Divorce Law Journal

Spencer v. Spencer, Prenuptial Agreement

Spencer v. Spencer, ____ S.W.3d ____ (Ky. App. 2008), 2007-CA-000277-MR

Prior to the parties’ marriage, they executed an Antenuptial Agreement. During the marriage, Charles signed an authorization to transfer stocks, bonds, and money market funds held in his individual account to a new joint account at Edward Jones listing the owners as “Charles F. Spencer and L. Faye Spencer” with no mention of survivorship. After Charles died, his estate demanded that Faye release the assets in the account under the terms of the Antenuptial Agreement. The circuit court held, under KRS 391.315 and KRS 391.320, that Faye became the owner of the account on the date of Charles’ death.
The Court of Appeals reversed and remanded, holding that the Antenuptial Agreement did not preclude Charles from giving Faye an interest in the account, but that the use of the conjunctive “and” created a tenancy in common under Kentucky’s common law. Therefore, upon Charles’ death, Faye is entitled to half the account, and his estate is entitled to the other half. The brokerage account does not fall under the definition of “account” utilized in KRS 391.315 and KRS 391.320; therefore, the Court was bound by the common law articulated in Saylor v. Saylor, 389 S.W.2d 904 (Ky. 1965).
Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates

Failure To Plead Prenup Is Failure to Plead Affirmative Defense And Bars Court Consideration Of Agreement

A recent Missouri case holds that a party seeking to enforce a prenup must raise the issues in a pleading. Failure to do so prevents the court from enforcing the prenup. Homan v. Holman, which can be found here.

In pleading to a preceding pleading, a party shall set forth all applicable affirmative defenses and avoidances . . . . A pleading that sets forth an affirmative defense or avoidance shall contain a short and plain statement of the facts showing that the pleader is entitled to the defense or avoidance.[(FN3)]

"An affirmative defense is waived if the party raising it does not plead it." In re Estate of Kilbourn, 898 S.W.2d 583, 586 (Mo.App. 1995).

Based on the foregoing, we determine the trial court abused its discretion in permitting Husband to introduce the Agreement at trial because Husband failed to assert the Agreement as an affirmative defense in his pleadings. It has long been held that "[m]atters seeking avoidance of a valid contract are affirmative defenses and must be set out in the pleadings." Id. The terms of the Agreement clearly provide "'additional facts [other than the statutory considerations of section 452.300] that permit [Husband] to avoid the legal responsibility alleged'" by Wife, i.e., that there was marital property to be divided. Smith v. Thomas, 210 S.W.3d 241, 244 (Mo.App. 2006) (quoting Mobley v. Baker, 72 S.W.3d 251, 257-58 (Mo.App. 2002)). A party that fails to raise an affirmative defense in his pleadings, waives that issue at trial. In re Estate of Kilbourn, 898 S.W.2d at 586.

Post-Nuptial Agreements On the Rise

Post-nuptial agreements, sometimes called mid-marriage agreements, are contracts entered into by a married couple for some reason other than an anticipated divorce or separation. Sometimes they are reconciliation agreements. Most states hold that the standard for enforceability is the same as with prenuptial agreements and must be fair, reasonable, and made with full disclosure.
Last month, the AAML released a survey of its members and some comments:

CHICAGO, Jan. 31. In a recent poll of American Academy of Matrimonial Lawyer (AAML) members, 49% of the divorce attorneys cited an increase in postnuptial agreements during the past five years. Interestingly enough, 58% of the respondents most frequently draw up the agreements as a result of a request made by both parties, rather than it coming from either a husband or wife individually.
Rising in popularity throughout recent years, postnuptial agreements are voluntary marriage contracts between couples who are already married. The terms of postnuptial agreements can cover a wide variety of issues within a marriage, including disputes over potential finances, assets, children, and household chores. Couples can also seek a postnuptial agreement if the financial status of one or both partners changes dramatically after the marriage. The overall goal of the agreements is to help stop any potential conflicts and promote a stronger relationship.
"Postnuptial agreements, where valid, can be a good tool for addressing and solving problems spouses might be experiencing in their marriage," said Gaetano "Guy" Ferro, president of the AAML. "Having a written document with expectations and obligations clearly set forth reduces the areas of disagreement for spouses and can remove a good amount of stress from everyday married life."
Among the strangest items included in some postnuptial agreements, AAML members have noted: limits of the future number of children, provisions for pet visitation and care, and the dividing up of cemetery plots in the event of divorce.
About AAML
Founded in 1962, The American Academy of Matrimonial Lawyers (AAML) is committed to encouraging the study, improving the practice, elevating the standards, and advancing the cause of matrimonial law, in order to better protect the welfare of American families.
Comprised of the top 1,600 matrimonial attorneys throughout the nation, members are recognized experts in the specialized areas of matrimonial law, including divorce, prenuptial agreements, legal separation, annulment, custody, property valuation and division, support, and the rights of unmarried couples..

