Modern Family Law Views – Pre-Nuptial Agreements Receive Boost from Appeals Court
April 1, 2014
Pre-Nuptial Agreements (“PNA” for short) offer a wide variety of benefits in many situations. This helps explain their continued popularity, especially among entrepreneurs with business interests that pre-date marriage, and for couples with children from a prior relationship. At the same time, a PNA can be complex, relatively expensive, and sometimes risky. That is why Maryland residents with a PNA, or who are contemplating having a PNA, got good news late last year. The Maryland Court of Special Appeals issued a reported opinion that substantially strengthens the ability to defend a PNA against attack.
Pre-Nuptial Agreements can help protect assets owned by one spouse before marriage from division in case of divorce. This is especially helpful for business owners who remain active in their business after marriage. Without a PNA they risk seeing the business become marital property subject to division upon divorce. Similarly, a PNA can help protect against the disinheritance of one spouse’s children from before the marriage. At the death of one spouse, State inheritance laws typically protect the surviving spouse, sometimes at the expense of children from before the marriage. A PNA can redress this situation. Other advantages from a PNA include increased predictability and privacy, shortened procedural timeframes, and decreased costs upon death or divorce. Obtaining these advantages, however, requires essentially re-writing the rules that otherwise govern divorce and inheritance. Skilled legal work is required, and the risk always exists that a judge may later invalidate the PNA.
In Maryland, the primary test for invalidating a PNA is summarized by the concept of “overreaching.” One of the main arguments for invalidating a PNA in Maryland long has been the absence of sufficient financial disclosure at the time the PNA is signed. Obviously, one remedy is to provide very detailed, written, and accurate disclosure of all assets, income, and liabilities, including their dollar values. Sometimes, however, this is problematic. In addition to privacy and security concerns are the difficulty (and cost) of fully and accurately describing all assets, or obtaining their precise value. Other examples of overreaching include if the PNA terms are fundamentally unfair, or if one spouse had no real opportunity for independent legal advice, or was unduly pressured, for example from a demand to sign the PNA made just before the wedding.
All these elements were among the facts alleged in the recent Maryland Court of Special Appeals case of Stewart v. Stewart, 214 Md. App. 458, 76 A.2d 1221 (2013). The appellate court upheld the PNA, however, and essentially said that even though the asset disclosure contained no values and was missing a minor retirement account, the wife nevertheless had “adequate knowledge,” because she “knew of the existence, nature, and potential worth of the most valuable . . . assets before she ever signed” the PNA. Even without this adequate knowledge by the wife, though, the appeals court went on to find that no substantive overreaching existed, in part because the PNA contained no waiver of alimony. And even though the wife received the PNA only four days before the wedding, the appeals court found no procedural overreaching because the wife willingly declined to obtain legal advice, had read the PNA, and knew what it said.
Challenges to a PNA, and by turn the substantive and procedural requirements needed to protect a PNA from challenge, are complex and fact specific. The involvement of skilled and experienced legal counsel is essential. Despite these risks, however, the benefits from a well prepared PNA can be great, and the most recent appellate case shows that Maryland courts are willing to uphold even a less than perfect PNA.
© 2014 by Hadrian N. Hatfield
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