Prenup Agreements Under Statute of Frauds

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Prenup Agreements Under Statute of Frauds Powered By Docstoc
					    n America today, the probability        fOfm requ ired   by the j uri sdiction.       Encourage your clients to play it

I   of a marriage ending in divorce
    is grea ter than SO percent. U.S.
Census Bureau figures reveal that 10
                                            One prenuptial
                                            York state was
                                            the notary did
                                                              agreement in New
                                                             thrown Ollt because
                                                             not date the signa-
                                                                                       safe by presenting th e pren uptial
                                                                                       agreem ent before the wedding invi-
                                                                                       tations go out.
percent of th e ad ult populati o n is
divorced, up more than 7 percent
from 1970. Prenu ptial agreements

                                            1.      Timing
                                                                                       2.      Disclosure
                                                                                       Bo th parties should present complete
also are on the rise.                       The ti min g of a prenuptial agreem ent    financial sta tem ents, detailing all assets
   Sin ce 1970, the median age of first     is critical. Circumstances surrounding     and liabilities. T hese statements
marriages has increased from 20 .3 to       its negotiation and execu tion should      should be made as closely as possible
24.8 for women and from 22.8 to             be free from duress, ove rreac hing, or    to the time of mar riage to ensure cur-
27.1 for men . Wh en these older and        coercio n. An agree men t presented        rent figures at th e tim e of the agree-
more financially savvy (wenty-to-           just before or on the wedding day          ment's exec ution. The financial state-
thirty so mcthin gs arc ready to marry,      may be in val id due to duress.           ment shou ld cover bank accou nts,
they have individual investJ11cnts and                                                 incom e tax return s, sec urity accounts,
earni ngs to protect. In add ition, their                                              real estate an d mortgage information,
parents are insisting on prenuptial                                                    a list of automobiles and other vehi-
agreem ents before bequeathi ng the                                                      cles, and any outsta nding loa ns.
parents' hard earned savin gs.                                                                  Occasionally, disclosures are

What to Include
Prenuptial agreeme nts can
address almost anyth ing,
                                  Prenuptial                                                    more complex. If your client
                                                                                                   owns a business, he o r she
                                                                                                     sho uld disclose the name
                                                                                                       and nature of the busi-
fro m     avoiding
default rule in com-
munity property juris-

                                 Prerequisites                                                          ness, th e valu e of his or
                                                                                                         her interest in it, and
                                                                                                          th e valuation method

dictions (which div-                                                                                      used to calcu late the
ides all marital pro p-                                                                                    va lue. Th e value of
erty equa ll y upOli
divorce) to wa iving
                                        The     essential                                                 retirement benefits
                                                                                                          also should be dis-
alimony or oth er sup-
POrt. C ustody and child-
                                         elements of an                                                  closed. A C PA will be
                                                                                                        helpful in determining
suppOrt ma([ers may be
add ressed, but courts are            inviolable agreement                                             wh ich valuation meth-
                                                                                                     ods to lise for the business
likely to set them aside,                                                                          or retirem ent benefits as
reservin g the right to decide                      BY M A RK A. CHINN                          well as in preparing a firs t-
the best interests of children .                             A ND                            rate financial sta tem ent.
    To draft a va lid pren uptial agree-              CH A RLES GREER                        Some courts have ruled that dis-
ment, first investigate your jurisdic-                                                 closure statements may approximate
tion's statutory law. Twenty-six states                                                net worth. In lWegginson v. Megginson,
have adopted so m e form of the                 However, in Fletcher P. Fletcher, 68   367 IU. 168 (Ill . 1937), a wife w ho
Uniform Premarital Agreement Act            Ohio S.3d 464 (O hio 1994), the            was trying to inva lidate a pre nup~
(UPAA). (See M organ, page 12.)             Supreme Court of Ohio held that an         agreeme nt admitted that her h ·'s~d
Whereas C01111110n law requires             agreement signed one day before the        had disclosed owning two, rms but
prenup tial agreements to be proce-         marriage was valid when all other          denied knowing the ature and
durally and substa ntively fa ir, th e      prerequisites were satisf:1ctoril y met.   extent of hj s pro perty. n  llPhOIY
                                                                                                                        g  in
UPAA pro teCts against uncon-               The COLIrt noted, however, that pre-       the agreem en t, th e ( premc Co '
scionability.                               sellting a prenuptial agreement short-     of Illinois sta ted:
    Most jurisdictions manda te four
basic prereq uisites to a va lid prenup-
                                            ly before a weddi ng cerem ony wou ld
                                            "create a presllmption of overreach-
                                                                                          " " ""',. '''' "wo>, oom,,~                 (
tial agree ment: ti min g, disclosu re,     ing or coe rcion if postponement of
independent co unsel, and fairness .        weddi ng would ca use significant
(Note: Some say there is a fifth man-       hardship, embarrassment, or emo-
date: properly acknowledged in the          tional distress."
                                                   and extent of th e intended hus-             If your state has adopted th e
                                                   band 's property, an antenuptial         UPAA. yo u may be tempted to allow
                                                   agreement releasing statutory            your client's spouse to wa ive full dis-
                                                   rights in the latter's estate in con-    closure as th e act permits. T he better
                                                   sideration of th e covenan ts of the     practice is to insist that both parties
                                                   intended husband will be held            prese nt a detailed and thorough
                                                   valid if the parties had legal capac-    financial statement as a means of
                                                   ity to contract. .                       avoidi ng an attack based o n conceal-
                                                   The court went on to say th at th e      ment or even fra ud.
                                               husband's d esc ripti o n of his real
                                               property was sufficient to enable the
                                               wife, by the application of ordinary
                                                                                            3.     Independent counsel
                                                                                            In many instances, independent
                                               intelligence. to verify his statement.       counsel has been a key facto r in
                                                   Case law does not provide signifi-       d eterminin g the overall Llirness and
                                               cant insight into what is f.:'lir and rea-   enforceability o f a prenuptial agree-
                                               so nable disclosure. Ne verth eless, a       m ent. Beca use both parties must
                                               court will likely view a detailed            enter th e contra ct know ledgeably
                                               finan cial statement accompanying the        and volu ntarily, each should consult
                                               premarital agreement to be fa ir and         with independent co unsel. However,
                                               reaso nable disclosure.                      no state mandates such consultation

