The McCourt Postnuptial Agreement Case

The Love Story of Frank and Jamie McCourt

Jamie and Frank met when they were both college students at Georgetown University. After their marriage in 1979, Frank went into the real estate business and Jamie continued her education. She obtained an M.B.A. from Massachusetts Institute of Technology (MIT) and a J.D. from the University of Maryland, School of Law. She then practiced law for a number of years. Both husband and wife were very successful in their respective careers.

In 2004, Frank bought the Los Angeles Dodgers, including their stadium and surrounding acreage in Chavez Ravine. He paid $421 million for it all. About this time, Frank and Jamie both discussed the possibility of a postnuptial agreement with Frank’s attorney who had been helping him with estate planning for several years. Jamie was concerned about protecting their personal assets from business creditors. Frank was apparently concerned about protecting his interest in the Dodgers and accompanying acreage. So, the attorney prepared a Marital Property Agreement (MPA), also known as a postnuptial agreement, for both Jamie and Frank to sign.

The attorney had six copies of the agreement prepared. Jamie signed all six copies on March 31, 2004. Frank signed three copies on March 31, 2004, and the other three on April 14, 2004. As it turns out, the three copies signed on April 14 were not the same as the six copies signed by Jamie or the three copies signed by Frank on March 31.

As luck would have it, a few years after the postnuptial agreement was signed, the marriage hit a snag. On October 27, 2009, after the couple had been married for 30 years, Jamie filed for divorce in California. (The couple owned a number of different homes, including one in California and one in Massachusetts.) A trial was held between August 30 and September 29, 2010 solely on whether or not the postnuptial agreement would be enforced. The final decision of the court: No. This particular postnuptial agreement was unenforceable.

Why the McCourt Postnuptial Agreement Was Unenforceable

The main problem with this particular postnuptial agreement was that the three separate copies Frank signed and the six copies Jamie signed on March 31 all listed Frank’s separate property, but “excluded” from his separate property the Dodgers baseball team and surrounding property located in Chavez Ravine. The three copies signed by Frank on April 14 did not exclude the baseball club and surrounding property, but specifically included this property in a list of Frank’s separate property.

At the trial, both Jamie and Frank testified that they had not read the agreement closely before signing it and just trusted the attorney to follow their wishes. Jamie said she had no idea she was signing away her rights to the Dodgers and the Chavez Ravine property. All copies of the agreement were submitted into evidence.

The Los Angeles County Superior Court stated that spouses owe each other a fiduciary duty and must use “good faith and fair dealing, and disclosure of all material facts.” That was not done here, and there was no “meeting of the minds” as to the actual terms of the agreement. Therefore, according to contract principles, the agreement was not enforceable.

The case dragged on for a while before the couple came to a settlement agreement. Jamie later appealed, claiming Frank had misled her and the settlement was unfair. This time, she lost.

Five-Factor Test for Determining the Enforceability of a Postnuptial Agreement

Each state has its own rules about how to evaluate a postnuptial agreement; however, five factors listed by the Supreme Judicial Court of Massachusetts are instructive and may be similar to factors considered by other state courts:

• Is it clear from the document that each spouse “knowingly and explicitly” waived their right to have a judicial division of their assets in the event of a divorce?
• Was each party represented by independent counsel?
• Did the parties have adequate time to review the postnuptial agreement?
• Is it clear that the parties understood all the specific terms of the agreement?
• Did each party understand the rights he or she would have if no postnuptial agreement was signed?

Other Factors Required by Many State Courts

Some requirements that apply in most states in order for a prenuptial or postnuptial agreement to be enforceable include the following:

• The agreement must be in writing and voluntarily signed by each party.
• Each party must make a complete disclosure of their financial situation, including all real estate owned, all stocks and bonds owned, all investment and retirement accounts, and all monthly or annual income, for example.
• There must be no evidence of any fraud or duress.
• The terms must not be “unconscionable.” One example of an agreement being unconscionable is when one party would greatly prosper while the other one would face financial hardship. An agreement that is “grossly inequitable” may be unenforceable as being unconscionable. An agreement is not unconscionable just because one person made a bad deal, but generally, if a court finds that no “reasonable person” would have entered such an agreement, it will be found to be unconscionable.
• The terms must not be against public policy. Unfortunately, there are not clear guidelines about what public policy is. Some terms that will not be enforced include child support provisions that are against the law of the state. Additionally, an agreement that may end up with one party needing public financial assistance may be declared invalid as against public policy.

