The Uniform Premarital Agreement Act: taking Casto to a new level for prenuptial agreements.
Initially, premarital agreements were made for purposes of settling property rights and were upheld provided proper financial disclosure had been made. (2) In 1972, in Posner v. Posner, 257 So. 2d 530 (Fla. 1972), the Florida Supreme Court upheld a prenuptial agreement containing spousal support provisions which had previously been deemed void as against public policy. (3) In 1983, the Uniform Premarital Agreement Act (UPAA) was drafted in response to concerns over the lack of uniformity as to validity and enforcement of these contracts during a time when the demand for premarital agreements was on the rise. (4) Twenty-five states and the District of Columbia have adopted the UPAA, although Florida has not yet been one of them--but Florida is apparently closer than one would think. In order to codify existing Florida law, a version of the UPAA is anticipated to be presented to the legislature in May 2007. The following is a discussion of what the Florida version of the UPAA will look like and how the material aspects of the act reflect and perhaps change Florida case law and embody public policy.
Section one of the Florida version of the UPAA is definitional. Under the act, "'Premarital Agreement' means an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage." (5)
"This [act] takes effect and applies to any premarital agreement executed on or after that date." (6) (That is, the date after the law would go into effect). At this point, the act would clearly only apply to true premarital agreements unless and until the legislature or the courts expand the definition to include postnuptial agreements. For example, New Jersey is strict and the act only apples to prenuptial agreements, (7) whereas Virginia more liberally applies the act to all property settlement agreements. (8)
Since property distribution is one main focus of the act, there is of course, a definition of property contained within it. The definition, however, as set forth in the draft propounded by the National Conference of the Commission on Uniform State Law (NCCUSL) has a fairly generic definition of property: "An interest, present or future, or equitable, vested or contingent, in real or personal property, including income and earnings." Florida is planning to adopt its own definition of property as specifically set forth in F.S. [section]61.075(5), defining marital and nonmarital assets and liabilities as those which include:
1. Assets acquired and liabilities incurred during the marriage, individually by either spouse or jointly by them;
2. The enhancement in value and appreciation of nonmarital assets resulting either from the efforts of either party during the marriage or from contribution to or expenditure thereon of marital funds or other forms of marital assets, or both;
3. Interspousal gifts during the marriage;
4. All vested and nonvested benefits, rights, and funds accrued during the marriage in retirement, pension, profit-sharing annuity, deferred compensation, and insurance plans and programs, and
5. All real property held by the parties as tenants by the entireties, whether acquired prior to or during the marriage, shall be presumed to be a marital asset.... (9)
F.S. [section]61.075(5) also defines "non-marital" assets and liabilities as:
1. Assets acquired and liabilities incurred by either party prior to the marriage, and assets acquired and liabilities incurred in exchange for such assets and liabilities;
2. Assets acquired separately by either party by noninterspousal gift, bequest, devise, or descent, and assets acquired in exchange for such assets;
3. All income derived from nonmarital assets during the marriage unless the income was treated, used, or relied upon by the parties as a marital asset;
4. Assets and liabilities excluded from marital assets and liabilities by valid written agreement of the parties; and assets acquired and liabilities incurred in exchange for such assets and liabilities; and
5. Any liability incurred by forgery or unauthorized signature of one spouse signing the name of the other spouse. (10)
Section two of the act provides a premarital agreement must be in writing and signed by the parties. It is enforceable without consideration, other than the marriage itself. This question then becomes whether this section abrogates the Florida case law which recognizes the enforceability of oral prenuptial agreements in two instances: first, where they are fully performed by both parties, (11) and second, where the contract is agreed upon prior to the marriage, but the writing is not prepared until after the marriage. (12)
Section three of the act, which deals with actual content, provides parties to a premarital agreement may contract with respect to:
1. The rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
2. The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
3. The disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
4. The establishment, modification, or elimination of spousal support;
5. The making of a will, trust, or other arrangement to carry out the provisions of the agreement;
6. The ownership rights in and disposition of the death benefit from a life insurance policy;
7. The choice of law governing the construction of the agreement; and
8. Any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty. (13)
In general, the list is intended to be illustrative as opposed to restrictive to the items enumerated. (14) Furthermore, the right to child support "may not be adversely affected by a premarital agreement." (15) Section four of the act proposed for Florida provides that a premarital agreement becomes effective upon marriage. Accordingly, if the parties remain together after they execute the agreement but never go through with the solemnization of the marriage, the agreement does not become operative.
