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Bar Journal - March 1, 1999

Antenuptial Agreements: A Practitioner's Guide

By:
 

Although there are many types of contracts, antenuptial1 agreements are unique because they are made in contemplation and in consideration of marriage and are a blend of family law and contract law. Antenuptial agreements are made to alter the statutory distribution of wealth incident to death or divorce. This provides opportunities for the client to transfer wealth, and to protect assets. This article will focus on what a general practitioner needs to know about antenuptial agreements in New Hampshire.

I. BACKGROUND AND HISTORY

Antenuptial agreements have a long history. They were originally used in 16th century England as a means to give property rights to women.2 Under the common law at that time, women had no right to possess property. Antenuptial agreements have been used in various religious faiths to determine spousal rights and obligations, such as the obligation to raise children in a specific religious faith.3 They have also been used to determine rights upon death and more recently, on divorce. The majority rule used to be that antenuptial agreements in contemplation of divorce were unenforceable as against public policy, as they would leave a dependent spouse without sufficient ability to provide for his or herself. At that time, most women were economically dependent on their spouses. As more women are members of the workforce and enter marriage with wealth of their own, and as more second marriages occur, antenuptial agreements for purposes of designating rights upon divorce have become popular. Although antenuptial agreements tend to be associated with the rich and famous, today even couples of modest means can use them. The typical client for an antenuptial agreement is an older person of wealth entering a second marriage, often after an intense first divorce. These clients seek to avoid the complexities of contesting property upon divorce and to protect their individual assets from being divided at divorce. Other clients who can benefit from these agreements are those with children from prior relationships. By designating each spouse's separate property and waiving interests in each other's estates, these clients can have some assurance that their children will be provided for, especially if the surviving spouse remarries. Clients with substantial assets of their own may wish to seek an antenuptial agreement to keep the other spouse from getting a share of the family wealth. Clients with closely held businesses, family heirlooms, and other assets of importance to their family can benefit from designating these as separate property in a martial agreement, thus reducing the chances that ownership will fall to those outside the family.

Although in New Hampshire most of the law pertaining to antenuptial agreements continues to evolve from case law, some of the earlier common law from other states has been codified. In 1983 the Uniform Premarital Agreement Act (hereinafter UPMA) was created to give some guidance to courts and practitioners on how to interpret these agreements.4 Since 1985, nineteen states have passed some version of the UPMA.5 Other states, including New Hampshire, have declined to adopt the UPMA but have adopted their own legislation.6 In New Hampshire, four statutes control the basics of antenuptial agreements. NH RSA 460:2-a specifically gives parties the power to enter into an antenuptial agreement to determine property distribution. RSA 458:52 states that nothing in the equitable distribution statute is meant to abrogate the right to enter into a pre-marital agreement concerning property rights. RSA 560:15 addresses waivers of rights to a spouse's estate and states that any settlement of property rights made before marriage upon the wife bars her from asking for those rights later by contesting the will. RSA 560:16 applies that to husbands, as well.

II. RULES OF VALIDITY

In its most basic form, an antenuptial agreement is a contract. However, unlike the parties to a commercial contract, parties to an antenuptial agreement have a confidential relationship. Additionally, the subject of antenuptial agreements is one in which the state takes an interest. Because an antenuptial agreement has special status, it has to meet two sets of rules, one for contracts, and one designed especially for it.7 To be valid an antenuptial agreement must meet the requirements of an ordinary contract: it must not be contrary to public policy, its execution must be voluntary and knowing, i.e. free from fraud, duress or overreaching; executed by competent parties, with adequate consideration, and the formal requirements, such as the statute of frauds must be met. In many cases more stringent standards are applied to determine the validity of antenuptial contracts. Unlike an ordinary contract, a martial agreement must also meet standards of fairness, both procedurally and substantively. These standards and rules will be discussed in the following paragraphs.

A. Subject Matter

Antenuptial agreements may address any subject pertaining to the marriage as long as it is not against public policy or does not tend to encourage divorce. Typically, antenuptial agreements address property distribution and/or support, and occasionally other issues as well. Antenuptial agreements can be used to vary, create or relinquish rights and interests in personal property. Generally, an agreement which addresses property settlement is not contrary to public policy. Many state statutes, including New Hampshire's specifically allow them to do so. In agreements which contemplate death, the rationale is that addressing the distribution of property is favored as it helps avoid the conflicts which may arise in the absence of defined interests.8 Interests which may be waived in an agreement which contemplates division of property upon death include the following releases: dower or courtesy rights, spousal inheritance rights,9 a statutory elective share,10 the right to elect a share against the will,11 an interest in life insurance,12 homestead rights,13 and a widow's allowance.14 There are some rights which cannot be waived: Courts have specifically declined to enforce agreements which alter the order of descent.15 A waiver can be full waiver or partial. It is not essential that each spouse waive equal or reciprocal rights. Even if only one party waives an interest, the waiver is still valid.16