The Uniform Premarital Agreement Act
What the law say., and how courts are interpreting it                                                BY LAURA W. MORGAN

~nte followi llg is adapted from Attacking     Virginia. Moreover, many states have         m arriage itse lf. California courts h ave
and D efending Marital Agreements              adopted laws that explicitly recog-          consistently interpreted this as a
§ 8.02 (A BA 200'1) . The book may             ni ze and regulate antenupti al agree-       statute-of-frauds provision, holding
be purchased from the ABA website at           ments much like th e UPAA.                   tl1at partial performance may render
http://llllvw.abaHet. orglstore/order.html.        Section 1 of th e UPAA states            even an oral agreement enforceable.
(See page 19.) The full text of the            explicitly that it applies only to           Hall v. Hall, 271 Cal. Rptr. 773 (Ct.
Ul1iform Premarital Agreeme1lt Act as          antenuptial agreements an d nOt to           App. 1990). The traditional defenses
passed by the Ulliform U/l.1) COII/missioll-   cohabitation, midnuptial, or separa-         based on lack of capacity, however.
ers is at            tio n agreeln ents. UPAA Prefatory           are ex pressly preserved. UPAA § 2
bll/ulc/fnact99/1980s/upaa83.htm.              Note (1983) . Nonetheless, in states         comment.
                                               that have adopted the UPAA, cOllrts              Section 3 states that the parties arc

         he modern view that                   have applied UPAA ptinciples to              free to contract about any rights that
         antenuptial agreements are            midnuptial agreements as weU.                arise by operation of marriage, includ-
         generally enforceable has                 Although the UPAA is limited in          ing property rights at divorce, death,
bee n codified in th e Uniform Pre-            scope, Section 1 expands the defini-         or any other contingency (UPAA §
marital Agreement Act (UPAA), 9B               tion of " property" to include income        3(a)(1-8», and the modification or
Uniform Laws Annotated (Master                 and earnings. By this definition , the       elimination of spousal suppo rt (VPAA
Editio n) 369 (1987), promulgated by           Commissioners have expanded tradi-           § 3(a)(4». The parties also are free to
the National Conference of Com-                tional property fights to include            choose th e law governing the agree-
missioners on Uniform State Laws in            those defined in divorce actions. See        ment, UPAA § 3(a)(7). By allowing
1983. As of October 2001, 25 states            O'Briel! v. O'Brien, 489 N.E. 2d 712         the parties to waive spousal support
and th e District of Columbia have             (N. Y. 1985) (defining property to           and property rights, the VPAA
approved and adopted the UPAA.                 include increased earnin g capacity.)        resolves a split on this issue and clear-
(See book for complete listing. )                  Section 2 ofUPAA dispenses with          ly favors enforcem ent of the \:vaiver of
The UPAA has been introduced                   aU formalities of execution except a         all ri ghts. The only limitation is that
in [he 2001 legislative sessions in            signed writing by the parties. No            the parties may not waive child sup-
Mississippi, Rhode Island, and                 consideration is necessary, except the       port, UPAA § 3(a)(7).