Premarital Agreements and the Young Couple

Premarital Agreements and the Young Couple by Linda J. Ravdin is a very helpful article at Wealth Strategies Journal. Emotional Issues in Estate Planning: Planning for the Guardianship of Minor Children is the title of a promised January, 2007 article. The founders, editors, and advisory board are an impressive crew.
Thanks to the Kentucky Law Blog for finding this promising site. Now, if it just had RSS feed. You can subscribe to email updates, but who has time for any more email?

More On Pre-Nups and Lane v. Lane

When Lane v. Lane (on pre-nups) was initially rendered, I was taken aback by the division of the court. Our initial posting simply quoted from Justice Lambert’s opinion, Justice Grave’s concurring opinion and Justice McAnulty’s dissent. I thought the quotes quite clearly and tellingly illustrated insight into the high court’s view of marriage rights and responsibilities. The case had the potential to be campaign fodder, and I was prepared that this site would be a sounding board without me interjecting my views. Several women lawyers were vocal that this case illustrated why we needed a woman on the Kentucky Supreme Court. No comments were posted at that time, though.
The case is now final and was digested here. Since then I received these comments by email:
from Mike Stevens, Kentucky Law Blog:
“I must still be a romantic as I really have a problem with antenuptials addressing the property rights acquired in the future and the obligations of the parties in the event of a divorce. Why can't they simply make sure what is separate property now stays separate and no intent to commingle or make marital, and any maintenance issues be treated like any maintenance issues now based upon standard of living parties became accustomed too, length of marriage, etc.”
“I, for one, will miss the cut through to the chase, common sense, no nonsense analysis offered by Justice Graves in this opinion and his other opinions (Earle v. Cobb, for example). Whether or not you agree with his jurisprudential analysis of what transpired in this agreement or others of similar ilk, you must surely agree that he addressed the real problems presented by antenuptial agreements which must transcend simple contract analysis in the context of families and children.”
“I know you might disagree with me on this but just wanted to bug you a tad. The more marriage is considered a business and financial contractual relationship, the more likely the children end up being marital assets and the parents being marital asses.”
And (this case lit a spark!) in a follow up email giving me permission to post, he added:
“On an aside, the more the courts analyze the covenant of marriage as a civil contract, the harder it will be to dispute the encroachment of civil union contracts of same sex couples. Although, I disagree with the encroachment and object to same sex marriages for a host of reasons (not all Biblical), I can not ignore the logic and precedent being set up by this type of contractual and bargaining analysis premised on unconscionability. For that reason I usually use the term "anti-nuptial contracts"; unequal bargaining, giving up rights without knowing what the rights are and what you are getting in return, purely speculative and without consideration (monetary or personal), and worse yet - a preplanned exit strategy. Hmmmmm. Sounds more like rules of disengagement than an engagement.”
All interesting points.
And, as we posted here, drafting these contracts is not for the faint of heart.
.

Lane v. Lane

Lane v. Lane, 202 S.W.3d 577 (Ky. 2006)

Issue and Holding:
Whether an ante-nuptial agreement, entered into by the parties three days prior to their marriage, can be strictly enforced as written after a nine and a half year marriage and change of circumstances. The Court held no, portions of the agreement were unconscionable at the time of enforcement.

