PRENUPTIAL

PREMARITAL AGREEMENTS: THE F.A.I.R. WAY

June, 1999

When national divorce statistics tell us 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. Jacqueline Kennedy, Joan Collins, Donald Trump and John DeLorean, among numerous others, signed contracts in anticipation of their marriages, and such agreements are no longer appropriate just for the “rich and famous”. This being the case, matrimonial practitioners would do well to sharpen their skills in this area. The first step is to check your jurisdiction’s controlling law. Are premarital agreements covered by statute or by common law? If statutory, is your state a signatory to the Uniform Premarital Agreement Act (“the Act”)? As of this writing, 24 out of 50 states had adopted their versions of the Act, including New Jersey (N.J.S.A. 37:2-31 et seq.), California (Cal. Fam. Code #1600 et seq ), Illinois (S.H.A. 750 ILCS 10/1 et seq.) and Texas (V.T.C.A. Family Code # 4.001 et seq.). Other states have adopted their own statutes, such as New York (Dom. Rel. Law # 236(B)(3) et seq.) and Minnesota (Minn. Stat. # 519.11 et seq.).

After checking the law applicable to your situation, remember the acronym F.A.I.R., for the four minimum elements essential to ensuring that the agreement you draft is likely to be valid and enforceable.

FAIRNESS. A premarital agreement will not be enforced if it is “unconscionable”. Under the Act, unconscionability is a defined term, and will be determined by the court, as a matter of law. It includes the rendering of a spouse a public charge, or providing a standard of living “far below that which was enjoyed before the marriage”. Obviously, what is “unconscionable” in one setting may be permissible in another. Furthermore, people and circumstances change, so that an agreement that is fair at inception might be become less so over time. This is why the Act focuses on unconscionability at the time enforcement of the agreement is sought, as opposed to when it is executed. The burden of proof is on the party seeking to establish invalidity, and that burden is “by clear and convincing” proofs, meaning that a mere preponderance of the evidence will not suffice.

Given these considerations, practitioners often recommend to their clients the structure of a “sliding scale”. The longer the marriage subsists, the greater the amount of property or support to be paid by the supporting spouse to the other party. Some agreements also provide for a “sunset” clause. After, say, 7 years, the agreement is automatically annulled. Thereafter, in the event of divorce, the parties’ respective rights revert to whatever is provided under applicable matrimonial law.

ASSETS AND LIABILITIES. At the heart of any valid premarital agreement is the requirement of disclosure. This is intuitive and easy to understand: how can there be a binding contract, if material facts have been concealed? Thus, ensure that the parties exchange current net worth statements, setting forth their respective assets and liabilities, together with copies of their current income tax returns. Indeed, the Act requires that a “ statement of assets” is to be annexed to the agreement. Moreover, the Act further provides that an agreement might be set aside for failure to make disclosure of each party’s “earnings, property and financial obligations”

While the Act contemplates and permits a party to knowingly waive full disclosure, the better practice is to insist on this requirement, to avoid a later attack based on concealment or even fraud.

What Is a Prenuptial Agreement?

Growing in popularity, a prenuptial agreement is agreed upon before a marriage and can protect you in the event of a divorce. A postnuptial agreement differs because it is developed mid-marriage. We develop prenuptial agreements that are built upon fairness so that they have a better chance of being upheld by a judge should a divorce occur.

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INDEPENDENT COUNSEL. A request frequently made of matrimonial attorneys is to “represent both of us”. After all, the relationship between the parties is amicable, if not romantic, and “everything” has allegedly “already been worked out”. “We just want you to prepare something quick and simple, and we’ll both sign off” are words that have been heard by most experienced family lawyers. But let there be no question: it is imperative for each party to have separate counsel, and such counsel should be independent.

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 the Act authorizes a signatory to a premarital agreement to knowingly waive the right to counsel, prudent attorneys will 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.

REASONABLE TIME. 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. If you find the latter implausible, you need look no further than the pending litigation between billionaire Carl Icahn and his wife.

Presumably to protect as much of his wealth as possible, Mr. Icahn insisted upon a premarital agreement. However, not only was the agreement signed on the day of the wedding, the bride was 2 months pregnant. It would be hard to conceive of a situation more inherently coercive. Yet, the New York court sustained the validity of the agreement under New York law (where the Uniform Act has not been enacted), demonstrating again the absolute necessity of understanding the law of the applicable jurisdiction. The last chapter of the Icahn saga has yet to be written, since the validity of the prenuptial agreement is now being litigated again in Connecticut, where the Act does apply (C.G.S.A. #46b-36a et seq.). But the lesson to the wary is clear: the more time between the date of execution and the wedding, the better. Indeed, some family law lawyers make it their practice to avoid undertaking the representation, unless enough time is allowed. How much time is enough? Only developing case law and the unique facts of each situation can provide the answer. Perhaps a working suggestion for a “cutoff” date might be before the wedding announcements and invitations are mailed.

In the last analysis, there is every reason to believe that a carefully drawn premarital agreement will be sustained against an attack of invalidity, provided that all the F.A.I.R. rules are fully observed and implemented.