Section five of the act provides that, "[a]fter marriage, a premarital agreement may be amended or revoked only by a written agreement signed by the parties. The amended agreement or the revocation is enforceable without consideration." (16) Florida also intends to propose a abandoned, but there also must be a writing to reflect this intent--conduct of the parties will be insufficient to evidence an intent to abandon the agreement.
Section six of the act concerns whether to enforce. Specifically,
A premarital agreement is not enforceable if the party against whom the agreement is sought proves that:
1. That party did not execute the agreement voluntarily; or
2. The agreement was unconscionable when it was executed and, before the execution of the agreement, that party:
i. Was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
ii. Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and
iii. Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party. (17)
First and foremost, the UPAA places the burden of proof upon the challenger of the agreement to show involuntariness in the execution as well as unconscionability and lack of disclosure and lack of knowledge of the other's financial circumstances. Currently, the burden is on the challenger to prove the existence of fraud, duress, overreaching, etc., or failing to prove that the agreement is unreasonable on its face. (18) Once the challenger proves the agreement is unfair or unreasonable given the circumstances of the parties, a presumption arises that either the defending spouse concealed his or her assets and holdings or that the challenging spouse lacked knowledge of the other's finances. (19) The burden of proof then shifts to the defending spouse to rebut these presumptions by showing that full disclosure was made or that the challenging spouse had an approximate knowledge of the character and extent of the other's income and property. (20) The act eliminates any shifting of the burden to the defending spouse. It does not, however, entirely abrogate the issue of unreasonableness and unfairness because these elements seem to be subsumed into the aspect of unconscionability. Certainly, the act requires us to advert to Florida case law when determining the voluntariness of the execution. An agreement is not executed voluntarily if it is the product of fraud, duress, coercion, or overreaching. (21) The UPAA does not define these concepts, nor does it define unconscionability. Fraud has been defined by the courts as a "misrepresentation of a specific material fact that is untrue and unknown to be so and stated for the purpose of inducing another to act, upon which statement the other relies in acting to his injury." (22) Rarely has a challenge been based on fraud.
The more common challenges concern duress and overreaching. How do Florida courts define duress? "Duress is a condition of mind produced by an improper external pressure or influence that practically destroys the free agency of a party and causes him to do an act or make a contract not of his own volition." (23) Duress can take the form of threats by one party to injure the other party's reputation, expose the party to disgrace, or expose a family secret. (24) Similarly, threats by one party to blow up the house, throw Clorox over all of the other party's clothing, and deny access to the house and furniture if she did not sign were sufficient facts to allow the court to find that a party did not execute an agreement voluntarily. (25) Presenting a prenuptial agreement to the other party for the first time one or two days before the wedding has amounted to duress. (26) Conversely, presenting the prenup to the other party 10 days before the wedding did not create a situation where the challenging party was deemed to have signed under duress. (27) The concept of duress during the process of obtaining a property settlement agreement in a dissolution proceeding is beyond the scope of this article; however, some good examples of facts that do not rise to the level of duress can be found in Cronacher v. Cronacher, 508 So. 2d 1270 (Fla. 3d DCA 1987).
Next, what is "overreaching"? "Overreaching has been defined as that which results from an inequality of bargaining power or other circumstances in which there is an absence of meaningful choice on the part of one of the parties." (28) Overreaching arises in transactions between persons in a confidential relationship in which it is clear the dominant party is the grossly disproportionate beneficiary of the transaction. (29) In Lutgert v. Lutgert, 338 So. 2d 1111 (Fla. 2d DCA 1976), the court found that the husband overreached the wife under the following circumstances: Approximately 24 hours before the wedding, while the parties were shopping for wedding rings, the husband presented the wife with a prenuptial agreement in the jewelry store and gave her the ultimatum of "no agreement, no wedding." (30) The wedding was to take place at an airport where family and friends were invited as the couple traveled to board a cruise ship with booked passage on a honeymoon cruise to Europe, and all other arrangements made. When the wife expressed hesitation, the husband called his attorney from the jewelry store and put the wife on the phone with him. The wife, who had no money or property to speak of, signed. The agreement afforded the husband all of his approximately $3,000,000 estate and gave $1,000 per month permanent alimony to the wife, but no property. For 10 years, the parties lived an opulent lifestyle with an eight-bedroom, 12-bath home that the court called "a palatial mansion," three luxury yachts, a jet, Rolls Royces, and Lincoln Continentals. They took around-the-world cruises and had a staff of servants, expensive jewelry, and a classic car collection, the husband's hobby. The court held the circumstances surrounding the execution of the agreement, including the disproportionate terms, supported a presumption of undue influence and overreaching which affected the wife's ability to exercise her free will in executing the agreement. (31) The court stated,