How a Postnuptial Agreement Can Help Improve a Marriage

A New York family law attorney writing for the Huffington Post outlined a number of reasons why preparing a postnuptial agreement with the assistance of an attorney may actually help improve a marriage that is in trouble. She notes that some couples have trouble discussing these issues with each other or even with a marriage counselor.

When problems are brought up with a family law attorney with the goal of establishing a postnuptial agreement, there is greater opportunity for resolution of financial issues. The opportunity for expression of frustration with a party’s spending habits and concerns about debt are presented in the context of resolving the issues with a written document.

The agreement confirms the marriage is an “economic partnership,” and codifies the “obligations and responsibilities of each partner.” The attorney lists the following suggestions for discussion in order to ultimately prepare a legally sound postnuptial agreement:

• Both parties need to identify all property owned and how it is owned: jointly or as separate property of one party. Are there any legal or emotional reasons why changes should be made?
• How much debt does the couple have? Is it joint, or incurred by one party? How should the debt be repaid and by whom?
• What are the earnings of each party, and how are the earnings allocated? Are the earnings equal, or are there inequities? What are the contributions to the marriage of the party who earns less? Can there be an economic value placed on those contributions?
• Is there a business involved? Is it owned jointly by the parties? What is the role of each party in that business enterprise? How should it be disposed of or allocated in the event of divorce, death, or even disability of one party or the other?
• What are the financial goals for the future? Are the parties in sync with these goals or in conflict? For example, does one party want to save for an ocean cruise while the other wants to save to add a guest room to the current house? Is there a way to bring the goals into alignment?
• If this is a blended family, how shall financial resources be allocated to children from previous marriages? This may depend on the ages and needs of the children. Young children will have more needs than adult children. Are there amicable ways that resources can be utilized to be sure the responsibilities of each parent are met?
• What are the insurance needs of the family? Have the parties thought about what might happen if one of them becomes disabled? What about a durable power of attorney so that one party can make healthcare decisions for the other?
• What provisions have been made for asset distribution if one party dies? Do the parties each have a will? Do they have life insurance with each other as the beneficiary? Do they have a need for estate planning, such as establishing trusts to protect assets from hefty taxation if transferred only by a will?

When the couple understands the importance of all these issues, are able to talk about their own needs and desires, and are able to listen to their partner’s needs and desires, then putting the postnuptial agreement together can be a cathartic exercise.

When the agreement is signed, and both parties are satisfied with its contents, they can set aside their disagreements and move forward. In many instances, this is all it takes for the marriage to become viable once again and for the parties to move forward.

If the marriage does end in divorce, all the “sticky” issues have been resolved and the emotional stress generally associated with divorce is lessened. They made the decisions at a time when they were both still committed to the marriage, and the dissolution will be smoother.

Other Issues to Address in a Postnuptial Agreement

Other issues that need to be addressed when preparing a postnuptial agreement include, but are not limited to, some of the following situations:

• Will one party pay the other spousal support? If so, for how long? Are there any contingencies that will result in the discontinuation of support payments, such as until the receiving spouse remarries, or the minor children finish college?
• How will personal property be divided? Who will keep which car? Who gets to keep the family dog? Pets are considered property when a couple divorces, and who gets ownership is determined under principles of property distribution. Some think pet ownership should be more like a child custody issue, but it is not. Pets are considered property
• What if one party dies? How will this affect the distribution of assets?
• Who is responsible for debts like credit card debts, medical bills, outstanding loans, and mortgages?

When a properly prepared postnuptial agreement is completed, the couple can then live their lives knowing what will happen if their marriage does end in divorce. It reduces stress and allows the couple to focus on their marriage, not on the “what ifs” that might be hanging unspoken if there is no postnuptial agreement.

How to Create a Postnuptial Agreement

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