Bar News - November 19, 2014
Family Law: De Facto Divorce? Potential Limitations of Postnuptial Agreements
By: Heather Krans and Petar Leonard
The New Hampshire Supreme Court in its decision in In re Estate of Wilber last year held that permitting the enforcement of postnuptial agreements comports with modern views and values relative to spousal equality. It did not, however, offer guidance on particular situations in which a postnuptial agreement would or would not be appropriate.
A review of other states’ jurisprudence makes clear that a postnuptial agreement may not be the appropriate vehicle for contracting married parties in all instances, and attempting to use postnuptial agreements at inappropriate times, or for inappropriate purposes, may expose parties contracting in good faith to enforceability problems.
Postnup v. Separation Agreement
The enforceability of contracts between spouses is one of relatively new evolution. Under common law, contracts between married persons were void as a matter of public policy. However, in modern times, the law has trended heavily toward allowing married couples to contract with one another, and finding such contracts enforceable. Thus, the generally accepted view – the view now supported in New Hampshire – is that “spouses may freely enter contractual relationships, and courts will uphold them if they satisfy the criteria of contract formation, and are otherwise fair,” according to Wilber.
Generally, states have identified two types of contracts between married persons entered into after the date of marriage: separation agreements and postnuptial agreements. States that have recognized separation agreements generally define them as agreements negotiated when a marriage has failed and the spouses intend to permanently separate or dissolve the marriage.
Conversely, postnuptial agreements generally are between spouses who plan to continue their marriage but wish to alter or confirm the legal rights and obligations that would otherwise arise. In contrast to separation agreements, which are entered into as a part, or in contemplation, of separation and/or divorce, the inherent premise of a postnuptial agreement is the bona fide continuation of marriage.
The NH Supreme Court’s definition of “postnuptial agreements” as agreements that “determin[e] a couple’s rights and obligations upon divorce or death... entered into after a couple weds but before they separate” seems to comport with other states’ determinations that postnuptial agreements and separation agreements are, in fact, different types of agreements. By addressing only marital agreements occurring before the date of separation (postnuptial agreements), the Wilber court did not opine on separation agreements.
Level of Judicial Scrutiny
Whether a contract between married parties is a postnuptial agreement or separation agreement is an important distinction.
Many states have determined that, due to the inherent differences of each type of agreement, different levels of judicial scrutiny should apply when determining enforceability.
Because separation agreement negotiations tend to occur when a marriage has failed, contractual formation takes place at a time when the parties may look to their independent economic futures. In other words, when the “stated intention of the parties is divorce, the parties look to their own future economic interests and the resulting separation agreement likely will be the product of classic arm’s-length bargaining.” See In re Marriage of Traster, Kansas (emphasis added.)
On the other hand, courts have observed that “[t]he circumstances surrounding [postnuptial] agreements... are ‘pregnant’ with the opportunity for one party to use the threat of dissolution to bargain themselves into positions of advantage.” See, e.g., Bedrick v. Bedrick (Connecticut, 2011).
The Bedrick court said: “Unlike parties to a... separation agreement, parties to a postnuptial agreement have stated their intention to remain part of an existing marriage in which they already have a vested interest, personal intimacy, and mutual trust. As a result, spouses to a postnuptial agreement run the risk of putting the interests of the couple ahead of their own which, in turn, will make them less cautious than they would be if negotiating at arm’s length with an ordinary contracting party.” For this reason, postnuptial agreements tend to be subjected to heightened scrutiny as compared to separation agreements.
In Wilber, the court’s definition of postnuptial agreements as agreements “... entered into after a couple weds but before they separate” seems to recognize that postnuptial agreements and separation agreements are, in fact, distinct. The opinion also seems to suggest that the enforceability of a postnuptial agreement entered into after separation (or possibly even the decision to separate) could be in question.
Attempting to circumvent the judicial process by effectuating a de facto divorce under the guise of a postnuptial agreement when the parties have no good-faith intention of continuing their marriage is an example of when a postnuptial agreement would likely be improper.
While the court in Wilber emphasized that agreements between married parties relative to property rights were enforceable, it acknowledged, and did not overrule, its previous decisions that agreements between married persons renouncing marital rights are void.
As attempts to divorce through private contract remain contrary to New Hampshire law and public policy, practitioners should be particularly wary about attempting to use postnuptial agreements for this purpose.
Until the court provides additional guidance as to when and how postnuptial agreements should be employed, relying on them as the “catch all” vehicle for memorializing agreements between married persons may be unwise.
Heather E. Krans is an attorney at The Stein Law Firm, where she concentrates her practice in family law. She is a fellow of the American Academy of Matrimonial Lawyers.
Petar Leonard, an attorney at The Stein Law Firm, focuses his practice on family law.