In the divorce context, an agreement is used to alter the statutory scheme for equitable property distribution. Commonly included provisions include designating pre-marital property as separate, waiving any interest in the other spouse's separate property, payment of a fixed sum on divorce in lieu of an interest in property, maintaining post marital assets separately, or specific provisions about how the joint property will be divided. New Hampshire has equitable distribution laws which take into account certain factors in dividing property incident to divorce.17 Each case is fact specific; it is thus difficult to predict how a court might apply the equitable distribution factors to the marital estate when it is time to divide it incident to divorce. Antenuptial agreements can be used to clarify what each party brought into the marriage as his or her separate property thus providing more certainty of outcome on divorce. In most states any property which could be considered part of the marital estate can be part of the agreement, although some state statutes limit the type of property which may fall under the agreement.18 Waiving or dividing retirement interests is not inconsistent with public policy but certain requirements must be followed. It is not inconsistent with public policy to include a provision in the contract to deal with awarding attorneys' fees to the other spouse if the spouse challenging the agreement is unsuccessful.19

Courts tend to scrutinize provisions limiting spousal support in an antenuptial agreement. In New Hampshire, there is no law which specifically prohibits or endorses spousal support limitations in an antenuptial agreement, but in MacFarlane v. Rich, there is language to suggest that an agreement which prohibits all spousal support might be unenforceable.20 In other jurisdictions, there are a majority of cases which hold that parties cannot agree to terms which relieve one or both of the duty to support the spouse during the marriage.21 The rationale is that it is against public policy to alter this most basic obligation of marriage. This prohibition would include temporary support during a separation or pendency of divorce. It is possible, then, for a Court to award temporary alimony even though an agreement contains provisions waiving spousal support. In states which have adopted the UPMA, the public policy may be otherwise.22 Section 3(a)(4) of the UPMA provides that spousal support modification and elimination may be addressed in an antenuptial agreement. However, the "may" is emphasized. The cases which are referred to in the comment to this UPMA Section all involve the award of post divorce alimony, not temporary alimony. Some states will award temporary alimony, but deduct it from the final proceeds.23

Courts are divided on whether post divorce alimony may be part of an antenuptial agreement, because of the strong public policy exception to abrogating the general duty of support during the marriage. Over half of the states, including the UPMA states, allow alimony to be part of the agreement.24 Two states, Colorado and Wisconsin, have a public policy which specifically allows the parties to contract regarding support.25 Other states specifically prohibit post divorce alimony to be a part of the agreement.26 Regardless to the approach, Courts appear to scrutinize alimony provisions more closely than property division provisions. Even in the states which allow alimony, some states have developed separate tests to determine whether the alimony provision is enforceable. These tests range from prohibitive to facilitative. For example, under the UPMA, the test is whether the agreement is unconscionable and whether it would make a spouse a public charge.27 In Florida, the test is whether the agreement was fair when made, and whether there has been a change of circumstances.28 Some states focus on specific kinds of changes. In Colorado, the test is whether the agreement was fair when made, not unconscionable at the time of divorce, focusing on whether the party in need has sufficient property to provide for his or her needs or can support themselves.29 Ohio's test focuses on whether there has been an extreme change in the economic fortunes.30 West Virginia focuses on whether the circumstances at divorce are roughly what the parties expected.31 In a post marital agreement, one court has drawn a distinction between elimination of spousal support and its modification. In an Alabama case, the Court held that an agreement between husband and wife to give wife the proceeds of the harvest in lieu of support on the condition that she harvest it, was not inconsistent with public policy.32 In this case, the Court found that the agreement did not eliminate support, but modified it, changing its character.

Generally, contracting regarding child-related issues is frowned upon, as it abrogates the rights of the children who are not parties to the contract. Contracting for child support is against public policy in all jurisdictions. New Hampshire law specifically forbids it.33 In Wheaton-Dunberger v. Dunberger, the New Hampshire Supreme Court specifically stated that child support could not be contracted in an antenuptial agreement.34 Child custody provisions are also frowned upon as it takes away the power of the court to rule in the child's best interests. Some courts will use a custody provision as one of the factors in awarding custody; others will ignore it.35 Child custody is not addressed in the UPMA.

Antenuptial contracts are used in some religions to spell out the duties of the spouses. Courts are divided in upholding such agreements. In an Illinois case, In Re Marriage of Goldman, the Court upheld an antenuptial agreement provision to compel a husband to cooperate with his wife so that she could obtain a "get," a Jewish religious divorce.36 The parties had executed a ketubah, a contract which is part of a Jewish marriage. The court found that the ketubah met all the requirements of an antenuptial contract in Illinois, and upheld it.37 In a New York case, Schwarzman v. Schwarzman, the court addressed the issue of whether an antenuptial agreement to raise the children in a specific religion could be enforced.38 The wife had agreed to raise the children in the Jewish religion. After the parties separated, the wife reverted to the Catholic religion. She was awarded primary custody. The court held that she could not be compelled to continue to raise the children in the Jewish religion as the antenuptial agreement only contemplated that they would be raised in that religion during the marriage. The court held that a religious agreement to raise the children in a certain religion can be enforceable, but a court may modify such an agreement if the children's best interests are not being served.

