There is something unique about an agreement between two people contemplating marriage that distinguishes it from a traditional contract arrived at after arm’s-length transactions. The contract between intended spouses (the prenuptial agreement or prenup) often occurs against a backdrop where hundreds of friends and family have been invited to observe
the ceremony, significant costs have been incurred for the intended wedding, emotions are high and there may well be one party who is looking to protect assets while the other party comes to the intended marriage with far less significant finances and fewer financial concerns.
Similarly, contracts entered into between married spouses (nuptial agreements or postnups) frequently have not been treated by the courts as if they were traditional business contracts. As discussed in a previous column, courts in the United States have generally upheld these agreements, but have varied in their treatment of the standard of review.
In our last column we indicated that the Uniform Law Commission was considering and debating the terms of a new act addressing both types of agreements at its annual meeting in Nashville, Tenn., in July. At that meeting the commission approved the Uniform Premarital and Marital Agreements Act (UPMAA). It can now be found at www.uniformlaws.org. Although the UPMAA has been adopted by the commission, there will be stylistic changes made that will not affect the substance. Commentary will also be added. While the commentary to any Uniform Act provides valuable insight into the intent of the drafters of the act, commentary generally is not enacted by state legislatures. Therefore while it may be helpful to present to a particular jurist or appellate court, it is not binding on the courts unless it is part of the adoption of the act.
In this column we will review some of the provisions of the UPMAA, anticipating that it will be adopted by many state legislatures. It is designed to replace the former Uniform Premarital Agreement Act (UPAA) which has been adopted in 26 states. The new act acknowledges that prenups and postnups have become much more generally utilized and that, given the mobility of the population in the United States, there is a need for uniformity in these agreements.
FILLING A GAP
The UPMAA also fills a gap in existing uniform marital laws because up until now there has been no uniform treatment of agreements made during marriage by spouses who intend to continue their marriage but who wish to order financial terms affecting their marriage. The UPMAA is not intended to serve as a uniform law affecting separation or marital dissolution agreements since those agreements that are used at the time of a marital dissolution are controlled by state statutes or case law. Finally, the new act is not intended to apply to day-to-day financial transactions involving spouses such as mortgages, purchases of vehicles or property under long-term financing contracts, medical powers of attorney, estate planning documents or irrevocable trusts for the benefit of a child.
Since its promulgation in 1983, the UPAA has been significantly altered by state amendments. The primary criticism of the UPAA has focused on the very limited circumstances under which an agreement will be invalidated on the grounds of fairness. The UPAA uses a standard of “unconscionability,” but a finding of unconscionability will invalidate the agreement only if there was a lack of full disclosure, a waiver of full disclosure or when the disadvantaged party did not know or could not have reasonably known of the property of the other party. Commentators have suggested that the standard weighs too strongly in favor of enforcement and fails to protect the economically disadvantaged party.
Perhaps the most significant changes under the new act are the expanded grounds for finding the agreement unenforceable. To increase protection of the less advantaged party, the UPMAA has several requirements. There must be a reasonable time to decide whether to retain an independent lawyer before signing; there must also be enough time to locate an independent lawyer, obtain advice and consider it. If one party is represented by a lawyer, the other spouse-to-be must have the financial ability to obtain counsel or there must be an undertaking by the represented spouse to pay the reasonable fees and expenses of representation. The act stops short of requiring representation, but goes a long way toward achieving fairness.
There also is a very clear “notice of waiver of rights” — happily in plain, nonlegalese language. If there is a notice of waiver of rights it must include language that alerts the waiving party to the fact that he or she may be giving up rights to support, ownership and control of money and property and rights that would otherwise accrue at divorce or death. In addition, it must warn the waiving party that he or she may be agreeing to pay bills and debts of the other party. Also a waiver of financial disclosure must be in a document that is signed separately from the underlying agreement.
Historically, states have differed in determining what is referred to as the “second look” provision. When reviewing the terms of an agreement, most states will evaluate fairness at the time the agreement was entered into while a minority will assess fairness at the time of enforcement. The UPMAA recognizes these differences and includes alternative language for states that wish to decide to address the question of whether the enforcement of any provision of the agreement would result in substantial hardship for a party because of the material change in circumstances arising since the agreement was signed.
BURDEN OF PROOF
The other crucial issue relates to who bears the burden of proof in challenging the agreement: the contesting party or the party attempting to enforce it. Again, the new act provides for alternative language that reflects the different approaches. Included in the unenforceable terms is any provision of an agreement that limits or restricts remedies available to a victim of domestic violence.
The most obvious change has been the inclusion of marital agreements in the UPMAA. Perhaps the greatest difference among the states regarding these agreements again relates to the standard of review. In some jurisdictions there is a rebuttable presumption that all postnuptial agreements are the result of coercion, while in another such a presumption exists only if one of the spouses seeks a divorce within two years of the signing of the postmarital agreement. Other states provide for a reduction in the burden of proof for the spouse challenging the agreement.
These heightened standards of review are a reflection of some courts’ view that parties who are already married have a different relationship with each other than those who are entering into an agreement prior to marriage. Courts seem to be concerned that spouses may need additional protection because they may not be as cautious in contracting with one another as they would be with prospective spouses or with an ordinary nonspouse contracting party. Courts may also focus on the increased desire to remain married. The drafters of the UPMAA, however, chose to treat marital and premarital agreements in a similar fashion, recognizing the state law variations by again including alternative language.
Finally, the act notes that, just as with any other contract, principles of law and equity will apply. This section was added to affirm that the act does not displace standard contract defenses such as legal incompetency, misrepresentation, duress, undue influence, abandonment or waiver. This provision reflects further intent to ensure that these agreements that may so significantly affect individual rights meet minimal standards of fairness.
Mary Kay Kisthardt is a professor at the University of Missouri-Kansas City School of Law. She can be reached at KisthardtM@umkc.edu. Barbara Handschu is special counsel to Dobrish Michaels Gross in New York. She can be reached at Handschu@dobrishlaw.com.