U.S. Prenuptial & Post-NuptialAgreements

Jeremy D. Morley230 Park Avenue

Tenth Floor,New York, NY 10169

www.international-divorce.com

The Basic Test as to Substance

Unconscionable?

or

Unfair?

Unconscionable: The Best Definition

You know it when you see it.

Unconscionability in New York

Shocks the conscience and confounds the judgment of any person of common sense.

Very high burden of showing that it is manifestly unfair and that this unfairness was the result of overreaching

Public policy of this State favors individuals ordering and deciding their own

interests through contractual arrangements. Same presumption of legality as any other contract. An unconscionable bargain is one that no person in his or her senses and not under

delusion would make Requires fraud, duress, overreaching or incompetence. Just because provisions are improvident, one-sided or unequal is insufficient.

Potts v. Potts, 303 SW 3d 177 - Mo: Court of Appeals, Western Dist. 2010

There are two aspects to unconscionability: procedural unconscionability and substantive unconscionability.

If "gross procedural unconscionability," an agreement may be voided though there is not great substantive unconscionability.

W was given too short a time to review the prenup = & she denied understanding the terminology and the consequences.

Also the prenup contained elements of substantive unconscionability.

It allowed H to categorize all assets generated in the future as his separate property while limiting W to a formula in lieu of maintenance, even after a 20 yr. marriage in which W had raised the children & run the household.

Unconscionability in Missouri

Fairness in Wash. State

A prenup that is “disproportionate to the respective means of each spouse, which also limits the accumulation of one spouse's separate property while precluding any claim to the other spouse's separate property” is substantively unfair.

A prenup was “grossly disproportionate” where all value, income, and earnings from separate property would remain separate upon dissolution.

A prenup which waived any claim of right to separate property in

the event of death or dissolution and effectively prohibited the growth of community property was substantively unfair.

Pre-Nup Validity: Washington State2-prong analysis: Spouse seeking enforcement must prove:

1. Substantive fairness; or2. Procedural fairness.

a. Was there full disclosure of amount, character & value of property; &

b. Was agreement freely entered w/ independent advice from counsel & full knowledge by spouses of their rights?

** Procedural fairness validates substantive unfairness ** Marriage of Bernard, 165 Wash.2d 895, 902-03, 204 P.3d 907 (2009).

Uniform Premarital Agreement Act

Defenses:

1. Lack of voluntariness. 2. Unconscionable when executed PLUS No fair & reasonable disclosure PLUS No voluntary and express written waiver of disclosure

PLUS Inadequate knowledge of other’s finances.

Voluntariness

• Sufficient time• Independent counsel• Lack of understanding• Fraud and misrepresentation• Duress:

– Pregnancy– Refusal to marry

California’s UPAA

Additional Requirements:

1. Representation by independent legal counsel when sign agreement or express waiver after such advice

2. Wait 7 days before signature 3. If unrepresented , must receive specified advice and

must execute declaration of receipt of information

Public Policy Trumps All

• Scheme to circumvent immigration laws.• Waiver of attorney’s fees (?)• Raise children in a certain religion• Forbearance from having children• Child support• Waiving or limiting spousal support (??)• Encouraging divorce:

– Escalator clauses– Sunset provisions

• BUT in many states the public policy favors prenups

Choice of Law Clause “This Agreement shall be construed and given effect, now and

in the future, in accordance with the statutes, case law and decisions of the State of New York as they exist on the date of this Agreement, notwithstanding any future changes to said statutes, case law and decisions, without giving effect to that body of law applicable to choice of law, and notwithstanding the domicile of either Party at the time that enforcement is sought, whether such domicile is in the State of New York or anywhere else in the world, and even if a divorce, separation or other proceeding is instituted anywhere in the world in the courts of a jurisdiction other than the State of New York. This provision is of the essence of this Agreement.”

Choice of Law Clause in CT

• Ret’d partner major NY lawfirm marries Brazilian W.• Live in CT.• NY choice of law clause.• Prenp signed 5 days before marriage; complete

separate pty except $50,000/yr.• CT ct applies N law (unconscionability) not fairness.• Agt upheld.

McKenna v. Delente, Conn: Appellate Court 2010

Choice of Law If No Choice of Law Clause

Choice of Court

“The Parties agree that any action for Legal Dissolution will be brought in the courts of the State of New York and that they will not be bring such a case in any other country or U.S. state unless and until a New York court has finally determined that New York does not have jurisdiction.”

Choice of Court: But Contract Can’t Create Jurisdiction

U.S. courts require:

1. In rem jurisdiction 2. In personam jurisdiction3. Child jurisdiction

• Choice of law applies

• Forum state public policy applies

• Does forum’s prenup statute declare forum’s public policy?

Recognition of Foreign Prenups

Drafting Guidelines if U.S. Connection

• Disclosure

• Independent representation.

• Time gap prior to marriage.

• Voluntariness.

• Specific execution requirements.

• Retirement waivers

• Regulation of conduct during marriage

• Religious issues

• Change of domicile provisions

• Recitals

• Pre-Marital Transfers

Drafting Guidelines

Identify current & future separate property:

• Detailed schedule

• Active assets as well as passive? • Future business activities?