In general the parties may contract with respect to anything which is consistent with public policy and which does not intend to encourage divorce. Among certain provisions which have been held to be unenforceable are: restricting the residence of a party to a particular state, prohibiting the parties from cohabitating, prohibiting the children from a former marriage from living with the couple, and requiring that a parent of one spouse live with the couple.39 To determine whether an agreement encourages divorce, one must examine whether the agreement gives more rights to a spouse after divorce than while married. In Neilsen v. Neilsen, a Utah case, the court determined that an agreement was void because it provided that if the husband asked for a divorce, the wife would get half of the parties' stock, no matter how long the marriage had lasted.40 The Neilsen court held that this provision provided an incentive for the wife to induce her husband to divorce her early in the marriage.

Sometimes a provision which appears to encourage divorce will be upheld. In MacFarlane v. Rich, the agreement contained a provision that the agreement would not apply if husband's fault caused the breakdown of the marriage. He invoked this provision to try to avoid the agreement. The MacFarlane court determined that the clause was consistent with public policy, because the marital estate would be divided by equitable distribution if the antenuptial agreement was void, which was consistent with public policy.41 As a practical matter, when drafting an agreement, it is advisable to include a provision for severability in the agreement so that if one of its provisions is held to be void, it will not invalidate the entire agreement. A provision for choice of law is also recommended. If no choice of law is given, the choice of law of the state where the agreement was entered into will control. However, a provision in the agreement which is deemed to be against the public policy of the enforcing state will not be valid.42

B. Voluntariness And Lack Of Fraud

As with any contract, a antenuptial agreement must be executed voluntarily and knowingly, and free from fraud, duress or overreaching. This is especially important as the parties to such an agreement typically do not deal at arm's length. Most jurisdictions find that the parties have a confidential relationship with one another.43 Black's dictionary defines a confidential relationship as follows:

In order to prevent undue advantage from the unlimited confidence or sense of duty which the [husband/wife] relationship naturally creates requires the utmost degree of good faith in all transactions between the parties. It appears when circumstances make it certain that the parties do not deal on equal terms, but on one side there is an overmastering influence, or on the other, weakness, dependence, or trust, justifyingly reposed.44

This means that greater care must be taken to be sure that the agreement is truly voluntary. However, it is difficult to reconcile the confidentiality of the relationship and the purpose of the agreement. The parties enter into an antenuptial agreement with a goal of protecting assets from each other. Often, but not always, the proponent of the agreement is the wealthier party. It is not surprising that one party will often appear to have an advantage over the other. Courts therefore tend to scrutinize the voluntariness component carefully. Common factors that courts look at include a refusal to marry unless an agreement is executed, the time frame between the agreement and the wedding, the opportunities to review the agreement before the wedding, the relative sophistication and education of the parties, their prior experience in divorce, prior use of lawyers between the parties, whether the subject of an antenuptial agreement was discussed previously, domestic violence between the parties, and any other factor which indicates that there is a power imbalance or advantage of one side over the other.

Similarly, the agreement must be free of fraud and overreaching. In the Massachusetts case of Fogg v. Fogg, the court addressed the issue of fraud in a post marital agreement.45 The parties were having marital difficulties and executed a post-marital agreement which provided that the wife would try to preserve the marriage if her husband would transfer certain properties to her. The Fogg court held that the wife's intentions when she entered into the agreement were not to continue the marriage but to provide herself with a reasonable divorce settlement. The agreement was invalid because she had defrauded the husband.46

C. Competency

Antenuptial agreements follow the general restatement of contracts rules that the parties must be competent to execute the contract in order for it to be valid.47 Because minors may marry, some states have explicit provisions in statutes for minors to be able to execute antenuptial agreements. In California a minor may execute an antenuptial agreement if emancipated or otherwise capable of contracting for marriage.48 In Arizona minors may enter into antenuptial contracts, but only if both parents or a guardian gives written permission.49 The issue of incompetence due to disability has been addressed by one court as a challenge to a prenuptial agreement. In Drewey v. Drewey, a Virginia case, a wife who suffered from severe depression challenged a prenuptial agreement on the basis of her mental disability.50 The court held that as an adult, she was presumed competent to enter into the contract and that competency requires only basic understanding of the nature and consequences of the action, not reasoned judgment concerning the agreement. The wife's severe depression alone did not render her incapacitated, nor did it give rise to a fiduciary duty between husband and wife.51

D. Consideration

An antenuptial agreement like any other contract, must be based on consideration in order to be valid. In an antenuptial agreement the consideration is the marriage.52 An agreement is not valid unless the marriage takes place. Consequently, if a marriage is later determined to be void, it places the antenuptial agreement in jeopardy. In some jurisdictions, general equity principles will rescue the antenuptial agreement of a void marriage. 53

E. Formal Requirements

Antenuptial agreements must also conform to certain formal requirements in order to be valid. The statute of frauds requires antenuptial agreements to be written. Most states which have statutes, including New Hampshire, require antenuptial agreements to be in writing.54 The rationale behind requiring writing is that it is thought that parties to marriage would not ordinarily observe the formalities to the contract because of the close nature of their relationship. Courts in a substantial majority have held that failure to comply with the formal requirements of the statute of frauds renders an agreement ineffective.55 Some states, like Massachusetts, require the agreement to be registered in the registry of deeds to be valid against third parties. If an antenuptial agreement deals with the transfer of real estate, it must also meet the written requirements for deeds in the appropriate jurisdiction.56 In some jurisdictions, oral antenuptial agreements will be enforced, in certain circumstances. If the parties make a subsequent written agreement with reference to the earlier oral agreement, for example, it could be upheld.57

