DON'T WORRY, BE CAREFUL
Liability Issues in the Drafting and Reviewing
of Premarital Agreements
By
Brigeda D. Bank & A. Kathryn Fox
Published in The
Contra Costa Lawyer, Vol. 13, No. 5, pp. 16-20, May, 2000
The demand for
premarital1 agreements
is on the rise. Twenty years ago, less than one percent of
marrying couples sought premarital agreements.2 Now,
no longer thought to be the exclusive domain of the rich and
famous, premarital agreements are becoming far more commonplace.3 The
number of premarital agreements tripled between 1978 and 1988
and has increased steadily since then.4 This
article discusses the family lawyer's liability exposure in
drafting and reviewing premarital agreements.
While the popularity of premarital agreements has grown, they are still not
uniformly enforced. In 1983, the National Conference of Commissioners on Uniform
State Laws approved and recommended that the Uniform Premarital Agreement Act
be enacted in all states. The commissioners' primary objective was to promote
uniformity in the enforcement of premarital agreements in all states.5 California
and over 25 other states have adopted some version of the Uniform Premarital
Agreement Act,6 while some states
have crafted their own statutes governing the validity and enforcement of premarital
agreements.7 In spite of these
statutes, jurisdictions still vary significantly in the standards used to review
the validity of these agreements.8
The ever-increasing
requests for premarital agreements, coupled with the knowledge
that courts still struggle with guidelines for consistent enforcement,
has spurred liability concerns among family lawyers. The results
of an informal poll conducted by the authors indicate that
many family lawyers believe that drafting premarital agreements
is a high-risk proposition.9 Most
lawyers polled will not get involved unless their client's
intended spouse is also represented, regardless of the
terms of the agreement and regardless of whether they represent
the
financially stronger or weaker client. Some attorneys reported
that they will refuse a case if the agreement will be negotiated
or drafted close to the wedding date. Lawyers differed
on what is an acceptable time frame, generally ranging
from three months
before the wedding to one week. Similarly, some lawyers
will not sign an agreement if they believe the terms are
unfair,
but there is little agreement on what is or is not "fair." Many
lawyers used words such as "nervous," "dislike," and "uncomfortable" to
describe their reactions to being asked to draft or review
a premarital agreement. In the wake of the California Supreme
Court's grant of review in two recent cases addressing
the enforcement of premarital agreements, In re Marriage of Pendleton10 and In
re Marriage of Bonds,11 many
California lawyers are left wondering how best to protect their
clients and themselves.
The
fear that drafting or reviewing premarital agreements presents
a substantial liability risk to family lawyers appears unwarranted.
While it is true that the standards courts use to evaluate
premarital agreements are still evolving, it is also true that
courts are much more willing to enforce premarital agreements
than they were 30 years ago. Additionally, many professional
liability insurers consider premarital agreements to pose no
greater liability risk than marital settlement agreements or
any other family law agreements.12
Until the California
Supreme Court offers further guidance, existing case law indicates
that there are measures lawyers should take to decrease their
malpractice exposure. The following hypothetical illustrates
some of the ways in which lawyers can protect themselves and
their clients:
John, age 28,
has an MBA degree and recently started a dot com business with
a partner. John earns an annual salary of $175,000 and owns
35% of the founder's stock of his business. John expects his
company to go public in a year. John is engaged to Sarah, age
26, who has a BA in English and works as an editor at a publishing
company. Sarah's annual salary is $40,000 and she has a pension
through her employment. This is John and Sarah's first marriage
and they hope to have children. For the past two months, John
and Sarah have been discussing between themselves the terms
of a premarital agreement. The wedding is in one week. John
requests that you draft a premarital agreement wherein he and
Sarah will waive all community property and all rights to each
other's retirement benefits.13 John
told Sarah that he will not marry without a premarital agreement.
Will you assist
John?
