Premarital Agreements Explained
As individuals marry later in life, and wealth is sometimes attained during the run-up to marriage, to make sure each spouse is protected in the event of divorce, many couples are opting for prenups, a legal contract that is executed prior to marriage. While historically prenups were viewed as unromantic or even offensive, they are becoming more common and seen as a necessary legal protection.
Prenups become essential when one partner has a substantial estate. A prenup covers the fate of assets acquired before and during marriage. The agreement can make provisions for spousal support, financial responsibilities during marriage, how potential divorce will be handled in terms of finances , and other legal issues that would need to subsequently be worked out post-divorce.
Common elements included in prenups are the safeguarding of assets pre and post marriage, defining the division of property and assets in the event of divorce, and outlining spousal support payment amounts and duration. Emotional issues between spouses are also covered, such as confidentiality, maintaining lifestyle standards, and more. In some cases, the agreement identifies responsibilities of the couple for matters such as caring for children, dividing up household chores, how to handle the purchase of real estate, and even which religion to practice, if any. While the content of prenups is very contractual, emotional components are often included as well.
Ways Premarital Agreements Stand Up In Court
For a prenuptial agreement to hold up in Court, it needs to conform to certain criteria. These are: The agreement must be in writing. In some states, a verbal agreement or a partially written agreement may be acceptable, but most jurisdictions require a written agreement. The agreement must be properly executed. This means the agreement must be signed by both parties. With some states requiring that the signatures be notarized by a notary public (or other designated individual). Certain jurisdictions may also require that the agreement be witnessed by additional persons or filed with a certain court.
Both parties should receive independent legal counsel. It’s considered better practice for both parties to have their own lawyer review the agreement, even when both parties agree to do so in order to save on legal fees. A truly "voluntary" agreement is one in which full disclosure is provided, and an independent lawyer gives counsel to each party. Otherwise, it will be in the purview of the courts to determine whether there was fair disclosure at the time the agreement was drafted. There was perjury, duress, fraud or unconscionability by a party at signing. These terms describe circumstances such as one party lying about assets, one party threatening the other with harm or violence, one party hiding important information from the other party at the time of signing or one party entering into the agreement while being deprived of basic necessities (unconscionability).
How Premarital Agreements Can Be Challenged
Common grounds for challenging prenuptial agreements include allegations of duress or coercion. Generally, if both parties sign a prenuptial agreement under pressure, in a rush, without reading the agreement, or without the benefit of independent legal counsel, the document is subject to challenge. But proving duress or coerciveness may not be easy.
In rare cases, parties may sign an agreement without independent legal advice. Only a court can decide if a prenuptial agreement is "voluntarily entered into," but a document is more likely to pass mustert when independent counsel is involved.
For a prenuptial agreement to be valid, each party to the marriage must fully and honestly disclose his or her finances. Hiding assets for the purposes of creating a loophole in the law is a basis for breaking a prenuptial agreement.
In order for a prenuptial agreement to be enforceable, it must have full financial disclosure. If a spouse claims he or she didn’t know what the other spouse was worth at the time, the court may invalidate the contract.
The contract must also be conscionable, meaning fair and reasonable at the time of execution. If one spouse, for example, had substantially greater assets and signed a prenuptial agreement denying alimony to the other, the court may not enforce the contract.
Things Courts Look For When Deciding Premarital Disputes
In disputed cases, courts consider whether a prenuptial agreement is enforceable based on factors such as the location where it was executed, when it was signed, the material adequacy of its provisions, whether the party against whom its enforcement was sought received a fair and reasonable disclosure of the property or financial obligations of the other entry, and whether he or she voluntarily and expressly waived, in writing, any right to disclosure beyond that provided in the agreement. New York Domestic Relations Law ยง 236(B)(3). Courts consider all of the circumstances surrounding the execution of the agreement, including the context and setting of its making and make an independent determination as to whether the agreement is fair and equitable. Rabin v Rabin, 235 AD2d 420 [2nd Dept 1997]. If an agreement was made unreasonably and without the advice of counsel , it will be set aside. However, if a party who lacks independent legal counsel has voluntary waived that right, knowing that he or she could not hire an attorney, the agreement would be enforced. Matter of Anastasi v Hunt, AD2d 974 [3rd Dept 1992]. The court considers whether the parties were advanced equal time to review; that there was no fraud or overreaching on the less wealthy not to bargain; whether the wealth disparity between the parties was great enough to justify special circumstances for the imposition of fairness requirements. Matter of Rothko v Wagner, 43 NY2d 305 [1977]; Rabin v Rabin, 235 AD2d 420 [2nd Dept 1997]. Generally, an agreement by a prospective spouse to pay a disproportionate amount of the couple’s debts does not constitute duress or overreaching. Matter of Bilinski v Bilinski, 49 AD3d 1112 [3rd Dept 2008].