for validity. Some states require that    found the pren up tia l agreement         sc rutiny test sho uld be applied ro the
each party have th e opportunity to       invalid beca use th e prospective wife    voluntary requirement whe n one
consult with counsel of his or her        was not represented by an attorney        party lacks independent counsel (In
cho ice, but they do nOt require actu-    and thus did nOt have equal bargain-      re Bonds, 24 Cal. 4th 1 (Cal. 2000).
al consultation for the agreement to      ing power in th e drafting and execu-         In August 2000, the California
be upheld. Other states hold that                                                   Supreme Court overturned th e appel-
independent counsel is one facror ro                An absence of                   late rulin g, stating that although inde-
be considered 111 determining                                                       pendent counsel is an important fac-
                                                  counsel does not
whether the agreement was entered                                                   tor in determ.ining whether the agree-
into knowl edgeably or voluntarily.            make the premarital                  ment was entered into voluntarily,
    Under th e UPAA , an absence of                                                 premarital agreements are not subject
                                               prenuptial agreement
counsel does nOt make the premari-                                                  to strict scrutiny when the less sophis-
tal prenuptial agreement unenforce-                 unenforceable                   ticated party is not represented by
abl e. However, a lack of counsel may                                               counsel and has not waived counsel.
be a fa ctor in detennining whether       cion of the agreement. Strangely              The BO     llds case highlights the
the contract was entered into volun-      enough, California was amo ng the         iInportance of being well versed in
taril y or whether it was uncon-          fi rst states to adopt the UPAA, which    the applicable law. When a spouse
scionable w hen executed.                 does nOt specifically require indepen-    challenging a prenuptial agreement
    bl re BO llds, 83 Cal. Rptr.2d 783    dent representation. However, the         has obtained legal ad vice prior to
(Cal. App. 1999), the appellate court     appellate court reasoned that a strict    signing, co urts generall y have found

    Although the parties may contract     Freill1all, 680 N.Y.S.2d 797 (N.Y. Sup.   Pe"halloll) v. Perilialloll; 649 A.2d 1016
to any rights that arise by operation     Ct. 1998) (six-year statute of limita-    (IU. 1994), the attacking party had
of marriage, Section 3 clarifies that     tions for fraud applied, because wife     to show that the agreement was the
the parties may nOt contract "in vio-     could have discovered fraud during        result of involuntariness and lack of
lation of public policy," UPAA §          marriage).                                disclosure and was unconscionable.
3(a)(8). What is in violation of public      Section 6 is the key operative sec-    On the other hand, in many states
policy is obviously the matter of         tion of the Act. The party seeking to     that have not adopted the UPAA, and
some debate. The official comment         avoid enforcement of the agreement        in case law of states prior to their
states that the parties can agree as to   carri es th e burden of proof. See        adoption of it, the agreement must be
choice of abode, the freedom to pur-      Chiles v. Cltiles, 779 S.W2d 127 (Tex.    both substantively sufficient and be
sue career opportunities, and the         Ct. App. 1989), to show that the          the result of adequate disclosure. The
upbringing of children. Nonetheless,      agreement eirher (1) was reached          only exception is spousal support: If
in Mellgal v. Mellgal, 103 N.Y.S.2d       involuntarily, i.e., was the result of    the agreement leaves one spouse eli-
992 (N.Y. FaJ11. Ct. 1951), a court       fraud, duress, undu e influence           gible for public assistance, then the
held that the parties could not agree     (UPAA § 6(a)(1 )), or (2) was uncon-      court may require the other spouse
that the wife's sons from. a previous     scionable when executed al1d resulted     to provide support sufficient to avoid
marriage could not live with the          from lack of disclosure, UPAA §           eligibility, VPAA § 6(b) .
couple. Several other cases have held     6(A)(2). The unconscionability test is        Section 6 of the UPAA has been
that the parties cannot, by prenuptial    drawn from the Uniform Marriage           strongly criticized for specifying that
agreement, disagree about children's      and Divorce Act § 306. By this pro-       an agreement is unenforceable only
religious upbringing in the event 'of a   vision, the UPAA clearly favors           if it is unconscionable and if one
divorce. Rail/Oil !J. Ramon, 34 N.YS.     enfo rceability: An agreement is          party is gu il ty of nondisclosure. See
100 (N.Y. FaJ11. Ct. 1942); Avitzllr v.   enforceable even if it was un con-        Barbara Ann Atwood, Tell Years Laler:
Avilz llr, 459 N.Y.S.2d 572 (N.Y.         scionable when executed, as long as       Lillgerillg Concerlls About tile Ulliform
Fam. Ct. 1983).                           the moving party received a fair and      Premarital Agreelllem Act, 19 J. Legis.
    Section 4 states that the agreement   reasonable disclosure or waived           127,146 (1993).
becomes effective upon marriage, and      djsclosure or reasonably could have           Finally, in Section 7, the UPAA
Section 8 says that marriage rolls the    had adequate lG10wledge of the rele-      provides that the court may enforce
runnin g of the statute of limitations.   vant information.                         the antenuptial agreement if the
See III re CrnliJord, 730 P.2d 675            Indeed, in at least one state, the    marriage is void but was of signifi-
(Wash. 1986). COlllra Freiman v.          stakes were raised even higher, In        cant duration.UPAA § 7 . •