F. Procedural Fairness

In addition to the requirements of ordinary contracts, antenuptial agreements must also meet tests of fairness: both procedural fairness and substantive fairness. Procedural fairness refers to how the agreement is drafted, presented to the other party and signed. Substantive fairness refers to the actual terms of the agreement. Procedural fairness has two components: whether the other side had an opportunity to meet with an attorney, and whether there was full and fair disclosure. Most jurisdictions require a party to have the opportunity to meet with independent counsel but do not require an actual meeting. This issue has not yet been addressed in New Hampshire. In Parkhurst v. Gibson, the court found that wife had not obtained the advice of independent counsel, but did not reach this issue, as it held that the agreement applied to death, but not divorce.58 The opportunity to obtain counsel implies that both parties had the chance to meet with an attorney and have the attorney explain the ramifications of the agreement to them. This is especially important, since consultation with counsel can remedy what appears to be an unfair agreement on its face if the disadvantaged spouse had the terms fully explained to him or her, and agreed to it nevertheless. The counsel must be independent, and one attorney cannot represent both parties. A conflict of this nature cannot be waived.59 As a practical matter, it is a good idea to insist that the other party obtain counsel, and to obtain the name of that counsel early in the process of negotiating the agreement. It is wise to include a statement in the agreement that both sides have been given the opportunity to consult with counsel and are satisfied with the agreement.60 If a client is intent on signing an agreement against the attorney's advice, the attorney should document it in a letter to the client. Counsel should probe closely for signs of involuntariness and duress, such as domestic violence or any type of power imbalance, and document those signs for the file to help the client later if he or she challenges the agreement on the issue of voluntariness.

An important component of procedural fairness is full and fair disclosure. All jurisdictions require some sort of disclosure or waiver be signed for an agreement to be valid. This is usually in the form of a schedule of each party's assets and income attached to the agreement as an appendix. The rationale is that if the necessary disclosure has been made, even a seemingly unfair agreement may be held valid.61 In states which presume the parties have a confidential relationship, there is an affirmative duty to disclose assets without waiting for the request of the other side.62 In states which do not recognize a confidential relationship, or which have statutes which do not require disclosure, full and fair disclosure must be made only upon request.63 New Hampshire has not specifically addressed this issue, but given the requirement that full and fair disclosure must be made in divorce and separation agreements, it would be reasonable to expect New Hampshire to fall under the former category.64

In some cases failure to disclose is not fatal to the agreement. Where a party has sufficient knowledge of the other's assets, that knowledge can substitute for actual disclosure.65 Knowledge of a spouse's general financial status is not sufficient. In a Nebraska case, In re Estate of Moss, the court upheld an agreement where there was no disclosure, noting that the parties were remarrying for the third time; the asset in question, land, had been in the husband's possession through prior divorces; and the wife had lived on the property.66 In an Indiana case, Johnson v. Johnson, the court found that the wife's knowledge of husband's assets was sufficient where they had known each other for 35 years, and each had discussions with a third party about the value of their assets.67 In most cases, this is the exception rather than the rule. Assets must typically be specifically and reasonably identified.68 In other words, a schedule of assets or other attachments to the actual document, must be presented before the time of signing. Ideally, it is best to provide both the assets and the proposed agreement thirty days in advance.

When preparing the agreement, it is important to ask the client for documentation of the assets, such as tax returns, deeds, copies of trusts, and life insurance policies. With real estate, a business, pensions or other valuable personal property, consider getting an appraisal. Copies of brokerage and bank statements, titles and deeds are needed to verify the nature of the client's ownership interest. Assets in joint tenancy with rights of survivorship may not be transferable to the other spouse regardless of the agreement. It is important to have an accurate picture of the client's financial status. Some clients forget or ignore assets which are considered part of the marital estate, in the belief that these assets are not important or are not subject to division. One must impress upon the client the importance of disclosing all assets.

G. Substantive Fairness

An antenuptial agreement must meet the test for substantive fairness. The terms of the agreement must be fair. Substantive fairness relates to all of the aspects of antenuptial agreements discussed earlier, especially voluntariness and disclosure. In reviewing the agreement for substantive fairness the court will examine the terms of the agreement. As with equitable distribution, a number of factors are examined, including the ages of the parties, their stations in life and standards of living, educational and vocational background, their respective assets, income, health, employment, and whether they have any children.69 All jurisdictions measure substantive fairness at the time of the execution of the contract. Some jurisdictions including New Hampshire also examine fairness as of the time of death or divorce, known as a "second look." In New Hampshire, there is a three pronged test for validity outlined the MacFarlane case: first, there must be procedural fairness, second, the agreement must not be unconscionable; and third, it must not be unenforceable due to changed circumstances.70 The third prong of this test also relates to unconscionability. An agreement is unenforceable due to changed circumstances if the facts and circumstances have changed so drastically from the time the agreement was executed as to make the agreement unconscionable.71 The MacFarlane court noted "we join those courts which, for public policy reasons, recognize that an agreement once fair and reasonable may become so one-sided by the time of dissolution that its application to a spouse would be unconscionable."72 An unconscionable agreement has been defined by the New Jersey legislature as one which would render a spouse without a means of reasonable support, would make a spouse a public charge, or which would provide a standard of living below the marriage.73