[s]urely, particularly at the last moment, a prospective wife ought not be forced into a position of being "bought" at the price of losing all if she does not agree to a grossly disproportionate benefit to the husband should she leave him under any and all circumstances, any more than she should be permitted to "sell" herself at zero hour for an agreement resulting in a grossly disproportionate gain to her upon the same eventuality. (32)
The concept of "overreaching" is important because it immediately ties into "unconscionability," which is a factor in the second part of the enforceability test under the UPAA. As stated previously, an agreement under the UPAA will not be enforced if it "was unconscionable when it was executed" and certain disclosure requirements are not met. (33) Section 6(c) of the UPAA states that an "issue of unconscionability of a premarital agreement shall be decided by the court as a matter of law." (34)
What is "unconscionability"? In her dissent in Hahn v. Hahn, 465 So. 2d 1352, 1355 (Fla. 5th DCA 1985), Judge Sharp wrote, "Although I hate to quibble with semantics, it appears to me that there is by definition 'overreaching' where there is an 'unconscionable' agreement. Webster defines unconscionable as 'unscrupulous, excessive, unreasonable, shockingly unfair or unjust.'" (35)
Most of the family law cases dealing with unconscionability concern situations where the parties have entered into a marital or property settlement agreement during the course of a dissolution proceeding. In Torres v. Linchetta, 744 So. 2d 1193 (Fla. 3d DCA 1999), for example, the court held without much explanation that an agreement was unconscionable where it gave the wife $3,000 per month in alimony when the husband only earned $36,000 per year and was in failing health and unrepresented by counsel. In Moss-Jacober v. Moss, 334 So. 2d 89 (Fla. 3d DCA 1976), the court held that the agreement was unconscionable and a product of overreaching as supported by its oppressive terms, which included an award to the wife of the equity in the marital residence, furniture, and furnishings, the 1973 Thunderbird, the checking and savings account totaling $3,500, and an award to the wife of $1,200 per month in alimony plus the husband being obligated to make the monthly mortgage and car payments. Here also, the husband was unrepresented by counsel. In McGregor v. McGregor, 447 So. 2d 994 (Fla. 4th DCA 1984), the court set aside an agreement as "grossly unfair" where the agreement gave the wife lump sum alimony of $10,000 from the husband's share of the proceeds of the home, and all of the parties' property except for a 1973 Ford with 90,000 miles, his tools, clothes, and $600 worth of bank stock. The wife had retained counsel under the husband's instructions "to get the cheapest lawyer she could find to represent them both." Naturally, the husband was thus unrepresented.
Finally, in Tenneboe v. Tenneboe, 558 So. 2d 470 (Fla. 4th DCA 1990), the court set aside a property settlement agreement reached two weeks after a divorce petition was filed on similar principles. The court found that overreaching existed where the husband, who was unrepresented by counsel, gave the wife the house and all of the equity in it, the van, alimony, some attorneys' fees, assumed all the debt, and was left with $112.57 per week on which to live. (36) Additionally, there were concerns about the representations that the wife's attorney made to the husband regarding his ability to modify alimony and husband's understanding of the loyalties of the wife's attorney. Notice that in all of these cases, the challenging party was not represented. Although the law in Florida is abundantly clear that lack of counsel alone is not grounds for invalidating a settlement agreement, (37) the grossly disproportionate distribution and other factors of unfairness combined with the lack of counsel allowed the courts to set aside these agreements. A sufficient showing that an agreement resulted from an inequality of bargaining power or other circumstances such that there was no meaningful choice on the part of the disadvantaged party (38) may very well translate into overreaching such as to render an agreement unconscionable.
In a case in which a court has dealt with the issue of unconscionability in the context of the enforceability of a prenuptial agreement, the result was quite harsh to the challenging party. In Baker v. Baker, 622 So. 2d 541 (Fla. 5th DCA 1993), the Fifth District construed a Pennsylvania antenuptial agreement.The laws of Pennsylvania were quite similar to those of Florida dealing with the circumstances for enforceability of such an agreement, including issues of fraud, duress, and having the benefit of financial disclosure. In this case, the parties were in their sixties when they married, and the wife had been previously receiving $55,000 per year in alimony from a previous marriage. In the prenuptial agreement, the wife waived her rights to alimony, equitable distribution, and a share in the husband's estate. (39) When the wife later challenged the agreement in the dissolution proceeding, the trial court found that the agreement was unconscionable and overreaching, and violated Florida's public policy as it left the wife a pauper and potential ward of the State of Florida. The appellate court reversed. The court reasoned that Pennsylvania law, like Florida law, will uphold an antenuptial agreement that is unfair and inequitable if the parties entered into it voluntarily with the benefit of full and fair disclosure and in the absence of fraud, duress, overreaching, or coercion. The court did not find evidence of unconscionability or overreaching. The wife had retained independent counsel to negotiate the agreement, and testified that she understood that she received no alimony under the agreement and that she signed it voluntarily with the benefit of full disclosure with no threat by the husband that he would not marry her if she did not sign. (40) In the spirit of "everyone is entitled to make a bad bargain," the end result was unfavorable for the wife.