Assuming you can
overcome your annoyance at being asked to perform such an important
task under what could have been an avoidable time crunch, you
should consider the following before declining John's request:
Timing
Commentators point
out that there are two separate time periods which courts consider
in evaluating whether a premarital agreement was voluntarily
executed: (1) the period of informal notification and discussion
preceding an actual draft agreement, and (2) the period of
formal negotiations after the first draft has been prepared.14
Where parties
have informally discussed the agreement for more than one month
before signing (and absent other factors), the agreement will
probably be held voluntary, even though the period of formal
negotiations was relatively short.15 Courts
have been far more reluctant to enforce premarital agreements
that have not been discussed informally until several days
before the marriage.16
When courts assess
the amount of time required between being presented with a
proposed agreement and the wedding date, more than one week
has been held to give the challenging spouse sufficient opportunity
to seek an attorney's assistance.17
Thus, the mere
fact that John and Sarah will sign their premarital agreement
shortly before the wedding does not necessarily mean the agreement
will be unenforceable. As John's counsel, consider reciting
in the agreement all relevant facts surrounding any informal
discussions, including the date on which the discussions began
and any changes requested by Sarah.
Advice of independent
counsel
The validity
of a premarital agreement under California law hinges on
whether
the agreement was voluntary. The challenging party
has the burden of proof.18 Lack
of counsel is a common attack. Contrary to most practitioners'
belief, the issue is not whether a party had counsel, but rather
whether the party had the opportunity to consult with
independent counsel. If a spouse had a reasonable opportunity
to consult with independent counsel, but declined to do so,
the agreement will probably be held voluntary and enforceable.19
Counsel should
tell the unrepresented party early, and in writing, to seek
the advice of independent counsel, but should never give the
unrepresented party a referral to another lawyer.20 Additionally,
counsel should not give the unrepresented party any advice
about the agreement or explain the meaning or effect of its
terms.
As John's attorney,
you should send Sarah a letter telling her that her interests
and John's are not identical and are likely to conflict and
recommend that she consult with independent counsel. If Sarah
declines, include in the agreement an acknowledgement of the
recommendation to obtain independent counsel and a knowing
and intelligent waiver of the opportunity to do so. Finally,
include a statement that you have not provided Sarah with any
legal advice or with any explanation of the agreement's terms.
Adding formalities
to the execution of the agreement may improve the enforceability
of the agreement. For example, consider an extensive voir dire
whereby the parties are required to explain their understanding
of the terms before a court reporter or on videotape. If English
is one party's second language, consider translating the agreement
into that party's native tongue, inserting a clause confirming
that the party has read the translation, and attaching a copy
of the translation to the agreement.
Fairness
Under California
law, a premarital agreement is unenforceable if it was "unconscionable" at
the time of execution and, prior to execution, the complaining
party was denied reasonable financial disclosure, did not have
independent knowledge of the other party's finances and did
not waive his/her right to disclosure.21
Although no California
court has yet defined unconscionability in the context of premarital
agreements, other jurisdictions have examined the totality
of the circumstances surrounding the agreement's execution.
In addition to access to counsel, relevant factors include
the nature and complexity of the agreement's terms, any disparity
in assets brought to the marriage by each spouse, the parties'
respective age, experience and background, and the amount of
time available to each spouse to reflect upon the agreement.22 Thus,
a court might consider such factors as Sarah and John's age,
education and experience, the fact they have not been married
before and their respective finances when evaluating the fairness
issue.23
Fairness is often
analyzed in terms of financial disclosure. Unless knowingly
waived, the financial disclosure must be reasonably accurate
and should include approximate values of the disclosed assets.24 When
disclosure is not made, courts often find the agreement invalid.25 Nevertheless,
there are some circumstances in which full and fair disclosure
is not required, such as when a party has independent knowledge
of the other party's assets or net worth,26 or
when the nondisclosure is not prejudicial.27
If Sarah's attorney
feels the agreement is unfair, should she inform Sarah? Should
the attorney refuse to sign the agreement? Sarah's decision
to sign the agreement against her attorney's advice may ensure
the agreement's later enforceability against Sarah.28 Though
beyond the scope of this article, the issue of whether
to give advice about the fairness of an agreement and whether
to refuse
to sign an "unfair" agreement where the client understands
its terms presents interesting ethical issues.
