Premarital Agreements/ Antenuptial Contracts

Terms:

Antenuptial/Prenuptial Agreement:
A contract between prospective spouses made in contemplation of marriage and to be effective upon marriage. Antenuptial agreements are entered into in an endeavor to settle issues of support, distribution of wealth and division of property in the event of the death of either or the failure of the proposed marriage resulting in either separation or divorce. Commonly, the Statue 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 that they be signed by all parties to be bound by the contract.

Overreaching:
In connection with commercial and consumer transactions, is that which results from an inequality of bargaining power or other circumstances in which there is an absence of meaningful choice on the part of one of the parties.

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 developed due to the lack of uniformity and the uncertainty as to the enforceability of provisions in premarital agreements. 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 marriages 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 made before and in contemplation of marriage. Typically, the agreement discloses each party’s assets and debts and specifies what happens to those items upon death or if the parties divorce. 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, historically courts 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 as long as they are fair and make adequate provision for each spouse in view of the needs and resources of each. 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 alimony per week from Mark. Under prior state decisions, this antenuptial agreement would be void. The court held that the rule that such agreements are automatically void should be 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 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 it is to be enforced. See Restatement (Second) of Contracts §§ 110(1)(c), 124 (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 for including prenuptial agreements among those for which a writing is required seems to be the greater risk that where marriage is part of the bargain the parties will give it less thought or consideration than would be the case with ordinary contracts.

Example: 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 cases seems to be that the celebration of the marriage does not constitute sufficient part performance 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: 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 is uncomfortable 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: 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 is uncomfortable 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 that 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 agreement is inequitable to one of the parties, the acronym F.A.I.R. provides a guideline for potential overreaching:

  • Fairness
  • Assets and liabilities disclosure
  • Independent counsel
  • Reasonable time

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 were both 25 years old when they decided 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.

At the heart of any valid premarital agreement is the requirement of disclosure. Without adequate disclosure it is difficult to create a binding contract, especially since material facts have been concealed. Thus, the best way to ensure 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 believed Ricky truly was poor and decided that she and Ricky would work together once they get married to run their household. If Ricky was lying the entire time and deliberately concealed the fact that he owned 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.

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 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.

The last key is that 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.

As this example illustrates, it is best to allocate more time between the date of execution of the prenuptial agreement and the wedding.

An unfavorable ruling in one jurisdiction is not necessarily the death knell to a favorable outcome in a divorce action. Since divorce laws are state-specific, a move to another state may positively affect the final outcome.

Example:
To protect as much of his wealth as possible, Carl Icahn (the former owner of the defunct TWA Airlines) insisted upon a premarital agreement. However, not only was the agreement signed on the day of the wedding, the bride was two months pregnant. Despite the seemingly coercive setting, the New York court sustained the validity of the agreement under New York law. The Icahn saga was not over that easily because his soon-to-be ex-wife moved to Connecticut in search of a more favorable ruling.

As mentioned, there is no uniformity or standardization of agreements; however, some states have attempted to make the agreements more uniform via adoption of the Uniform Premarital Agreements Act of 1983.

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
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Hawaii
Idaho
Illinois
Indiana

Iowa
Kansas
Maine
Montana
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
North Dakota
Oregon
Rhode Island
South Dakota
Texas
Utah
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 6. Enforcement. 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:

    (i) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
    (ii) 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
    (iii) 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 since 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 also 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. The court also held that an agreement in which the wife relinquished all rights to past, present, and future support, division of property, and any other property rights accruing because of the marriage was valid because the wife was given a meaningful opportunity to consult with counsel and declined.

Example: Ted and Jane were contemplating marriage. Three months before their wedding date, Ted suggested they prepare a prenuptial agreement. Ted consulted his long-term 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.

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: 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 earning only $106,000 a year, but 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. However, 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).

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).

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.

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 with 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 agreement 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 may be justified as saving the time and energies of courts and as taking the realistic position that the intimate day to day conduct of married persons cannot (and should not) 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.

Suits for Breach of Promise to Marry

About one-half of American states today permit a suit for breach of promise to marry. Historically, most plaintiffs in breach-of-promise suits have been women. However, virtually all states that allow such actions at all, allow suit to be brought by either the man or the woman. Usually, the damages allowed are for reimbursement of the expenditures made in reliance upon the upcoming wedding.

Example: Paulette sues for breach of promise to marry. David moves to dismiss on the ground that the action is contrary to public policy. The court held that Paulette could recover in a quasi-contract, quasi-tort action for foreseeable special and general damages. Therefore, she was able to recover for mental anguish, loss to reputation and injury to health. Conversely, damages for loss of expected financial and social position were not allowed. See, e.g., Standard v. Bolin, 565 P.2d 94 (Wash. 1977).

Another common dispute arising after a cancelled wedding is what to do with the engagement ring. Courts generally treat the engagement ring as a gift from the donor (the person who gave the ring) to the donee (the person who received it). To find a legal gift, a court looks for three things:

  1. the donor's intent to give the ring as a gift;
  2. the donor's delivery of it to the donee; and
  3. the donee's acceptance of the item.

If the person to whom the ring was given can show all three elements, the ring is considered a gift to him or her.

Yet, the majority of courts also consider such a gift to be a conditional one. That means that until some future event occurs (in this case, the wedding), the gift is not final. If that event does not occur, then the donor has the right to get the gift back. See, e.g., Heiman v. Parrish, 942 P.2d 631, 633 (Kan. 1997). It does not matter who decided to call off the wedding.

The Supreme Court of Montana has recently come down on the opposite side of this issue, rejecting the conditional gift theory and declaring that an engagement ring is an unconditional, completed gift, and that's that. See, e.g., Albinger v. Harris, 2002 MT 118 (Mont. June 6, 2002).

In contrast, just a few years ago the Supreme Court of Pennsylvania stuck steadfastly to the no-fault reasoning and decreed that the donor should always get the ring back if the engagement is broken off, regardless of who broke it off or why. Lindh v. Surman, 742 A.2d 643 (Pa. 1999). Iowa, Kansas, New Jersey, New Mexico, New York and Wisconsin have the same rule. Heiman v. Parrish, 942 P.2d 631, 636 (Kan. 1997).

Example: When Ben and Jennifer got engaged 18 months ago, Ben bought her a 1.5 carat pink diamond engagement ring. Recently, after a tumultuous relationship and one postponed wedding, they called off their engagement. Reportedly, Jennifer is the one who initiated the breakup. As with many questions in the family law area, for a definitive answer as to who gets the ring, the state of residence will govern the decision.

With the erosion of the institution of marriage, more people live together—sometimes as a precursor to marriage. Like couples contemplating marriage, individuals who decide to cohabitate also have a need to protect their property interests.

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