The wife in Baker, in all likelihood, would have been saved had the UPAA been in effect at the time. Section 6(b) of the UPAA provides:
If a provision of a premarital agreement modifies or eliminates spousal support and that modification or elimination causes one party to the agreement to be eligible for support under a program of public assistance at the time of separation or marital dissolution, a court, notwithstanding the terms of the agreement, may require the other party to provide support to the extent necessary to avoid that eligibility. (41)
Because the agreement in Baker violated such a clear Florida public policy, the court may have been able to fashion an appropriate support award for the wife without rendering the other portions of their prenuptial agreement unenforceable.
In addition to a finding that the premarital agreement is unconscionable at the time of execution, there must also be a finding of a lack of fair and reasonable financial disclosure and that the challenging party reasonably could not have had an adequate knowledge of the property or financial obligations of the other party. (42) The UPAA, however, allows for a waiver of financial disclosure. (43) In Florida, the disclosure requirements are satisfied where the challenging spouse "possesse[s] such general and approximate knowledge of [the other's] property as to enable [the spouse] to reach an intelligent decision to enter into the agreement." (44) A list of accounts with the values included is sufficient. (45) A list of business holdings that provides an approximation of earnings of the business is sufficient--a party need not obtain a business appraisal for purposes of satisfying this requirement. (46) The fact that the parties resided together for years prior to entering into a prenuptial agreement and the agreement itself contains a schedule of the dominant party's assets and liabilities or a financial affidavit accompanies the agreement will overcome a claim of inadequate disclosure. (47) Indeed, the fact that the parties resided together for a significant period of time suggests that the challenging party would reasonably have an adequate knowledge of the financial circumstances of the other. The predominant issue that the courts are concerned with is that there is no concealment. (48)
Ultimately, it would appear that prenuptial agreements will be harder to set aside under the act. If one cannot establish fraud, duress, or overreaching, which are hard enough to prove, the need to prove unconscionability catapults what had previously been an "unfair or unreasonable" standard into the stratosphere where the circumstances must be "shockingly unfair" and "excessively unreasonable." And the elements of lack of financial disclosure/lack of knowledge must also accompany the unconscionability claim. The act reflects Florida's policy which does not prohibit persons from making hard bargains or entering into unfair agreements, as long as they do it voluntarily, of their own free will, and with at least an approximate knowledge of what they are giving up.
Section seven of the act provides that "if a marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable." (49) Section eight provides that statutes of limitation applicable to an action asserting a claim for relief under the premarital agreement are tolled during the marriage of the parties, but equitable defenses limiting the time for enforcement, including laches and estoppel, are available to either party. (50) Finally, the act has a severability clause. That is, if any provision of the premarital agreement is held invalid, the other provisions can still be given effect. (51)
Combined with the apparently more stringent standards set forth in the UPAA, parties will have second thoughts about testing the enforceability of their agreements now that the Florida Supreme Court has recognized the enforceability of prevailing party attorneys' fee provisions contained in prenuptial agreements which would place liability on the impecunious spouse for the already dominant spouse's attorneys' fees should the agreement be upheld. (52) "Contracts can be dangerous to ones well-being. That is why they are kept away from children. Perhaps warning labels should be attached. In any event, contracts should be taken seriously." (53)
(1) DonalD J. Trump, Trump: HOW TO GET RICH (2004).
(2) Nailey & Co. v. Lively, 15 Fl. 130 (1875).
(3) See Del Vecchio v. Del Vecchio, 143 So. 2d 17 (Fla. 1962).
(4) Stephanie Casteel, Planning and Drafting Premarital Agreements, 20 THE PRACTICAL Tax lawyer 33 (Fall 2005).
(5) National Conference of Commissioners on Uniform State Laws (NCCUSL), Draft of UPAA [sections]1 (1983), available at www.law.upenn.edu/bll/ulc/fnact99/1980s/upaa83.htm.
(6) NCCUSL, Draft of UPAA [sections]12, available at www.law.upenn.edu/bll/ulc/fnact99/1980s/upaa83.htm.
(7) Pacelli v. Pacelli, 319 N.J. Super. 185 (N.J. Super., A.D. 1999).
