlement.  To save money, Donald decides to divorce Marla after only 3½ years of marriage so that he only has to pay out a $2 million settlement to Marla. I don’t like this example here.  The topic in this section is postnuptial agreements and it’s discussed above that you might want to draft a postnup if your prenup has a sunset provision.

As with premarital agreements, states are free to dictate their own requirements for validity.  For instance, one of the requirements in Minnesota is that each spouse must own property worth a net value of at least $1.2 million before a postmarital agreement is valid. See Minn. Stat. Ann. § 519.11.

Yet, the validity of postnuptial agreements is more uncertain.  For instance, antenuptial agreements which purport to regulate the amount of support to be paid by one spouse to the other during marriage have in the past generally been held invalid.  See, e.g., Fincham v. Fincham, 160 Kan. 683, 165 P.2d 209 (1946); Hilbert v. Hilbert, 168 Md. 364, 177 A. 914 (1935) (antenuptial agreement invalid in providing that neither party would claim alimony or attorney fees in the event of separation).

Even less settled is the enforceability of antenuptial agreements used to regulate the parties’ relationship, financial or otherwise, during the marriage.  Proponents argue that such agreements may appeal to the desire for some structure in marriage at a time when the law has eliminated nearly all structure from the relationship. 

Although lawyers may be asked to draft agreements that establish forfeiture penalties for infidelity or dictate who takes out the garbage and when, the few cases which have arisen in the past have refused to enforce agreements respecting sexual relations between the spouses (See, e.g., Favrot v. Barnes, 332 So.2d 873 (La.App. 1976), reversed on other grounds, 339 So.2d 843 (La. 1976); Restatement (Second) of Contracts § 190 (1981)) and prohibiting the wife’s children from a prior marriage to live with the parties.  See, e.g., Mengal v. Mengal, 201 Misc. 104, 103 N.Y.S.2d 992 (Dom.Rel.Ct. 1951). 

The results of these cases are that the intimate day to day conduct of married persons cannot be controlled by judicial decision, whether or not the decision is based upon the parties’ own contract.

Despite the requisite planning that goes into most weddings, occasionally a marriage never takes place.  Since prenuptial and postnuptial agreements are effective upon or during marriage, respectively, either would be ineffective in deciding how to distribute property if the marriage never takes place.