• What if a spouse contributes separate property to other’s business?

• Reinvestment into business? • Expected inheritance?

Drafting Guidelines

• No-commingling provisions.

• Licenses & qualifications

• Income

• Tax planning

• Specifically define marital property

• Assets acquired during cohabitation

• Marital residence

Drafting Guidelines

• Medical issues

• Spousal support

• Provisions to enhance “fairness”

• Define marriage termination

• Death provisions

• Publicity

• International relocation

Drafting Guidelines

No Challenge

“Neither Party shall attempt to have this Agreement or any portion hereof set aside or determined to be null and void or otherwise invalidated. Any such attempt by either to dissolve this Agreement or any portion hereof shall be deemed to be a breach of this Agreement. The Parties acknowledge that the permanency of this Agreement is part of the consideration for the execution hereof by each Party.”

Can one limit claims for counsel fees?

Waiver of Counsel Fees.

“Each Party waives the right to claim counsel fees, expenses or costs from the other Party in the event of termination of marriage.”

Indemnification for Enforcement Costs

“Should either Party fail to abide by the terms of this Agreement, the defaulting Party will indemnify and hold the other harmless for all reasonable expenses and costs, including attorney's fees and disbursements, incurred in successfully enforcing this Agreement or successfully defending his or her rights under this Agreement in a court of competent jurisdiction.”

Severability clause

Drafting Guidelines

Can you limit claims for spousal maintenance?

• UPAA

• NY

• NM

Can parties agree custody, visitation and child support?

Post – Execution Developments

• Abandonment

• Modification

• Estoppel

• Ratification

Post- nups

• Not covered by UPAA• Many specific state statutes• Invalid in some (e.g. Ohio)• Some states require more proof of fairness (Calif)• Some states have same standards as for prenups (NY)

Post- nupsPost-nups often raise fraud in the

inducement issues:

“Honey, I love you. Honestly. So just sign here.”

Mass. Case

She Said:W testified that several

weeks after agreement was

signed, H indicated that the

marriage was over, and they

discussed this with marriage

counselor & their son’s doc.

Judge excluded her

testimony on grounds of

“spousal disqualification.”

He Said:After post-nup was signed, H

worked “hard” in the areas W

“felt needed improvement.” H

& W traveled together

extensively. They purchased &

renovated a new house

together. Not until 2 yrs. later,

after W asked H to leave home

& after W had an affair, did H

file for divorce.

Post-Nup StatutesMinnesota

M.S.A. § 519.11

Valid if:

(1) Full disclosure; &

(2) Procedurally & substantively fair and equitable at time of execution and at time of enforcement; &

(3) Doesn’t cover child support, child custody; &

(4) Each is represented by separate legal counsel.

But is presumed unenforceable if a spouse seeking separation / dissolution within 2 years establishes that it is fair & equitable.

Post-Nup Statutes: OhioOhio Rev. Code, 3103.06 Contracts affecting marriage.

A husband and wife cannot, by any contract with each other, alter their legal relations, except that they may agree to an immediate separation and make provisions for the support of either of them and their children during the separation.

Post-Nup Statutes: CaliforniaCalifornia Family Code Part 5, Chapter 1, §1500

"The property rights of husband and wife prescribed by statute may be altered by a premarital agreement or other marital property agreement.”

§1502 provides that such agreements are to be "executed and acknowledged or proved in the manner that a grant of real property is required to be executed and acknowledged."

Post-Nups: California • The fiduciary relationship between husband and wife imposes a duty of the highest

good faith and fair dealing on each spouse, and neither shall take unfair advantage of the other…

• Thus, when spouses enter into an agreement in which one party gains an advantage, the advantaged party bears the burden of demonstrating that the agreement was not obtained through undue influence…

• The predicate for applying the presumption of undue influence in an interspousal transaction is that one spouse has obtained an advantage over the other in the transaction…

• The advantage must be an unfair advantage; mere benefit is not enough.

In re Marriage of Burlingame2010 WL 4657237Cal.App. 4 Dist.,2010

Post-Nups: New York

A postnuptial agreement which ''is fair on its face will

be enforced according to its terms unless there is

proof of fraud, duress, overreaching, or

unconscionability'' …bearing in mind that an

agreement is not unconscionable ''merely

because, in retrospect, some of its provisions were

improvident or one-sided.”Rauso v. Rauso, 73 A.D.3d 888, 902 N.Y.S.2d 573 N.Y.A.D. 2 Dept.,2010.

Post-Nups: Virginia

Court invalidated a postnup that transferred all marital

assets to the wife and all marital debts to the husband

because the agreement was signed on the husband's

weekend furlough from a psychiatric ward.

Bailey v. Bailey, 677 S.E.2d 56 (Va. Ct. App. 2009).

Post-Nups: Iowa

Reconciliation agreement stating that if H’s “indiscretions” lead to a

separation or divorce W would receive $2,000+ / mo. + ½ of H’s

future retirement was unenforceable since it violated Iowa's no-

fault policy.

“The relationship between spouses cannot be regulated by contracts

that are plead and proved in the courts as if the matter involved the

timely delivery of a crate of oranges.”

In re Marriage of Cooper, 769 N.W.2d 582 (Iowa,2009).