III. CHALLENGING AND UPHOLDING ANTENUPTIAL AGREEMENTS

As with contracts, the proponent of the agreement has the burden of establishing it. Once established, an agreement is presumed valid. The challenger has the burden of proving otherwise. If the agreement appears unfair on its face, then the burden of proof shifts back to the proponent to prove it is valid. The standard of proof in most jurisdictions is a preponderance of the evidence.74 In a minority of states, a stricter standard is employed.75 Courts are generally reluctant to broadly apply the provisions of an agreement. In Parkhurst v. Gibson, the court refused to apply an agreement to divorce which had been drawn up in contemplation of death.76 Courts are also reluctant to limit spousal rights if no mention is made in the contract, such as an explicit waiver of retirement funds. In deciding whether to challenge an agreement, it is advisable to make a schedule of the parties' assets as distributed by the antenuptial agreement, and without the antenuptial agreement, both at the time of the execution and at the time of the divorce or death. This will help show whether the agreement was one-sided at the outset, or whether it has become one-sided during the marriage. If the contract is found unfair or invalid for any reason, the court can rewrite all or part of its terms. Because it is impossible to predict how future events will change the fairness of a contract, practitioners are advised to advise clients in writing that there is no guarantee that the agreement will be enforceable.

IV. MODIFICATION AND REVOCATION OF AGREEMENTS

An antenuptial agreement may be modified at any time be agreement of the parties. The amendment should be in writing to meet formal requirements. Especially for states which allow a second look, amending the agreement from time to time to reflect changed circumstances, such as the birth of children, income and employment changes, and changes in the health of each spouse is a good idea. This avoids the appearance later that the contract was one sided, or did not contemplate changed circumstances. An agreement may be revoked by oral agreement or by conduct. In Walsh v. Young the decedent had revised his will to devise more property to his spouse than their antenuptial agreement directed.77 His children from a prior relationship challenged the Will on the basis of the antenuptial agreement. The New Hampshire Supreme Court found that his actions indicated an abrogation of that part of the agreement and upheld the Will. In a Colorado case, In re Marriage of Young, the parties pooling their separate estates after the marriage was found to abrogate their antenuptial agreement.78

V. TAX CONSIDERATIONS

There are many tax considerations when preparing an antenuptial agreement. Generally, the tax issues in these agreements involve treatment of alimony, transfers and division of personal property and waiver of rights. One aspect of using alimony in an antenuptial agreement is that the transfer of wealth from one spouse to another is tax deductible. If the spouses are in two different tax brackets, this represents a tax savings for the higher bracket spouse. If alimony is addressed as part of the agreement, there are certain IRS requirements which must be met. Alimony is deductible to the payor and income to the payee under IRC 215. To qualify alimony payments must in cash or the equivalent, and not a transfer of a debt or annuity.79 The payment must be to or for the benefit of the payee, but may be a payment to a third party such as house payments, taxes, rent, and utilities but not payments on property where the payor hold an interest.80 Payment of life insurance premiums is acceptable as long as the payee owns the policy. Payments must be designated in writing, must not be designated child support or property, and must terminate on the death of the payee.81

Another tax aspect of antenuptial agreements may involve the transfer or exchange of personal property. Transfer of personal property between spouses is considered a gift , not income.82 This includes transfers to third parties on behalf of a spouse.83 The transferee spouse assumes the transferor's basis.84 Pursuant to IRC 1041(a), neither spouse recognizes gain or loss. It is important to note that transfers of property prior to marriage is not covered by IRC 1041, and a gift tax may result to the extent the interest transferred exceeds the present interest $10,000 exclusion.85 Similarly, if the marriage is void, then property transferred pursuant to an antenuptial agreement may generate a gift tax.

A waiver of rights is common in an antenuptial agreement, and may have tax aspects. A waiver of support rights is treated differently than a waiver of property rights. Generally, a transfer by a spouse pursuant to an antenuptial agreement in exchange for a release of marital property rights is a gift.86 The gift occurs at the time the agreement is executed.87 A release of support rights in exchange for property is not a gift, unless the release occurs before the marriage.88 The IRS has taken the position that the marriage of the parties alone cannot serve as adequate consideration.89 Support rights are considered to be adequate consideration, but a release of property rights is not.90

If one spouse dies, there may be estate tax ramifications. The main issue is whether the property transferred by the agreement will fall under the marital deduction or not. In the case of a transfer made after the parties are married this is not an issue because it will be covered by the unlimited marital deduction. For a transfer made prior to marriage, the focus will be on whether the transfer was made for adequate consideration, a similar analysis to the gift tax aspects.

