PRENUPTIAL AGREEMENTS: PROCEED WITH CAUTION
I. SCOPE OF ARTICLE
Premarital (or “prenuptial”) agreements can be effective tools for determining who owned what at the time spouses marry, for confirming various agreements and expectations to guide the spouses during marriage, and for assisting the spouses in planning for the end of the marriage by death or divorce.
However, premarital agreements have various limitations and loopholes, which prospective spouses must consider carefully before signing one. The purpose of this article is to introduce the reader to many of those limitations and loopholes.
This article addresses premarital agreements under California law only. The issues and rules addressed in this article may be different outside of California.
II. FUTURE INTERPRETATION AND ENFORCEABILITY IS UNPREDICTABLE
There is no way to predict whether or to what extent a court might interpret or declare void any part of a premarital agreement in the future, for various reasons, including the following:
A. The laws concerning premarital agreements are constantly changing. Hence, a part of the agreement that may be valid today may be void in the future.
B. There is no way to predict what evidence will be made available to the court, or how the court will interpret that evidence.
C. There is no way to predict how the court will interpret the terms of the agreement.
D. There is no way to predict how the court will interpret the laws that may be in effect at the time.
E. If one of the parties challenges the agreement in a jurisdiction outside of California, there is no certainty about which jurisdiction’s law the court will apply. Even if the agreement includes a requirement that the agreement must be interpreted using California law, there is no certainty that the foreign court will uphold that requirement. Further, even if the foreign court elects to apply California law, there is no guarantee that the court will interpret California law correctly.
III. EXAMPLE: FUTURE ENFORCEMENT OF SPOUSAL SUPPORT WAIVER IS PARTICULARLY UNPREDICTABLE
Recent changes in the rules about enforcing spousal support waivers provide an instructive example.
Until recently, premarital agreements to avoid spousal support were assumed to be always unenforceable, without exception. However, in 2000, a California Supreme Court case reviewed the matter, and turned the status quo on its head. That case held that premarital agreements to avoid spousal support may be enforceable, when the agreement is made by spouses who are (1) “intelligent and well educated;” (2) wealthy; and, (3) advised by their lawyers at the time they make the agreement.
The next year (2001), Sacramento passed a new law which changed the rules again. That law states that a premarital agreement to avoid spousal support is not valid, if enforcing the agreement would cause one of the spouses to suffer unreasonable or outrageous hardship.
However, that new law did not address premarital agreements that existed before the law went into effect. Hence, it appeared that the new law did not apply to those premarital agreements.
In 2004, another court of appeal changed the rules yet again. In the case, the spouses entered into a premarital agreement to avoid paying spousal support, before the new law was in effect. Later, Wife was in an automobile accident resulting in severe disability. Husband filed for divorce after that, and asked the trial court to enforce the premarital agreement clause that released Husband from paying spousal support.
Wife opposed the request, arguing that enforcement would cause her to suffer undue financial hardship. However, Wife could not convince the court that the new law applied to agreements that existed before this new law became effective. The trial court therefore granted Husband’s request to enforce the spousal support release.
The court of appeal overruled the trial court. The court stated that earlier law already provided the same protection as did the new law. The new law was, therefore, basically just a restatement of what the law already has been all along. Hence, the “old” law, which is the same as the “new” law, applies.
In other words, the court changed the rules yet again, by declaring that the new rules represent no change at all. The court also thereby suggested that the legislature had little better to do with our tax dollars that day than to pass a “new” law that was already in place.
It therefore appears that a premarital agreement to avoid spousal support might be enforceable if the spouses are (1) “intelligent and well educated;” (2) wealthy; (3) advised by their lawyers at the time they make the agreement; (4) not subject to unreasonable hardship in the absence of support at the time the parties divorce; and, (5) the court does not otherwise find the agreement to be “unconscionable.”
At least until the next change in the law.
IV. OTHER REASONS A PREMARITAL AGREEMENT MAY BE UNENFORCEABLE
There are several circumstances under which the court will not enforce a premarital agreement.
For example, the court will not enforce a premarital agreement if the court finds any of the following:
1. The agreement was signed involuntarily, or under duress, fraud, undue influence, or incapacity.
2. The agreement was “unconscionable” when it was executed and,
(a) One of the parties was not provided a “fair, reasonable, and full disclosure” of the assets and debts of the other party; and,
(b) That party did not voluntarily and expressly waive the right to that disclosure, in writing; and,
(c) That party did not have adequate knowledge of those assets and debts.