Facts:
Three days prior to their marriage, the parties entered into an ante-nuptial agreement. At the time, the wife was 29 years old, a high school graduate, and working at a hotel for $19,000 a year. The husband was a 26 year old college graduate and stockbroker, earning $166,000 a year. Two children were born of the marriage, and the wife stayed at home to care for them and the house. By the time the marriage was dissolved, nine and a half years later, the husband was earning about one million dollars a year and was a partner in a regional brokerage firm.
The ante-nuptial agreement waived the parties rights to claim maintenance if the marriage was dissolved. It also stated that the separate property of each would be deemed nonmarital in the event of divorce. The agreement specifically identified two parcels of real estate, a partnership interest in Edward D. Jones, and the husband’s pension plan, profit sharing plan, and voluntary profit sharing plan through Edward Jones as the husband’s separate property. Further, the agreement stated that if either party defaulted in or breached any obligations within the agreement, the defaulting party would be responsible for attorney fees, court costs, costs of depositions, transportation, lodging, and other related expenses.
The trial court found the portions of the agreement involving waiver of maintenance and the imposition of attorney fees on the defaulting party to be unconscionable. It also found the husband’s 401(k) plan to be marital property and divisible. The trial court ordered that the husband pay $12,000 per month in maintenance for three years. It also ordered that the husband pay the wife $59,271.08 in attorneys fees. The trial court also determined the husband’s general partnership interest in Edward D. Jones to have been acquired during the marriage and divisible. The court valued the interest at $269,876.00.
The Court of Appeals strictly enforced the agreement, reversing the trial court’s award of maintenance and the 401(k) plan. It upheld the award of attorney fees, since it did not regard the wife as a defaulting or breaching party under the agreement. It also upheld the trial court’s valuation of the husband’s general partnership interest in Edward D. Jones.
The Supreme Court granted discretionary review.

Analysis:
Ante-nuptial agreements are not per se invalid as against public policy. Yet, courts may analyze such agreements for unconscionability at the time of enforcement. A trial court may modify or invalidate all or part of an ante-nuptial agreement if enforcement would be unconscionable. Each agreement should be reviewed on a case-by-case basis. However, the more one-sided the agreement is at the time it is made, the more likely it is that courts will invalidate the agreement at the time enforcement is sought.
The Court began by noting that the agreement in the instant case not only prevented the wife from receiving the bulk of the marital estate, but also prevented her from receiving rehabilitative maintenance. It also noted that the wife’s staying home to raise the children and maintain the household should be a substantial factor, along with the affluent standard of living during the marriage, towards rendering the waiver of maintenance under the agreement unconscionable.
The Court reinstated the trial court’s award of maintenance, since the court made appropriate findings of fact to support its ruling that the maintenance waiver was unconscionable. The Court also affirmed the trial court’s award of attorney’s fees, since the award of such fees is within the broad discretion of the trial court. Although, the Court remanded the case back to the trial court to determine whether additional fees should be awarded for costs incurred during the appellate process. The Court also affirmed the trial court’s and the Court of Appeals’ valuation of the husband’s general partnership interest in Edward D. Jones. Finally, the Court did not address the merits of whether the husband’s 401(k) should be marital property, since the wife did not preserve the issue for review.
Accordingly, the Court affirmed in part, reversed in part and remanded the case back to the trial court for further proceedings.

Justice Graves concurred in a separate opinion.
Justice Graves agreed with the majority opinion, but wrote separately to address social policy concerns involving ante-nuptial agreements. He argued that ante-nuptial agreements tend to promote marital instability. He also took issue with the fact that women are often treated unfairly by ante-nuptial agreements. As in the instant case, where under the agreement the wife was to receive the mere satisfaction of bearing two children and the privilege of being a wife, while the husband walked away with the family’s fortune. Justice Graves argued that more emphasis needs to be placed on the contributions made by homemakers to the marital property.

Justice McAnulty dissented.
Justice McAnulty argued that the agreement should be strictly enforced. He stated that the agreement was not unconscionable, just a bad bargain on the wife’s part. He believed there was a lack of evidence that the marriage forced the wife to forego the completion of her education. Since the parties signed the agreement with the advice of independent counsel, it should be fully enforced.

Surge In Prenuptial Agreements

Survey of Nation's Top Divorce Lawyers Reveals Surge In Prenuptial Agreements
Prenups Most Popular With Baby Boomers

CHICAGO, Oct. 10 /PRNewswire/ -- An overwhelming 80% of divorce attorneys cited an increase in prenuptial agreements during the past five years in a recent poll of American Academy of Matrimonial Lawyer (AAML) members. In addition, 65% of those surveyed answered that prenuptial agreements are most often sought by men and women in the age range of 40-60 years old, revealing that people in the Baby Boomer generation are currently the most likely to request the contracts.