Duress
While threats
of physical violence or mental cruelty will generally render
a premarital agreement involuntary on the ground of duress
or coercion,29 refusing
to proceed with the wedding if the agreement is not signed
probably will not invalidate the agreement, absent other circumstances.
For example, in Marriage of Adams, the husband told
the wife to sign the agreement one hour before the wedding
or the wedding was off. In finding no duress, the court noted
that the wife had seen the agreement before, knew its contents,
and had consulted with an attorney.30 Likewise,
in Taylor v. Taylor, the husband threatened to cancel
the wedding unless the wife signed the agreement. The court
found no duress because the wife received the agreement months
before the wedding and consulted with independent counsel.31
In our hypothetical,
the mere fact that John is unwilling to proceed with the wedding
absent a signed premarital agreement is not conclusive evidence
of duress. Provided Sarah is given sufficient time to review
the agreement and an opportunity to consult with independent
counsel, it is unlikely that the agreement will be deemed involuntary
simply because John will not marry Sarah without it.
Legal commentary,
which fuels lawyers' liability fears, seems out-of-step with
case law trends.32 Courts
are moving away from a paternalistic evaluation of premarital
agreements and such agreements are being enforced more
than ever.
Until the California Supreme Court provides further guidance,
family lawyers should worry less about malpractice exposure
as long as they are careful to follow certain safeguards.
1Also
known as "antenuptial" and "prenuptial" agreements.
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2See
Gary Belsky, Living by the Rules, Money, May, 1996 at
102.
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3While
there are a number of reasons for the rising popularity of
premarital agreements, the prevalence of divorce and remarriage
may be the most obvious. Since the mid-1980's, approximately
50% of all marriages end in divorce. In 1996, the United States
Bureau of the Census reported that in 1995 17.6 million people
(9.2% of the population) were divorced. See Statistical Abstract
of the U.S. 1996, p. 54 table 58 (116th ed. 1996).
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4See
Pam Slater, Prelude to Partnership, Sacramento Bee,
June 13, 1996, at C1.
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5See
9B West's U.Laws Ann. (1987) U. Premarital Agreement Act, Prefatory
Note, p. 369.
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6See
9B U.L.A. 69 (1996). California's UPAA (Ca. Fam. C. §1600 et.
seq.) controls the enforceability of premarital agreements
executed on or after January 1, 1986. Prior law governs the
validity and effect of pre-1986 premarital agreements (Ca.
Fam. C. §1503).
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7See,
e.g., New York (Dom. Rel. Law §236[B][3] et. seq.) and Minnesota
(Minn. Stat. §519.11 et. seq.).
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8See
Antenuptial Agreement (1997) 14 No. 7 Equitable Distribution
J. 73, 76.
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9Lawyers
in Contra Costa County, Alameda County and San Francisco County
were randomly polled informally by telephone. The fear that
premarital agreements pose substantial liability risks appears
to be shared by lawyers in other locales across the country.
See Sanford N. Katz, Marriage as Partnership, 73 Notre Dame
L.Rev. 1251, 1263.
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10(1998)
62 Cal.App.4th 751. The supreme court granted review
on June 17, 1998, thereby depublishing the court of appeal
opinion that held that spousal support waivers in premarital
agreements are not per se unenforceable. The court of appeal
reasoned that the legislative history regarding California's
adoption of the UPA shows the legislature's intent to leave
the issue to the judiciary, rather than to preserve the case
law rule banning premarital support waivers.
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11(1999)
83 Cal.Rptr.2d 783. The supreme court granted review on July
21, 1999, thereby depublishing the appellate court's opinion
that held that the court must strictly scrutinize the circumstances
surrounding the execution of a premarital agreement to determine
whether the agreement was voluntary whenever a party challenging
a premarital agreement shows that she did not have legal counsel,
that she did not knowingly refuse counsel or that she did not
have the opportunity to obtain counsel.