3. The party challenging the agreement was not represented by a lawyer or advised to get a lawyer before signing the agreement, and did not expressly decline to do so, in writing.
4. The party challenging the agreement had less than seven calendar days, between the following two events:
(a) the time that party was first presented with the agreement and, if unrepresented, advised to get a lawyer;
(b) the time that party signed the agreement.
5. The party challenging the agreement was not represented by a lawyer, and was not fully informed:
(a) in writing;
(b) in a language in which that party is proficient;
(c) before signing the agreement;
(i) the terms and basic effect of the agreement; and,
(ii) the rights and obligations that party would lose by signing the agreement.
6. The party challenging the agreement was not represented by a lawyer, and was not proficient in the language in which the agreement was written.
V. ESTATE PLANNING
Parties considering a premarital agreement should immediately review the proposed agreement with competent estate planning counsel, to update their wills, living trusts, and other estate planning tools as counsel recommends.
A premarital agreement and the new marriage create or change a wide range of estate planning issues. Current estate plans may require substantial revision to take into account those issues. However, the new marriage process is often emotionally and financially draining. This can result in temptation to procrastinate or ignore estate planning needs.
Unfortunately, failure to act timely may have devastating consequences. Depending on the circumstances, those consequences may include, among others: (1) forfeiting to the new spouse full legal control over each party’s estate and, under some circumstances, all of each party’s affairs before and after death; OR (2) forfeiting to the new spouse most, if not all, of each party’s estate; OR (3) leaving each party’s intended heirs with little or nothing of that party’s estate; OR (4) a combination of these consequences.
There are therefore a number of things that each party must do, including, but not necessarily limited to, the following:
A. Updating all financial Powers of Attorney and Health Care Directives;
B. Updating all wills, living trusts, and other estate planning documents; and,
C. Making advanced plans regarding the custody or guardianship of minor children.
The potential consequences of procrastination can be draconian. Each party must therefore consult with a competent estate planning attorney, and address these issues at the earliest possible convenience.
VI. FINANCIAL PLANNING AND TAXES
A premarital agreement and the new marriage create or change a wide range of financial planning and tax issues. Each party should immediately review the proposed agreement with competent financial planning and tax experts, to update strategy for addressing financial and tax planning issues as these experts recommend. Such professionals may include certified financial planners, tax attorneys, and certified public accounts.
VII. AMBIGUOUS LANGUAGE IMPROVES THE ODDS OF A CHALLENGE TO THE AGREEMENT
Language that is subject to misunderstanding, misinterpretation, or both, improves the odds that such language may eventually be misunderstood, or misinterpreted, or both. That, in turn, improves the odds that the agreement may be challenged at the time either party desires to enforce it. Ambiguous or confusing language in the premarital agreement must therefore be clarified before the final agreement is signed.
VIII. SHORT TIME BETWEEN DATE OF EXECUTION AND DATE OF MARRIAGE IMPROVES THE ODDS OF A CHALLENGE TO THE AGREEMENT
Final premarital agreements should be signed 30 days or more before the wedding.
Duress is a valid defense against enforcing an agreement. Duress means that a party was subject to pressure sufficient to overcome that party’s volition in deciding whether or not to accept or reject the agreement.
Signing a premarital agreement shortly before the wedding substantially improves the odds that one of the parties may later challenge the agreement with this defense. Substantial embarrassment and financial loss usually result when a wedding is cancelled at or near the last minute. Failure to sign a premarital agreement often results in cancellation of the wedding. If the premarital agreement is presented shortly before the wedding, the threat of those adverse consequences may be sufficient to constitute duress. The proposed agreement should therefore be presented well before it appears to be too late to cancel the wedding.
Premarital agreements can provide substantial benefit to those considering marriage. However, limitations and other challenges demand caution and careful review of expectations before signing one.
ABOUT THE AUTHOR: Attorney Dean M. Schreyer is licensed to practice in California.
To find out more about the Men’s Legal Center, please go to: www.menslegal.com.
The material on this document is intended for informational purposes only, and does not constitute legal or other professional advice for any purpose. No attorney/client relationship, and no confidential relationship of any kind, is formed by reviewing or using this material in any way, or from any direct or indirect contact with any attorney arising from that review or use. If you need legal or other professional services, consult with the appropriate, competent attorney or other professional.