"It can be a sensitive subject, but in the same way you would discuss your future goals and dreams with a partner, prenuptial agreements can often represent the best way to ensure the needs of both parties are considered in the event of divorce," said Cheryl Lynn Hepfer, president of the AAML. "A married couple hopes never to have to enforce the terms of a prenup, but they also realize divorce proceedings could be much more unpleasant without such an agreement in place."

In a survey question that asked about the strangest items included in prenuptial agreements, 31% of the attorneys noted provisions being made for a family pet, while some of the lawyers shared even more offbeat areas that have been addressed. These unique agreements have included adultery penalties, terms for frequency of intimacy, limitations on weight gain, and schedules for housekeeping.

About AAML:
Founded in 1962, The American Academy of Matrimonial Lawyers (AAML) is committed to encouraging the study, improving the practice, elevating the standards, and advancing the cause of matrimonial law, in order to better protect the welfare of American families.
Comprised of the top 1,600 matrimonial attorneys throughout the nation, members are recognized experts in the specialized areas of matrimonial law, including divorce, prenuptial agreements, legal separation, annulment, custody, property valuation and division, support, and the rights of unmarried couples.

Kentucky PreNup: Waiver Of Maintenance Unconscionable At Time Of Enforcement

After the Kentucky Court of Appeals decided Blue v. Blue, 60 S.W.3d 575 (Ky. App. 2001), we wondered whether there were any circumstances that could cause an ante-nuptial agreement to be declared unconsionable. Now we have one. In an opinion rendered September 21, 2006, Lane v. Lane, the Kentucky Supreme Court reversed the Court of Appeals and affirmed the trial court finding that the waiver of maintenance was unconscionable at the time the agreement was sought to be enforced. The young couple were ages 26 and 29 at marriage, when she earned $19,00 per year and he earned $166,000 per year. By the time the divorce petition was filed in 2002, the wife was a stay-at-home mom with two children and the husband earned $1million per year.

Prenups

A Premarital Agreement Checklist is on Diana Mercer's website, Peace Talks. Diana is co-author of Your Divorce Advisor, a book we bought in bulk to give to appropriate clients.
Long ago we quit preparing prenups; we would rather be advocates than witnesses, and a high percentage of these agreements end up being litigated when parties divorce or a spouse dies. They are difficult to draft ( see our prior post) and who wants to have a marriage called off because of a breakdown in the negotiation of the premarital agreement? What is really interesting is Diana's concept of mediating prenuptial agreements.

Muslim Marriage Contracts

Muslim marriage contracts have "long been a Muslim tradition. Most, however, contain just one key provision, that of the "mahr," a gift usually of money, that the man gives the woman." From an article in the Washington Post.
"Islamic law experts who advocate for better treatment for women say the documents can help them assert rights under religious law that have long been played down by men. Advocates contend their approach is well within Islamic law, even though skeptics say the interpretation is too influenced by Western thinking.
The contract is especially useful in the United States, where Muslims come from a variety of ethnic backgrounds and follow different customs and levels of observance. The document can accommodate views ranging from liberal to conservative.
Karamah, an organization of Muslim women lawyers based in Washington, is developing a "model" marriage contract that can be adjusted to meet the requirements of family law in different parts of the country, said Azizah al-Hibri, a founder of the group, whose name means "dignity" in Arabic. In the United States, civil law governs divorce, but judges have taken Muslim marriage contracts into consideration, sometimes viewing them as prenuptial agreements."

Prenuptial Agreement, Enforcement Of All But One Provision

The New York Law Journal, July 18, 2006, discusses a new case that enforced all but the attorney fee restriction of a prenuptial agreement. "An appeals court in Brooklyn has declared unenforceable provisions of a prenuptial agreement that barred a spouse from seeking attorney fees. A lawyer on the case said the decision was the first in which an appeals court had nullified part of a prenuptial agreement concerning attorney fees, rather than the whole agreement. A unanimous panel of the Appellate Division, 2nd Department, said its ruling was a matter of public policy, considering the wealth of the husband -- his assets are valued at nearly $5.6 million -- compared to the wife, whose assets are valued at $160,000. It stressed, however, that it was not commenting on all such provisions in prenuptial agreements. Each similar case should be reviewed individually, the court said. 'The enforceability of a provision of a prenuptial agreement waiving the right to seek an award of an attorney's fee presents a clash of two competing public policies -- that in favor of resolving marital issues by agreement and that in favor of assuring that matrimonial matters are determined by parties operating on a level playing field,' Justice David S. Ritter wrote for the court in Kessler v. Kessler, 2004-04773."
Sorry that I didn't find either the Journal article or the case online to which I could link.
UPDATE: Thanks to Jeanne Hannah at Updates In Michigan Family Law for providing the online access to
The New Tork Law Journal article, "Prenuptial Pact's Attorney Fee Provision Nullified" by Tom Perrotta and the link to Kessler v. Kessler.