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12For
example, the San Francisco Claims Department for Reliance
National Insurance Company, the primary professional liability
carrier
offered through the California State Bar Association, indicates
that premarital agreements are not a "red flag" area. Other
carriers, such as Lumbermens Mutual Casualty Company, include
premarital agreements under general family law Errors and
Omissions coverage without any added premiums or restrictions.
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13Premarital
agreements that purport to waive a future spouse's interest
in an ERISA-qualified pension plan create certain problems.
The primary difficulty arises from ERISA language requiring
the participant's "spouse" to waive the interest. A fiancé is
not a "spouse" for this purpose. The cases decided thus
far seem to indicate that reliance on a premarital waiver
is ineffective
and that some post-marital action must be taken to comply
with applicable federal law. See, e.g., Hurwitz v. Sher (2nd Cir.
1992) 982 F.2d 778, cert. denied (1993) 508 U.S. 912 and Pedro
Enterprises, Inc. v. Perdue (7th Cir. 1993)
998 F.2d 491. See also, Hogoboom & King, CAL. PRAC.
GUIDE: FAMILY LAW (the Rutter Group 1999), 9:191-192.
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14See
Victoria Ho and Laura Morgan, Litigating Prenuptial Agreements,
14 No. 11 FairShare 21, (Nov. 1994).
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15See,
e.g., Williams v. Williams ([Tex. Ct. App. 1986] 720
S.W.2d 246: Parties discussed agreement informally for six
months before marriage. Even though wife saw the actual agreement
for the first time only one day before wedding, court found
agreement voluntary given a number of factors such as the age
and experience of the parties.); In re Marriage of Adams ([Kan.
1986] 729 P.2d 1151: Agreement that was discussed for one week
before marriage and presented to wife one hour before marriage
held enforceable.); Howell v. Landry ([N.C. App. 1989]
386 S.E.2d 610, rev. denied [1990] 326 N.C. 482: Agreement
held enforceable where it had been presented one day before
wedding, but had been informally discussed for some time before
and wife made changes to agreement.); and Matter of Marriage
of Leathers ([Or. App. 1989] 779 P.2d 619; cert. denied
[1990] 789 P.2d 263: Agreement, presented the evening before
wedding but discussed in general terms for an "extended period" beforehand,
was held enforceable.).
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16See,
e.g., Marriage of Matson ([Wash. 1985] 705 P.2d 817,
affirmed, [1986] 730 P.2d 668: Agreement unenforceable where
initial meeting took place one week before wedding and agreement
was executed on evening before wedding.); Zimmie v. Zimmie ([Ohio
1984] 464 N.E.2d 142: Agreement found involuntary where wife
first learned of agreement on the day before the wedding.);
and Norris v. Norris ([D.C. 1980] 419 A.2d 982: Agreement
held involuntary where wife on advice of independent counsel
refused to sign a premarital agreement in the weeks leading
to the wedding and requested changes that husband refused,
and subsequently signed agreement when presented with it one
hour before the ceremony without any financial disclosure.).
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1753
A.L.R. 4th 85, Sec. III, ¶10 (1987, 9/99 Supp.).
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18Fam.
C. §1615(a)(1).
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19See,
e.g., Greenwald v. Greenwald (Wis. App. 1990) 454 N.W.2d
34, rev. denied, (1990) 454 N.W.2d 806; Woolwine v. Woolwine (Ala.
Ct. App. 1987) 519 So.2d 1347, appeal after remand 549 S.2d
512. In announcing its strict scrutiny rule, the court of appeal
in In re Marriage of Bonds, supra, held that ". . .when
the unrepresented party (1) has the opportunity to seek legal
advice and (2) knowingly refuses such assistance, the closer
scrutiny test we have enunciated should not be applied." 83
Cal.Rptr.2d at 805. The California Supreme Court is currently
reviewing this case.
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20While
it is safe to refer an unrepresented party to the State Bar
or to another recognized referral source such as the State
Bar's list of certified family law specialists, counsel should
not refer to a specific attorney or even provide the party
with a list of three or four names.
