Pasternak & Fidis Reporter

June 20, 2017

Premarital Agreements and the Migratory Couple

A premarital agreement is a contract between persons intending to marry.  It determines spousal rights when the marriage ends by death or dissolution.  All states enforce properly made premarital agreements.  However, laws governing validity vary among the states.  What if a couple signs a premarital agreement in Virginia and later moves to Maryland?  Will a Maryland court enforce the agreement even though Maryland law of validity imposes a higher standard than Virginia law?

Contract law permits the premarital agreement to choose the law that will govern a dispute about validity of the agreement or enforceability of a specific provision even when the dispute must be resolved in another state’s courts.  Can the couple rest easy, knowing the law chosen in the contract—Virginia law in the example—will determine their rights?

Contract law also permits the court where a deceased person’s estate will be administered, or where a divorce is filed—the forum court—to reject a contract’s chosen law if applying it would violate a fundamental policy of the forum state.  In such an event, the forum court may choose to apply its own law.

Some states have more demanding requirements for a valid agreement.  For example, some states’ laws permit enforcement of an agreement that was extremely unfair (unconscionable) at execution; other states do not.  Some states, have more rigorous procedures for validity; for example, a requirement for access to counsel prior to signing.  Some states do not enforce a spousal-support waiver.  Some allow a judge at divorce to consider whether an agreement has become unfair since the date of marriage as a result of changed circumstances; this is known as the second-look.  In these states, a court can refuse enforcement of the agreement in its entirety or can make provisions for a property or support award to the economically weaker party at variance with the agreement.  In another group of states, a court may consider only whether a spousal support waiver has become unconscionable as of divorce.

What if a spouse dies as a resident of another state or one spouse files for divorce and that state:

  • has higher standards for validity of premarital agreements;
  • permits a second-look at divorce as to disposition of property and spousal support or only as to spousal support;
  • does not enforce a spousal-support waiver?

Will the forum court apply the chosen law or its own law?  Because there are so few cases from state courts of appeal that have resolved such a conflict, there is little guidance about when a court in a forum state will refuse to apply the law chosen by the parties in favor of the law of the forum on fundamental public policy grounds.  The best protection comes from complying with the highest standards, even when the agreement is to be governed by the law of a state with lower standards.

Best Practices.  A successful challenge to the validity of a premarital agreement is rare, even when the process leading to execution was sloppy and the substantive terms were unfair at execution and remain so at death or divorce.  Still, parties can reduce the risk of litigation and the unknowns associated with a possible move to another state with different laws.  A fair process and a fair result is likely to better serve both parties to a premarital agreement, especially when there is a significant disparity in resources.

Timing of Presentation.  The proponent of the agreement should start the process early so that he or she can provide a proposed draft of the premarital agreement to the other party well in advance of the planned wedding date.  This should give the recipient of the agreement enough time to get legal advice and negotiate the terms.

Access to Counsel.  Ideally both parties will have lawyers.  The proponent should do everything within reason to encourage the weaker party to get legal advice, including writing and encouraging him or her to do so and, in appropriate cases, agreeing to pay his or her legal fees.

Actual Negotiation.  The recipient should have a meaningful opportunity to negotiate the terms.  A meaningful opportunity to negotiate requires time, legal representation, and a proponent open to considering proposed changes.

Financial Disclosure.  The proponent should make a written statement that identifies major assets with values where readily available, and with fair estimates of value where they are not, and includes amounts and sources of income.  Statements of value should be qualified to the extent the value of a given asset is not readily ascertainable.  The disclosure should be attached to the agreement as an exhibit and both parties should initial the disclosure.

Fairness of Terms.  An agreement that makes reasonable provisions for an economically weaker party can help to insulate it from a successful attack.  To be fair, the agreement need not align with the law that would apply at divorce or death in the absence of a premarital agreement.

Conclusion

Premarital agreements are highly enforceable.  A party who obtains such an agreement prior to entering into marriage can have a high degree of confidence that it will be upheld as valid in a state other than that of the chosen law.  Nevertheless, there is some uncertainty for all couples who enter into a premarital agreement and then go to live in another state whose laws may demand more procedural or substantive fairness than that of the chosen law.  The interests of parties to an agreement will be better protected when the process leading to execution is fair, with access to counsel and sufficient time to consider the terms and negotiate for changes.  Moreover, parties will be better served by an agreement that makes reasonable provisions for an economically weaker party when there is a significant disparity in resources at the outset.