(8) O'Connor v. O'Connor, Court of Appeals of Virginia, Va. App. Lexis 629 (2003).
(9) FLA. STAT. [sections]61.075(5)(a).
(10) FLA. STAT. [sections]61.075(5)(b).
(11) O'Shea v. O'Shea, 221 So. 2d 223 (Fla. 4th D.C.A. 1969), cert. den., 225 So. 2d 919 (Fla. 1969).
(12) Trapani v. Gagliardi, 502 So. 2d 957 (Fla. 2d D.C.A. 1987).
(13) NCCUSL, Draft of UPAA [sections]3, available at www.law.upenn.edu/bll/ulc/fnact99/1980s/upaa83.htm.
(14) Stephanie Casteel, Planning and Drafting Premarital Agreements, 20 THE PRACTICAL TAX LAWYER 33 (Fall 2005).
(15) NCCUSL, Draft of UPAA [sections]3, available at www.law.upenn.edu/bll/ulc/fnact99/1980s/upaa83.htm.
(16) Id. at [sections]5.
(17) Id. at [sections]6.
(18) Casto v. Casto, 508 So. 2d 330 (Fla. 1987).
(22) Ball v. Ball, 36 So. 2d 172, 177 (Fla. 1948).
(23) Herald v. Hardin, 116 So. 863, 864 (Fla. 1928).
(24) Paris v. Paris, 412 So. 2d 952 (Fla. 1st D.C.A. 1982).
(25) Casto v. Casto, 508 So. 2d 330 (Fla. 1987).
(26) Hjortaas v. McCabe, 656 So. 2d 168 (Fla. 2d D.C.A. 1995); Lutgert v. Lutgert, 338 So. 2d 1111 (Fla. 2d D.C.A. 1976).
(27) Doig v. Doig, 787 So. 2d 100 (Fla. 2d D.C.A. 2001).
(28) Schreiber v. Schreiber, 795 So. 2d 1054, 1057 (Fla. 4th D.C.A. 2001), citing Black'S law DicTionary 1104 (6th ed. 1990).
(29) Lutgert v. Lutgert, 338 So. 2d 1111 (Fla. 2d D.C.A. 1976).
(33) NCCUSL, Draft of UPAA [sections]6 (a)(2).
(34) Id. at [sections]6(c).
(35) WEBSTER'S NEW COLLEGIATE DICTIONARY, 1264 (150th anniversary ed. 1973).
(37) Tenneboe v. Tenneboe, 558 So. 2d 470 (Fla. 4th D.C.A. 1990).
(38) Schreiber v. Schreiber, 795 So. 2d 1054 (Fla. 4th D.C.A. 2001).
(41) NCCUSL, Draft of UPAA [sections]6(b).
(42) Id. at [sections][sections]6(a)(2)(i) and (ii).
(43) Id. at [sections]6(a)(2)(ii).
(44) Waton v. Waton, 887 So. 2d 419 (Fla. 4th D.C.A. 2004), citing Del Vecchio v. Del Vecchio, 143 So. 2d 17, 21 (Fla. 1962).
(47) Doig v. Doig, 787 So. 2d 100 (Fla. 2d D.C.A. 2001)(parties resided together for five years before prenuptial agreement signed); Dienstag v. Dienstag, 864 So. 2d 9 (Fla. 3d D.C.A. 2003)(parties resided together for two years prior to signing).
(48) Del Vecchio v. Del Vecchio, 143 So. 2d 17 (Fla. 1962).
(49) NCCUSL, Draft of UPAA [sections]7.
(50) Id. at [sections]8.
(52) Lashkajani v. Lashkajani, 911 So. 2d 1154 (Fla. 2005).
(53) Posik v. Layton, 695 So. 2d 759,763 (Fla. 5th D.C.A. 1997).
Doreen Inkeles is board certified in marital and family law. She graduated with honors from St. Thomas University Law School in 1992 where she served as an articles editor on the St. Thomas Law Review. Ms. Inkeles participates in the Family Law Section as a member of the Publications Committee, CLE Committee, and Equitable Distribution Committee. The author expresses appreciation to Benjamin Hodas for his support and contribution to the substantive aspects of this article.
This column is submitted on behalf of the Family Law Section, Thomas J. Sasser, chair, and Susan W. Savard and Jeffrey A. Weissman, editors.
|Printer friendly Cite/link Email Feedback|
|Publication:||Florida Bar Journal|
|Date:||Mar 1, 2007|
|Previous Article:||No Man Stands Alone.|
|Next Article:||The impact of recent NLRB decisions on supervisory status.|