                                                                                                       WINTER 2002        13
th e agree m ent fa irl y execu t ed.             The time for assess ing su bstantive
Therefore, eac h party shoul d have
independe nt legal co unsel, and to
                                              fairness va ries from state to state.
                                              States are divided on the app ropriate
                                                                                           The valid
preve nt the appea ran ce of undue
influence or other impropriety, attor-
                                              time fo r measuri ng substa ntive fa ir-
                                              ness. Som e do so at the execution of
neys sho uld avoid recomm ending a            th e agreement; others at the tim e of       T he following steps may be h elpful
particular lawyer to the other party.         enfo rcement or both . Determining           in dt<tfting agreements that sta n d the

4.      Fairness
T he last prereq ui site is that the terms
                                              the substantive fa irness of a p renuptial
                                              agreement at the time it was made
                                              coincides w ith the parties' right to
                                                                                           b est chance of being held valid .
                                                                                           1. Enco urage th e parti es to execute
                                                                                               th e agreem e nt before selecting a
of an agree men t be fa ir. C ourts and       contract freely, H owever, it does not           marriage date o r at least sixty (60)
legislatures have agreed that dispro-                                                          days before t he weddin g.
portionate provisions alo ne do not                                                        2. With the help of an accountant,
invalidate a prenu ptial agreem ent.                       Courts and                          have each pa rty prepare a d etailed
H owever, courts apply different stan-                    legislatures                         financial state ment, setting fo rth
dards of fai rness to provisions on                                                            all assets, th e accou nt or other
                                                      have agreed that
distributi o n o f assets an d alimony.                                                        identi fica tio n numbers, and the
For example, a co urt may apply an                     disproportionate                        asse ts' va lu es. R em emb er to
u nconsc io nab ihty standard to alimo-                provisions alone                        include significan t personal prop-
ny but not to th e distribution o f                                                            erty and to docum ent the parties
                                                      do not invalidate
assets. Siluila rl y, provisions pertaining                                                    exc hange of fi nanc ial statem ents.
to the distr ibution of assets may be                     a prenuptial                         H ave eac h accountant submit a
assessed for fairness o nly at th e tim e                                                      letter certifying that he or she has
of executi o n, whereas ahmo ny provi-                                                         reviewed th e disclosures with the
sio ns m ay be revie wed for uncon-                                                            client and fo und th em adeq uate.
scionability at th e time of enforce-         protect again st un fo reseen changes in     3. M ake sure th e opposing party is
m ent. Some courts also consider th e         circumstances th at may affec t fi nan-          represented by co un sel o f his or
length of th e marri age, w hereas oth-       cial status and place one party at               her choosing and have th at attor-
ers will enforce an agreenlent th at is       fu ture financial ri sk. Consequ ently, an       ney sign an attestati on , certi fying
not fai r or conscionable if the pa rties     increasing nu mber of states are evalu -         that he o r she has reviewed each
signed the cO ntract vo luntarily and         ating the £,i rness of prenu ptial agree-        provision with th e clie nt.
knowledgeably.                                ments at the time of enforcem ent.           4. D o no t draft a one-sided agree-
                                                                                               m en t.
                                                                                           5. Film th e signin g.
                                                                                           6. H ave the parties sign a ratification
         Researching                                                                           of the agreem ent after tbe mar-
                                                                                               ri age. T his w ill help th e validi ty of
  Business Valuation Issues?                                                                   th e agreem e nt and with enforcing
                                                                                               pension provisio ns.                                                                                    -M.A.C. &        C. G.

