How Courts Determine the Validity of Prenuptial Agreements

Introduction to Prenuptial Agreements

A prenuptial agreement, commonly referred to as a prenup or premarital agreement, is a legally binding contract entered into by two individuals before their marriage. This agreement sets out each partner’s property rights and financial obligations, specifying how assets, debts, and spousal support will be handled in the event of a divorce or the death of one spouse. In recent years, prenuptial agreements have gained popularity, with surveys showing that nearly half of American adults are open to signing a prenup. Millennials, in particular, are leading this trend, recognizing the importance of financial planning and security as part of their upcoming marriage.

Understanding what a prenuptial agreement can and cannot protect is crucial before signing. A well-drafted prenup can clarify the division of assets, outline responsibility for debts, and address spousal support, helping both parties enter marriage on the same page regarding their financial future. By setting clear expectations, a prenuptial agreement can reduce uncertainty and conflict if the marriage ends in divorce, making it a valuable legal document for couples at any stage of life.

Benefits of Having a Valid Prenup

Not very long ago a high-profile couple, both country and western singers, who had been together for 10 years and married for four of them, were divorced before there had even been public acknowledgment that they had split up. They had a valid prenup that neither one of them contested. Division of their assets was done without argument or court intervention.

There was no long, drawn-out, expensive court process. Their Oklahoma divorce was quickly granted and they both moved on with their own lives without the animosity that often results from a difficult and contentious divorce proceeding.

Some lawyers who prepare prenuptial agreements equate having such an agreement with having insurance to cover catastrophic events, like earthquakes or floods. You hope nothing like that ever happens to you, but if it does you are glad you have coverage. A prenup can help protect assets such as inheritances, business interests, or personal valuables. The following situations make it particularly beneficial to have a valid prenup:

• One party has significantly more assets than the other
• One party has significant debt and the other party wants to make it clear that he or she is not going to be responsible for the debt
• The parties have children from previous marriages or relationships and want to preserve their individual assets for their own children to inherit
• One party has a significant interest in a business he or she has owned for a period of time
• Each party has separate property they want to keep separate

Having clearly defined, agreed-upon terms in a prenup can prevent misunderstandings and disputes in the future.

Understanding Community Property

In community property states such as Arizona, California, and Texas, the law generally considers all assets acquired during marriage to be community property, meaning both spouses have equal ownership. However, a prenuptial agreement allows couples to override these default rules by designating certain assets as separate property, ensuring that specific items remain under the ownership of one spouse in the event of a divorce. This can be especially important for individuals entering marriage with significant assets, a family business, or complex financial portfolios.

Community property laws vary from state to state, so it is essential for couples to understand how these laws apply to their situation and how a prenuptial agreement can impact their rights and obligations. By clearly defining which assets are considered community property and which are separate, a prenup provides certainty and peace of mind, helping spouses avoid lengthy and costly disputes over property division if the marriage ends.

Examples of Prenups That Have Been Invalidated

According to a report in Forbes, the current President of the United States had a prenup with his first wife that was declared invalid. The couple had been married for 15 years and had three children together. The court found the prenup unenforceable due to problematic clauses that did not meet legal standards. One clause of the prenup said that the wife would return any gifts, including cars and fur coats, to her husband in the event of the divorce. During the divorce litigation, the President did not object to deleting that clause from the agreement.

After a prolonged court battle, they eventually settled their financial differences in an agreement that remains confidential. The prenup played a significant role in the divorce negotiations, influencing the settlement process even though it was ultimately not upheld. The President later said he learned a lot from the battle with his first wife, so he had an “ironclad” prenup with his second wife. As indeed he did. His second wife was unsuccessful in her attempt to have the prenup invalidated. Rumor has it that he has a similar ironclad prenup agreement with his third wife.

When a Prenup Is Declared Invalid by a Court

There have been prolonged court battles when one party challenges the validity of the prenup. A few years ago, the first wife of a well-known baseball player filed a petition for divorce. She requested sole custody of their two children, their $12 million Florida mansion, her Mercedes, and a court order invalidating their prenup. That would mean the court would then make an equitable distribution of their marital property under Florida law.

The baseball player got angry. He was pretty vocal about claiming she would lose in court. The prenup was airtight he said, and if she pursued her claim she would lose and he would ask the court to order her to pay all of his legal fees. Eventually, the couple settled their financial differences in an agreement that remains sealed.

In another famous case, the court invalidated a prenup between Steven Spielberg and his first wife, Amy Irving. The prenup had been scribbled hastily on the back of a bar napkin without the assistance or advice from any legal counsel. The lack of proper witnessing and notarization meant the prenup was not considered fair by the court. When the couple divorced four years later, the court invalidated the agreement. It was 1989 in California and, since the prenup was invalid, Amy Irving was awarded $100 million as her share of their community property, which was half of Spielberg’s assets at the time.

In a recent case out of New York, the appellate court invalidated a prenup, finding it was “unconscionable.” Shortly before the couple married they signed a prenup. Two of the terms the court took issue with was that property purchased during the marriage from proceeds of separate property remained separate property. In this case, the husband, a physician who earned $300,000 a year, purchased the family home with proceeds from his separate property and put the deed solely in his name. The wife lived in the home, did not work outside the home, and cared for the husband and their three children, one of whom had special needs.