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21Fam.
C. §1615. The standard for unconscionability in premarital
agreements is actually higher than in other types of contracts.
Under contract law, an unconscionable contract is invalid
regardless of whether there was a fair financial disclosure.
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22See,
e.g., Gross v. Gross (Ohio 1984) 464 N.E.2nd 500; Hengel
v. Hengel (Wis. 1985) 365 N.W.2d 16.
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23Some
courts treat premarital agreements similarly to other agreements.
For example, in Simeone v. Simeone (Pa. 1990) 581 A.2d
162, 167, the Pennsylvania Supreme Court changed its approach
in reviewing premarital agreements from a fairness approach
to a contract approach. The Simeone court decided that
the courts should no longer inquire into whether a premarital
agreement's terms were fair or whether the parties had informed
understandings of the rights they were waiving. Instead, premarital
agreements would have the same defenses as other contracts,
such as duress, unconscionability and fraud. In deviating from
prior case law, the Simeone court argued that the fairness
approach of earlier cases was grounded in paternalism. Id.
at 165. Whether the California Supreme Court will adopt a Simeone approach
or another approach remains to be seen.
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24See,
e.g., Casto v. Casto (Fla. 1987) 508 So.2d 330.
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25See,
e.g., Estate of Stack v. Venzke (Ind. Ct. App. 1985)
485 N.E.2d 907.
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26See,
e.g., In re Palamara (Ind. Ct. App. 1987) 513 N.E.2d
1223; Fam. C. §1615(a)(2)(C).
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27See,
e.g., Hill v. Hill ([Minn. Ct. App. 1984] 356 N.W.2d
49: Husband made good faith underestimation of his net worth.
Court upheld the agreement because wife testified that she
would have signed it even if the values had been accurate.); Schutterle
v. Schutterle ([S.D. 1977] 260 N.W.2d 341: Contract held
valid despite lack of financial disclosure where wife testified
that she would have married husband even if he were poor and
that she did not need to get married for support.); and In
re Estate of Hopkins ([Ill. App. Ct. 1988] 520 N.E.2d 415:
Husband failed to disclose $24,500 of an estate worth over
$300,000. Court found disclosure sufficient.).
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28See,
e.g., DeLorean v. DeLorean ([Ch. Div. 1986] 511 A.2d
1257: Agreement valid where husband gave agreement to wife
shortly before wedding and told her to sign it or the wedding
was off. Wife consulted independent counsel who advised wife
not to sign, believing the agreement to be unfair to wife.
Wife wanted to get married so she signed it anyway.); Gross
v.Gross, (supra, 464 N.E.2d 500: No overreaching by husband
where wife signed agreement against the advice of her attorney.
The court also noted other factors, such as both parties had
prior marriages. The court went on to find the support provisions
unconscionable even though they were fair at the time of execution.);
and Hengel v. Hengel, (supra, 365 N.W.2d 16:
Agreement valid where wife signed it over her attorney's objection.
The court also noted other factors, such as the age of the
parties and that the parties had children from prior marriages.).
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29See
e.g. Casto, supra, 508 So. 2d at 335: Wife found
to be under duress when husband threatened to "blow up the house
and throw Clorox over all [the wife's] clothes" unless she
found an attorney "who would let her sign the agreement;" and Chait
v. Chait ([1998] N.Y.S.2d 269: Husband signed agreement
under duress, despite his consultation with two attorneys on
date of signing, where wife repeatedly threatened to flee with
their child if he did not sign.).
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30729
P.2d 1151 (1986).
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31832
P.2d 429 (Okla. App. Ct. 1992).
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32In
1993, one commentator wrote "[t]here are few areas of our law
which are so emotionally charged and expose attorneys to such
ominous risks as antenuptial agreements. The stakes are inordinately
high, and one misstep can spell disaster for both client and
attorney." Andrew J. Kyreakakis, Antenuptial Law in New
Jersey, 24 Seton Hall L. Rev. 254, 254 (1993).
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