Family Matters: The Premarital and Postmarital Agreement- consider it when tying the knot or thereafter.
Legal and tax considerations of pre and postmarital agreements?
An important issue for the couple is whether the agreement will be enforceable. Generally, it will be upheld if it was entered into voluntarily and is not unconscionable. There are several facts the courts will look at to determine enforceability.
First, both parties must sign the agreement voluntarily. It should not be signed in circumstances that may indicate duress, coercion or undue pressure. This means that the parties should not sign the agreement en route to the wedding ceremony. Ideally, the agreement should be signed well in advance of the wedding.
Second, there must be full and complete disclosure of all of the assets, income and debts of each party before the agreement is signed. Assets include all bank, brokerage and financial accounts, all retirement accounts, such as IRA’s or 401-k’s, all stock, business and partnership interests, life insurance, personal property and real estate. Copies of current income tax returns should be exchanged to verify income. Finally, a list of liabilities, mortgages and credit card debts should be prepared by each party. This exchange of information should be made before the agreement is negotiated and well before it is signed. The agreement should also waive the right to any further disclosure of information.
Third, each party should be represented by his or her own attorney who can explain how the rights and obligations arising from marriage are modified or preserved by the agreement. An agreement that has been reviewed and revised by an independent attorney is more likely be viewed by the courts as having been entered into voluntarily and as being fair to both parties.
Fourth, some states make a determination whether the agreement was fair to both spouses when signed. Other states will not address this fairness issue when full and complete disclosure was made before the agreement was signed.
Internationally, not all countries will enforce a premarital agreement. For example, prenuptial agreements have historically not been considered legally valid in England. However, there is a 2010 Supreme Court case which indicates that such agreements can “in the right case” have decisive weight in a divorce settlement. Thus, in England the law is quickly changing and while not strictly enforceable there, Englishcourts are becoming more open to considering them. Premarital agreements are not enforceable in the Bahamas. In Ireland, while not enforceable, the law gives Irish courts broad discretion in the distribution of property upon divorce and they can consider a premarital agreement.
Many jurisdictions specifically recognize both domestic and foreign premarital agreements (e.g., Japan). Some countries (e.g., Luxemburg and the Netherlands) are parties to the Hague Convention on the Law Applicable to Matrimonial Property Regimes which specifically authorizes premarital agreements. The Convention does not apply to (1) maintenance obligations between spouses; (2) succession rights of a surviving spouse; or (3) the capacity of the spouses. The Convention applies even if the nationality or the habitual residence of the spouse or the law to be applied by the Convention is not that of a contracting state. A marriage contract is valid as to form if it complies either with the internal law applicable to the matrimonial property regime, or with the internal law of the place where it was made. It must be in writing, dated and signed by both spouses.
In France, Belgium and Germany, the premarital agreement must be executed in front of a notary. In France, it cannot be amended during the marriage without the approval of the court. Most countries in continental Europe accept a properly drafted pre-nuptial agreement, including France, Belgium, the Netherlands, Germany, Switzerland, Sweden, Denmark, Norway, and Finland. While most jurisdictions will impose a default marital regime, it may be possible to change the default regime through an agreement.
In the United States, premartial agreements are recognized, although they may not always be enforced. Both parties should have lawyers represent them to ensure that the agreement is enforceable, there should be full disclosure of the couple’s assets, and it should be entered into far enough in advance of the marriage so as not to be considered entered into based on coercion.
Under the UPAA, a premarital agreement may not be enforced against a party if he or she provides (i) he/she did not execute the agreement voluntarily, or (ii) the agreement was unconscionable when it was executed and before execution of the agreement he or she (a) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; (b) 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 (c) did not have (or reasonably could not have had) an adequate knowledge of the property or financial obligations of the other party.
Under the UPMAA, an agreement is unenforceable in four events:
(1) the party’s consent to the agreement was involuntary or the result of duress;
(2) the party did not have access to independent legal representation;
(3) unless the party had independent legal representation at the time the agreement was signed, the agreement did not include a notice of waiver of rights or an explanation in plain language of the marital rights or obligations being modified or waived by the agreement; or
(4) before signing the agreement the party did not receive adequate financial disclosure.
Each of these elements is explained in further detail in the UPMAA.
There are divergent interpretations of voluntary. An agreement has been found to be entered into involuntarily or as the result of duress when a significantly revised version of premarital agreement was presented 3 days before the wedding. However, in some instances an agreement presented the day before wedding was held to be voluntary.
If a party does not obtain independent legal representation then there should be a Notice of Waiver of Rights with conspicuously displayed language stating the following:
If you sign this agreement you may be: Giving up your right to be supported by the person that you are marrying or to whom you are married. Giving up your right to ownership or control of money and property. Agreeing to pay bills and debts of the person that you are marrying or to whom you are married. Giving up your right to money and property if your marriage ends or the person to whom you are married dies. Giving up your right to have your legal fees paid.
With respect to access to independent counsel, the UPMAA stops short of requiring representation for an agreement to be enforceable.
For reasonable financial disclosure, it pertains only to assets of which the party knows or reasonably should know. Disclosure will qualify as reasonably accurate even if a value is approximate or difficult to determine and even if there are minor inaccuracies. Some commentators have urged that a waiver of the right of financial disclosure be valid only if the waiver were signed after receiving legal advice. However, the UPMAA does not require legal representation for a waiver.
Some jurisdictions put the burden of proof on the party seeking enforcement of an agreement. Many jurisdictions impose greater scrutiny or higher procedural safeguards for marital agreements as compared to premarital agreements.
Unenforceable terms include those which (1) adversely affects a child’s right to support; (2) limits or restricts a remedy available to a victim of domestic violence; (3) purport to modify the grounds for a court decree, separation or marital dissolution available under law; or (4) penalizes a party for initiating a legal proceeding leading to a court decree, separation or marital dissolution.
Finally, the term in the premarital agreement or martial agreement which defines the rights or duties of the parties regarding custodial responsibility is not binding on the court. Custodial responsibility means physical or legal custody, parenting time, access, visitation or other custodial right or duty with respect to a child. The basic point is that parents (and prospective parents) do not have the power to waive the rights of third parties (their current or future children) and do not have the power to remove the jurisdiction or the duty of the courts to protect the best interests of minor children. This also applies to stepchildren to whatever extent the state imposes child support obligations on stepparents. The list of types of provisions that are unenforceable is not exhaustive. It is common to include escalator clauses and sunset provisions in premarital agreements and martial agreements making a party’s property rights vary with the length of the marriage. One case rejected arguments that sunset provisions in a premarital agreement are unenforceable because they are contrary to public policy.