The court also took issue with the term of the prenup that called for the husband to only give his wife a lump sum settlement of $20,000. The agreement was heavily weighted in favor of one spouse over the other spouse, contributing to its invalidation. She got no share in the family home. The court noted that a prenup that is not unconscionable when entered into may be unconscionable at the end of the marriage. In this case, the prenup was invalidated as unconscionable when enforcing it would mean:

• there was a high risk of the wife becoming a public charge;
• the wife was unemployed and had been unemployed since the marriage, focusing her time on caring for their three children; and
• the agreement was incredibly lopsided when the husband earned $300,000 and the lump sum of $20,000 was all the wife would ever get.

The court stated that, “An agreement is unconscionable if it is one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense.” Using that definition of "unconscionable," the appellate court held that the wife had met her burden of proof and the agreement was indeed unconscionable and therefore invalid. Prenuptial agreements with terms that violate public policy or legal standards are generally unenforceable.

Factors That Lead Courts to Declare a Prenup Valid

No matter how carefully a prenup is crafted, there is a chance that circumstances will change and a court will find a reason to invalidate the agreement. A way to decrease the chances of that happening is to follow carefully the law of the state where the agreement is drafted. Using common sense also helps. Important factors that will influence courts to uphold the agreement as valid include the following:

• The agreement is in writing and signed by both parties – Oral prenups are not valid in any state.
• Both parties fully disclosed their financial situation – They both revealed all of their assets and liabilities. Full disclosure is essential; both parties must disclose assets and liabilities completely to ensure that the prenup is enforceable. A sure way to have a prenup invalidated is for one party to have held back from revealing all assets. Courts have held that husbands and wives have a fiduciary duty to each other, which means they must deal fairly and honestly with each other. A party who fails to disclose all assets will suffer at the hands of a court that will find the prenup invalid.
• All information included in the prenup must be true – In addition to including all assets and liabilities, courts will make sure all information revealed is backed up by documentary proof that it is true.
• Both parties had the mental capacity to sign the agreement – A party who is under the influence of medications or alcohol does not have the mental capacity to sign any legal document.
• The prenup was signed enough in advance of the nuptials to give both parties the opportunity to fully comprehend the implications and consequences of signing the agreement – The closer to the date of the actual marriage the document is signed, the more likely it is that it will be declared invalid. It can be argued that it was signed under duress and without the opportunity to fully consider the ramifications of signing the document. If signed just hours before the marriage, it may be that the person who is trying to have the agreement invalidated did not even have an opportunity to read it. Signing the agreement well before the wedding date helps avoid claims of duress and ensures that both parties have adequate time to review the terms.
• The prenup was not amended after it was signed – No clauses were added to the document and no language was added after the document was signed.

Agreements that comply with these requirements will likely be deemed valid when challenged in court. A prenup that is even more airtight will include a clause stating the rights that the person is giving up according to the specific state law. A prenuptial agreement can also include a waiver of the elective share, which affects inheritance rights upon death.

In the event of a divorce and there is no prenup, some states consider that all property accumulated during the course of the marriage is community property and will be divided essentially equally in case of a divorce. Other states distribute property according to the principles of equitable distribution, which means fairly, and not necessarily equally. If the parties acknowledge they are giving up the rights that would be in place if they did not sign the prenup, it is more likely the prenup will be valid. If the prenup is declared invalid, property will be distributed according to the law of the particular state.

Property Rights and Obligations

A prenuptial agreement is a powerful tool for protecting the separate property that one spouse brings into the marriage, ensuring that these assets remain theirs in the event of a divorce. This can include real estate, investments, retirement benefits, and other significant assets. A well-crafted prenup can also specify how marital property (assets acquired during the marriage) will be divided, and can address the division of the family home, vehicles, and other jointly owned property.

In addition to asset protection, prenuptial agreements can outline each spouse’s obligations regarding debts and maintenance costs after divorce, making it clear that one spouse will not be responsible for the other’s financial liabilities. Couples with significant assets, prior marriages, or complex financial situations often use prenuptial agreements to safeguard their property rights and clarify their financial responsibilities, reducing the risk of disputes and ensuring a fair outcome if the marriage ends.

Clauses That Should Not Be Included in a Prenup

Although it is possible for a court to find certain clauses invalid but uphold the rest of the prenup, it is a better practice to know what clauses could be offending and just leave them out from the beginning.

Postnuptial Alternatives

For couples who did not sign a prenuptial agreement before marriage, a postnuptial agreement (also known as a post-marital agreement) offers a similar way to address financial issues and property division. Entered into after the wedding, postnuptial agreements can outline how assets, debts, and spousal support will be handled in the event of a divorce. While less common than prenups, postnuptial agreements can be especially useful for couples experiencing changes in their financial situation or seeking to clarify their financial arrangements after marriage.

Like prenuptial agreements, postnuptial agreements must meet strict legal requirements, including full financial disclosure, voluntary consent, and fairness to both parties. Consulting with a family law attorney is essential to ensure that a postnuptial agreement is valid, enforceable, and tailored to the couple’s unique needs. By considering a postnuptial agreement, married couples can proactively address financial concerns and protect their interests for the future.

How to Create a Prenuptial Agreement

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