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    Provisions waiving or altering            enforce it had satisfied the four basic           The court recognized that the
alimony are particularly susceptible          prerequisites.                                dependent spo use had not entered
under such evaluation. Provisions                 In McMullin v. McMullin, 926              into the contract knowledgeably or
that leave a spouse unable to meet            S.W2d 108 (Mo. App. 1996), th e               voluntarily because the val ue of the
reasonable needs, at a drastically            Missour i Court of Appeals found a            husband 's assets were not disclosed
reduced standard of Living, or a pub-         prenuptial agreement so one-sided             and she had no opportunity ro seek
lic charge or close to it, or, provisions     that it was "u nconscionable" and thus        independe nt counsel. Although the
that are otherwise unconscionable,            unenforceable. The court ruled that           court noted that independent COlIn-
will not be enforced . For example,           the agreement failed to meet "full            sel is not an absolute requirement, it
the U PAA provides that if a provision        disclosure" req uirements because it          concl uded that co unsel is required
causes a spouse to become eligible            listed but did nor value the husband 's       when an agreement is patently
for welfare assistance, the court may         property and did not allow the                unreaso nable, as this one was . •
order the other spo use to pay su pport       prospective wife sufficient time to
sufficient to avoid that eligibility.         seek legal counsel in reviewing the
    Ultimately, the standard of fairness      agreement prior to signing. This case
and the time for measuring it will            is particularly interesting in that the
depend on the state. Clients should           proponent had fulfilled his obliga-
be encouraged to draft agreements             tions under the agreement and
that meet the reasonable needs of a           argueq that the wife should be
                                              estopped fro m challenging its validi-
                                              ty because she had benefited from it.
         A sunset clause                      (Gene rally, the accepta nce of benefits      Mark A. Chinn practices family law in
                                              estops a person from questioning              Jackson, Mississippi. Charles Greer is a
           provides that
                                              the existence, validity, and effect of a      J.D. candidate, Mississippi College School
     after a specified time                   contract.) The court held th at when          of law, Jackson, Mississippi.
                                              a pren uptial or separation agreement
     the entire agreement
                                              is unconscionable, the court is under
    or a certain provision,                   no duty to esrop a party who has                      '"The best lraining I have ever had.
                                              benefited from chall enging the                               ZelllJ is wonderful.'''
        such as waiver of
                                              agreement's validi ty.
      alimony, terminates                         [ II the Matter of the Estate of Robert    Training Workshops
                                             J Crawford, 107 Wash.2d 493 (Wash.             in Divorce Mediation
                                              1986), the Supreme Court of                   Mediation Training Consultation Institute
depe ndent spo use and account for            Washington voided a prenuptial
changes in circumstances during the           agreement signed by a wife in the
marriage. This can be accomplished            presence of her husband's attorney
by allocating assets or ali mony to a         three days before the marri age
dependent spouse based on the                 because no provision was made for
length of the marriage.                       the wife in the event of divorce or
   Another possi bility is a sunset         . death . The husband failed to disclose
clause, which provides that after a           the value of his property, and the wife
specified time the entire agreement           was not afforded an opportunity to
or a certain provision, such as waiver        review the agreement with indepen-
of al.imo ny, terminates. These options       dent counsel. However, the court
may ensure that the agreement is fair         stated that a prenuptial agreement
and conscionable at the time of exe-          may be valid in the absence of a fair
cution or enforcement, thereby                and reasonable provision for th e less
decreasing the likelihood of the              advantaged spo use if there was full
provision's being set aside.                  and fair disclosure of all mater ial facts
   The following cases ill ustrate how        relati ng to the amount, character, and
the four basic prerequisites may be           value of property and the agreement
                                                                                                      For more information:
interpreted by courts. rn each case,          was entered into voluntarily with fu ll
                                                                                             (800)535-1155 or (734)663-1155
the agreement would not have been             understanding upon advice of com-        
set aside if the spouse seeking to            petent independent co unsel.

                                                                                                                   WINTER 2002             15

Description: Prenup Agreements Under Statute of Frauds document sample