Pensions and retirement interests also involve tax aspects. If a waiver or distribution is agreed on, care must be given to avoid generating tax liability. A distribution of all or the part of an IRA between spouses is taxable to the transferor spouse when made in a prenuptial agreement.91 In regard to pensions, a waiver by a spouse of an interest in the other's pension a antenuptial agreement is not effective unless the parties are actually married at the time of the waiver.92 Because the parties are not married when an antenuptial agreement is signed, and ERISA rules require the waiver to be executed by a spouse, any waiver in the document must be ratified after the marriage. The waiver must be in writing, and include a designation of a new beneficiary, or authorize the spouse to name a new beneficiary, and it must be notarized or witnessed by the plan administrator.93 It is helpful to put in a provision that the spouses will cooperate in executing releases after the marriage.

VI. CONCLUSION

Given the risks, is an antenuptial agreement worth it? In most cases, it is an estate planning option worth considering if the client is willing to approach it knowing and understanding the risks. With the aging of the baby boom generation, it is estimated that a large transfer of wealth will continue in the next generation. As more and more clients enter marriages with interests to protect, entering into an antenuptial agreement becomes a practical way to help ensure that those interests are protected. However, clients must be fully advised that even the most carefully drafted agreement can't predict the future.

ENDNOTES

1.

The term 'antenuptial' is interchangeable with 'premarital' and 'prenuptial'.

2.

Judith Younger, Perspectives on Antenuptial Agreements, 8 J. Am. Acad. Matrimonial Law 1, 2 (1992).

3.

green, Marriage and Family Law Agreements, (1984, Supp. 1996.)

4.

Unif. Premarital Agreement Act, 9B U.L.A. 369 (1983).

5.

Arizona, Arkansas, California, Colorado, Hawaii, Illinois Iowa, Kansas, Maine, Montana, Nevada, New Jersey, North Carolina, Oregon, Rhode island, South Dakota, Virginia, and Texas.

6.

For example, New Hampshire, Massachusetts, New York, Minnesota YoungeR at 2.

7.

GREEN, at 112.

8.

LINDLEY ON SEPERATION AND ANTENUPTIAL AGREEMENTS, (1996) 90-101.

9.

In re Estate of Hansen, 910 P.2d 1281 (Washington, 1996)

10.

Cummings v. Wood, 199 N.W. 369 (Iowa, 1924)

11.

Schwimmers Estate, 49 NYS 2d 481 (Surr Ct 1994)

12.

Prudential Ins. Co. v. Quay, 115 F.Supp. 631 (S.D. Cal 1953)

13.

Shutterle v. Shutterle, 260 N.W.2d 341 (S.D. 1977)

14.

In re Meyers, 709 P.2d 1044 (Oklahoma, 1985).

15.

Watts v. Watts, 390 S.W.2d 30 (Texas Ct. App. 1964).

16.

Lee v. Central National Bank and Trust Co., 308 N.E.2d 605 (Ill. 1974)

17.

N.H. Rev.Stat.Ann. 458:19

18.

McKee-Johnson v. Johnson, 444 N.W.2d 259 (Minn. 1984).

19.

In re Marriage of Christien, 899 P.2d 399 (Colorado Ct. App. 1995.)

20.

MacFarlane v. Rich, 132 N.H. at 615. "... we find no indication that literal enforcement of paragraph 7L would cause either party to forfeit the right to support, or endure similar hardship."

21.

Lindley, at 90-94.

22.

LINDLEY,at 90-100

23.

Volid v. Volid, 286 N.E.2d 42 (Illinois, 1972).

24.

All states which follow the UPMA except California and South Dakota. Among the others are the following: Alabama (Barnhill v. Barnhill, 386 So.2d 749 (Ala. Civ. App.), cert. den. 386 So.2d 752(1980); Florida (Posner v . Posner, 233 So.2d 381 (Fl. 1970); Georgia (Scherer v. Scherer, 292 S.E.2d 662 (Ga. 1982); Kentucky (Edwardson v. Edwardson, 798 S.W.2d 941 (Kty. 1990); Maryland (Frey v. Frey, 471 A.2d 705 (Md. 1984), Massachusetts (Osbourne v. Osbourne, 428 NE2d 810 (Mass., 1981), Minnesota (Rudbeck v. Rudbeck, 365 N.W.2d 330 (Minn. Ct. App. 1985)); Missouri (Ferry v. Ferry, 586 S.W.2d 782 (Mo. Ct. App. 1979), New York, (NY Dom. Rel. Law. Sec. 236(B)(3); Ohio (Gross v. Gross, 464 N.E.2d 500 (1984), Oklahoma (Hudson v. Hudson, 350 P.2d 596 (1960); Tennessee (Cary v. Cary 937 S.W.2nd 777 (1996), Utah (Huck v. Huck, 734 P.2d 417 (Utah, 1986); West Virginia (Gant v. Gant, 329 S.E.2d 106 (W. Va. 1985), and Wisconsin (Wisc Stat. Ann. Sec.766.58 (3)(d).

25.

Colorado Rev. Stat. 14-2-304(1)(d) and Wisconsin Rev. Stat. Sec. 776.58(3)(h).

26.