Noteworthy Case Studies
Case Study 1: Prenuptial Agreement Spelled Disaster for Wife in Divorce.
In the case of Henoud v. Henoud, a New York couple was married in 1996. Although each spouse had assets prior to the marriage, it was Mrs. Henoud who had the greater amount and more valuable assets, and Mr. Henoud agreed to the marriage under the condition that a prenuptial agreement be signed. The agreement specified that if there was a divorce the parties would be bound by the New York state equitable distribution law, which provides that each party receives his or her assets and not joint assets.
When the couple did divorce five years later, Mrs. Henoud tried to get more than she was entitled to under the terms of the prenuptial agreement. She wanted Mr. Henoud to share some of his wealth with her. The court considered the intent of the parties when they signed the prenuptial agreement and held that it was clear the couple understandings and agreed that prenuptial agreements are binding. Therefore, they were stuck with the agreement. The court awarded Mr. Henoud the majority of the assets and gave Mrs. Henoud the house until their son turned 18.
Case Study 2: Husband Tricked Wife into Signing Prenuptial Agreement Without Listening to It First.
In the case of Berenford v. Berenford, the judge threw out a prenuptial agreement that had been hastily drawn up. Although the agreement was a legally binding contract in the eyes of the law, the court found that it had been signed under conditions of fraud and deception. Mr. Berenford told his wife to be, "I want you to sign this agreement, take half of what you have and put it in the joint checking account." After hearing his explanation, she signed and dated it. However, she would later say that she signed without anyone reading it out loud. Mr. Berenford’s statement made it sound like the prenuptial agreement made it seem more favorable to her. The judge deemed this type of deception unacceptable and voided the agreement.
Case Study 3: Prenuptial Agreement Allowed Wife to Keep Business Income but Not Assets.
In the case of Moore v. Moore, the judge found that the terms of the husband’s prenuptial agreement were fair. However, there was a dispute between the parties over whether the wife got a fair amount of future income from a business. The agreement stated, "The wife recognizes that the husband has a business interest and agrees that the husband shall have the right to all future income but not the assets or good will."
The judge said that the wife was given the business before marriage. The court also noted an Appellate Division case from 1983 that held that while she got no income, she did keep the business. The prenuptial agreement held.
How to Make a Premarital Agreement Stand Up
The key to ensuring your prenuptial agreement holds up is to control what can and cannot be waived, as opposed to what must be waived. For example, in order for a prenuptial agreement to be enforceable, each party generally must make a full and fair disclosure of his or her finances, and there should be no fraud, coercion or duress involved if the prenuptial agreement is to be enforceable. A prenuptial agreement that waives spousal maintenance (spousal support) or custody may not be enforceable. Also, even if an agreement disallows spousal maintenance, it must allow for modification by the Court based on changed circumstances. Arguments about these types of agreements mostly center on whether the prenuptial agreement was unconscionable at the time of the enforcement, and if any provision of the agreement violated public policy (i.e. may not be enforceable or against the law).
If you and your spouse enter into a prenuptial agreement before the marriage that deals with issues that are outside the scope of the agreement such as custody of minor children or child support, a court may not uphold the provisions of that agreement. For example, you cannot waive child support for a future minor child . Judges will generally not uphold an agreement that set forth the amount of child support, but allowed for the amount of child support to be reduced based on the non-custodial parent making less money during the divorce or separated period.
Broadly, if an agreement has provisions dealing with support obligations for a child, a court may not uphold such an agreement. A parent’s obligation to pay child support is based on the best interest of the child, and that obligation may not be waived. Generally, because the Legislature sets forth how child support is calculated and the courts must follow that. No prenuptial agreement may supersede that.
Another reason prenuptial agreements sometimes fail is because of their wording. If a provision indicates that one party will not receive any interest in property but fails to indicate that they would waive all rights to the property if the spouse predeceases them, a court may not uphold such an agreement. An agreement that is unclear or uses vague language may not be upheld in court.
The overarching theme of a prenuptial agreement is disclosure of assets. If a prenuptial agreement shows full and fair disclosure and both parties discuss the agreement with separate counsel, and all provisions of the agreement are followed at the time it was entered into; then a court is likely to uphold the agreement.