Post Nuptial Agreements and Fiduciary Duties of Spouses

From the Family Law Profs Blog: Case Law Development: No Presumption of Undue Influence in Post Marital Agreements Absent Proof of Unfair Advantage

"Wife filed for divorce. The couple then decided to try to reconcile and, as part of their resolution, they drafted a post nuptial agreement to settle their financial affairs. Four years later when Wife again filed for divorce, she challenged... "

Jim Hennenhoefer on Pre-Nup/Post-Nup Agreements

James A. Hennenhoefer, Vice-President AAML, San Diego, CA presented at the AAML/LBA Family Law seminar at the LBA on April 21, 2006. Jim has been instrumental in the creation and running of the AICPA/AAML biennial seminar in Las Vegas. His topic at the KY seminar was Pre-Nup/Post-Nup-“Love me forever, but not my Assets”

His opening quote was “Confidence is what you feel before you understand the situation.” In other agreements you are drafting with known facts. During the terms of these pre/post nuptial agreements, facts change. Law also changes. Attitudes change. Pre-Nups deal with the distant future. The potential liability arising from the drafting of these agreements is huge. He urged involving an estate attorney in the drafting and advised always to address choice of laws, as people may move during the marriage. Document every bit of advice you give your client before, during, and after the drafting.

Jim emphasized that charging an hourly rate for the drafting of these agreements is unfair to the drafting attorneys, and a large flat fee may be reasonable because of the attendant liability exposure for the failure to anticipate unforeseeable future events.

He discussed Blue v. Blue, 60 S.W.3d 585 (Ky. 2001) and what he considers the most important Kentucky case, Gentry v. Gentry, 798 S.W. 2d 928 (Ky. 1990), although his opinion of its importance may change depending on what happens with a Kentucky Supreme Court case in which discretionary review is pending.

Jim urges the Kentucky legislature to consider adopting some or all of the Uniform Prenuptial Act. It is always more difficult to draft these agreements when you are depending on case law rather than statutory provisions.

All that being said he presented some tips on the drafting:
Add choice of laws
Accommodate the passage of time
Anticipate birth of children, increase and decrease of wealth
Try to make it fair in the long term. Mitigate the idea that your client doesn’t want to share.
If there is a relinquishment of property or support rights, reflect the consideration so it will appear fair.
Consider a formula that increases with the duration of marriage
Make client comply with full disclosure, but include a waiver of disclosure
Do not attempt to limit child support
Advise client of danger of limiting spousal support
You must cause an attorney to be on the other side
Keep every revision of the agreement and all correspondence; make the correspondence show the negotiation that takes place
The pre-nup is usually the first pleading to be filed in the divorce in a few years. The drafting attorneys will be witnesses and unable to represent the clients in the divorce
Never draft in non-family law related issues; bring in an estate expert and other experts depending on the assets involved such as pensions
Consider videotaping the signing and recitation of understanding of the agreement. He gave us questions to ask the parties during the videotaping (the questions are also a good blueprint for the drafting).
Make sure every page is initialed and the signatures are notarized and give executed copies to both parties and lawyers
Give your client a letter advising he/she must comply with every provision of the agreement because noncompliance may be good reason not to enforce the agreement later
Make agreement language require changes to be only by subsequent written agreement
Advise client to keep written records of compliance with agreement
Also, tell client to still keep separate property separate and to keep tracing records even though they have a prenuptial agreement
Never draft unless it is at least 60 days in advance of the wedding
Procure and use the most thorough interview form you can find
Write your client advising in advance there is no guarantee that the agreement will be enforceable
Make sure the agreement specifically addresses economic disparity