California: In re marriage of Dawley, 551 P.2d 323 (Cal, 1976); Iowa: In re marriage of Winegard, 278 N.W.2d 586 (Iowa, 1923); South Dakota: Connolly v. Connolly, 270 N.W.2d 44 (SD 1978); Louisiana:, McAlpine v. McAlpine, 637 So.2d 1163(La. Ct. App. 1994).

27.

UPMA, Sec. 6(b). This is one of the harsher standards.

28.

Posner v. Posner 233 So2d 381, (Fla. 1970)

29.

Newman v. Newman, 653 P.2d (Colo. 1982).

30.

Gross v. Gross 464 N.E.2d 500 (1984) As an example, the Court cited whether a spouse had left the work force to care for children or because of ill health, or a change of the standard of living for a spouse.

31.

Gant v. Gant, 329 S.E.2d 106 (W. Va. 1985).

32.

Cragford Bank v. Cummings, 113 So.2d 243 (Ala. 1927)

33.

N.H. Rev. Stat. Ann. 460:2-a. The UPMA also has a specific provision which inhibits the parties from contracting to anything which adversely affects child support.(UPMA Sec. 3(b)).

34.

Wheaton- Dunberger v. Dunberger, 137 N.H. 504 (1993).

35.

Alves v. Alves, 262 A.2d 111 (D.C 1970). See also Lindley at 90-97.

36.

In Re Marriage of Goldman, 554 N.E.2d. 1016 (Illinois, 1990)

37.

See also Akileh v. Elchahal, 666 So.2nd 246 (Fl. Dist. Ct. App. 1996),where the court recognized the effectiveness of a Muslim antenuptial agreement known as a sadaq. But See In re marriage of Victor, 866 P.2d (Ariz. App. Div. 1, 1993) the court found that the ketubah did not meet the standards of a antenuptial agreement, and was vague on the issue of whether a "get" was agreed on.

38.

Schwarzman v. Schwarzman, 388 N.Y.S.2d. 993(Sup. Ct. 1976).

39.

Respectively, these cases are: Isaacs v. Isaacs, 99 N.W. 268 (Neb.1904), Mirizio v. Mirizio, 150 N.E. 605 (N.Y. 1926), Mengal v. Mengal, 103 N.Y.S.2d 992(Fam. Ct. 1951), and Koch v. Koch, 232 A.2d 157 (NJ App. div. 1967).

40.

Neilson v. Neilson, 780 P.2d 1264 (Utah Ct. App. 1989)

41.

MacFarlane at 613. The court found that husband's fault did not cause the breakdown of the marriage, and the contract was upheld.

42.

LINDLEY Sec. 90.15 at 90-143.

43.

LINDLEY at 90.03. New Hampshire has not specifically addressed this issue in an antenuptial agreement.

44.

LINDLEY at 90-101.

45.

Fogg v. Fogg, 567 N.E.2d 921 (Mass., 1991)

46.

Id at 924.

47.

UPMA, Sec. 2 Comment. On the issue of competency, the Uniform Premarital Act states:
A premarital agreement is a contract. As required in other contracts, the parties must have capacity to contract in order to enter into a binding agreement. Those persons who lack the capacity to enter into a contract but who under other provisions of law are permitted to enter into a binding contract may enter into a premarital agreement under these other provisions of law."

48.

Cal. Civil Code Sec.5201 (West, 1990).

49.

Arizona Rev. Stat. Ann. Sec 25-102(c)(1991).

50.

Drewey v. Drewey, 383 S.E.2d 12 (Virginia, 1989),

51.

In this case, adequate disclosure of financial assets was also an issue. After the agreement was executed, husband sold real property for more than the value disclosed on the prenuptial agreement. The Court held that this was not enough to show fraud, and absent a gross disparity between the selling price and the disclosure value, the contract was not unconscionable. (Drewey v. Drewey, 383 S.E.2d, 12 (1989).

52.

However, the IRS view is that marriage is cannot be considered fair consideration. Commissioner v. Wemyss 324 U.S. 303 (1945.).

53.

See LINDLEY, Sec. 90.05, 90-62-63.

54.

NH Rev Stat Ann, 406:2-a. Douglas and Douglas, 3 New Hampshire Practice: Family Law, 2d Ed. Sec. 102.

55.

GREEN, at 118.

56.

In Gubbins v, Fee, a New York case, (559 N.Y.S.2d 625 (1990), failure to acknowledge and prove and agreement to meet Deed requirements rendered it invalid, although it was notarized

57.

LINDLEY Sec. 90.05 at 90-61. However, in Busque v. Marcou, 86 A.2d 873 (Maine, 1952), the Maine Court decided that a will made later with reference to an oral antenuptial agreement did not satisfy the statute of frauds. Douglas, 3 NEW HAMPSHIRE PRACTICE; FAMILY LAW, 2d Ed. Supp. Sec. 105.

58.

Parkhurst v. Gibson, 133 N.H. 57 (1990)

59.

If you have done work for either or both parties in the past, you must examine carefully whether you have a potential conflict of interest. Potential conflicts of interest lurk where the attorney or firm has represented or dealt with one or both parties in regard to estate planning, real estate, business or other areas. L. Jonathan Ross, Esq., CLE on Antenuptial Agreements, NHBA, 1994.

60.

Keep in mind that it is likely that the drafting attorney may be called to testify about that agreement if it is ever challenged later. It is important to keep good notes of conversations and copies of all drafts of the agreement, with the changes proposed by each side.

61.

LINDLEY at 90-86.

62.

Alabama, Alaska, Arizona, Colorado, Connecticut, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Nebraska, Nevada, Ohio, Pennsylvania, South Dakota, Tennessee, Virginia, Washington, Wyoming.

63.

California and New York do not follow the confidential relationship rule. In Florida, there is no requirement to disclose.

64.

In Shafmaster v. Shafmaster,138 N.H. 460 (1994), the New Hampshire Court held that in order for a divorce agreement to be valid, there must be full and fair disclosure on both sides.

65.

In Massachusetts, a waiver or independent knowledge is contemplated as a substitute for full disclosure. Rosenberg v. Lipnik 389 N.E.2d 385, 388 (Mass. 1979.)

66.

In re Estate of Moss, 263 N.W.2d 98 (Nebraska, 1978)

67.

Johnson v. Johnson, 184 NE2d 651 (Ind., 1962)

68.

But see In re Estate of Broadie, 493 P.2d 289 (Kansas, 1972) where an agreement must upheld despite husband's disclosure that his stock holdings were estimated to be $75,000 when they were actually worth $125,000. The Court ruled that the difference was not great, and the overall agreement was fair. In Brown v. Brown, 265 S.W.2d 484 (Kentucky App. Ct. 1954) the husband remedied a lack of disclosure at the time the agreement was signed by disclosing three days later, after the parties were married.

69.

Heady v. Heady 766 S.W.2d 489 (Mo. Ct. App 1989). Many of these factors parallel those in equitable distribution statutes.

70.

MacFarlane at 589.

71.

Id at 591. Some jurisdictions, such as Massachusetts, follow the rule that an agreement must be fair and reasonable when viewed from the perspective of the party challenging it. Lindley at 90-79. Rosenberg v. Lipnik, 389 N.E.2d 385 (Mass., 1979) defines fair and reasonable as not judged in isolation, but also in relation to factors such as the respective worth of the parties, their ages, intelligence, literary and business acumen and prior family ties and commitments. In a later case, Upham v. Upham, 630 N.E.2d 307 (Mass App. Ct. 1994), the court reasoned that fair and reasonable was not the same thing as unconscionable, and that although there may be a considerable overlap between the two standards, unconscionability requires a greater showing of inappropriateness.

72.

Id. As an example of shocking the conscience of the Court, forfeiting the right to support was cited.

73.

N. J. Stat. Ann Sec 37:2-32(c). Hawaii has defined the standard as being one sided, unjust, and results in one party having a disproportionate economic share. Lewis v. Lewis, 748 P.2d 1362 (Haw. 1988) (predates UPMA adoption in that state). MacFarlane cites the Lewis case. The UPMA adopts the unconscionableness standard in commercial contracts: overreaching, concealment of assets, and sharp dealing.

74.

Lindley at Sec. 90.12.

75.

Arizona, New Jersey, Pennsylvania and Rhode Island use a clear and convincing standard. Some Courts which apply the unconscionability standard to substantive fairness also recognize the inherently higher burden this standard demands. DeLorean v. Delorean, 511 A.2d 1257 (NJ Ch. Div 1986).

76.

Parkhurst v. Gibson, 133 N.H. 57 (1990)

77.

Walsh v. Young, 660 A.2d 1139 (NH, 1995)

78.

In re Marriage of Young, 682 P2d 1233 (Colo. Ct. App. 1984). In this case, the agreement was drafted to keep assets separate after marriage.

79.

IRC Reg. 1.71-1(b)(Q & A 5).

80.

Reg. 1.71-1 (b)(Q & A 6).

81.

IRC 71

82.

IRC 1041(b).

83.

Reg. 1.1041-1T(c)

84.

IRC 1041(b).

85.

IRC 2503(c)

86.

Commissioner v. Wemyss 324 US 303 (1945).

87.

Rev Rul. 69-347 1969-1 CB 227.

88.

See Farid es Sultananch v. Commissioner, 160 F.2nd 812 (2nd Cir. 1947).

89.

Commissioner v. Wemyss, supra.

90.

On the theory that the estate and gift tax provisions of the Code should be read together. See 2043(b)(1). Except when the public policy of the State is not to enforce alimony provisions. In those states, a release of support rights is not adequate consideration. Where support rights are waived, the value of the consideration can be determined by actuarial tables. To the extent the property received exceeds the va, lue of the waiver, a gift results. However, this is somewhat academic because of the unlimited marital deduction.

91.

PLR 9344027, 8820086, 408 (d)(6).

92.

Treas. Reg. 1.401(a)-20. Hurwith v. Sher 92-1 USTC Sec. 50,213 (DSNY 1992).

93.

IRC Sec. 417(a)(2).

The Author

Attorney Henrietta W. Luneau is an associate with the firm of Janet F. DeVito, P.C., Concord, NH.

 

 

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