Prenuptial Agreements

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To some readers, the title of this blog may seem yesterday’s news. Drilled into our collective heads since Simeone v. Simeone (581 A.2d 162) was decided in 1990 is the mantra that “For any prenuptial to be valid there must be a fair disclosure.”  The 2005 amendments to the Divorce Code brought some ambiguity to the matter.  The statute passed that became effective in January of that year contained a section related to prenuptial agreements (Sec. 3106).  It said that a party could “voluntarily and expressly waive, in writing, any right to disclosure…beyond the disclosure provided.”  Then it added another clause essentially allowing the party defending an agreement to assert that the contesting party did have “adequate knowledge of the property or financial obligations” of the spouse defending the agreement.

One of the challenges when legislation is written by committee is finding clarity in the language. Section 3106 is a kind of classic example. First, it is written in the negative.  Then there is the dangling language about “beyond the disclosure provided” and “adequate knowledge.”  Suppose the disclosure is incomplete or inaccurate?  Can that still be waived?  And when does knowledge of your future spouse’s financial affairs rise to the level of adequate?

In recent years we have been approached to draft prenuptial agreements by clients who were not really interested in making a disclosure. Typically, these are folks who sincerely believe that if their future spouse knew just how wealthy they were, it might unleash spending problems or produce other sources of friction.  In each instance, we have resisted temptation because the statute talks about waiver but ends the sentence with reference to a “disclosure provided”.  This can produce some testy interactions with clients who want to focus only on the waiver element of Section 3106(a)(2)(ii).

A recent Chester County ruling in Mandler v. Mandler, 64 Chester Co. L.R. 159 (2016) underscores our concern through its interpretation of the statute.  In April, 2005, groom presented bride with a prenuptial agreement that he had secured from a website called Lawdepot.com.  Bride took the agreement to a local attorney who suggested changes, one of which related to either the absence or paucity of the disclosure.  Roughly three weeks later the agreement was signed with some changes.  Its disclosure provision said that the parties waived any rights to further disclosure because they were satisfied with what had been disclosed.

A month after the prenup was presented and about 10 days after it was signed, the not so blessed union was formed. We should add that bride, now wife was employed by some of groom/husband’s businesses both before and after the wedding date.

To describe husband’s financial picture as Byzantine would be an understatement. Residential and investment real estate were coupled with medical management and consulting companies. Meanwhile, husband claimed to be unemployed during the two years prior to marriage.  Financial records did not square with filed tax returns and expenses were funded with a labyrinth of “inter company” loans more related to cash management than business lending.  Sitting atop this empire were unpaid federal and state tax debt of roughly $6,000,000.

Wife sued for divorce in 2013 and moved to set aside the agreement in June, 2014. Hearings consumed five days over the course of ten months.  As one might expect given the facts described thus far, husband appears to have had great difficulty explaining his own financial situation even after asserting that his spouse had adequate knowledge of the same facts to permit her waiver to be deemed valid.

The opinion of the Honorable David Bortner marches through the statute noting early on that there is no judicial or statutory precedent for “adequate knowledge” sufficient to overcome a disclosure that otherwise fails in completeness or accuracy. He then makes the point that as he reads the statute full disclosure must be waived prior to rather than contemporaneous with execution of the agreement.   His reading cannot be faulted although it opens a second door for statutory interpretation: viz., Is the waiver a separate transaction that must be documented and how much time must elapse before the execution for it to be valid.

But the primary focus of the opinion is on the words in Section 3106(a)(2)(ii); “beyond the disclosure provided.” The Court notes that if disclosure could be entirely dispensed with the statute should have read “beyond the disclosure provided, if any”.  The conclusion is that absent “a disclosure” a waiver cannot be upheld.

There being no actual disclosure attached to the Mandler agreement, the trial appears to have been consumed with proving bride’s actual and adequate knowledge of husband’s financial situation at the time of execution. This is more often than not a “fool’s errand.”  As the opinion notes, it is the burden of the person attacking the agreement to show by clear and convincing evidence that she did not have adequate knowledge. See Section 3106 (a)(2)(iii).  To accomplish that in a meaningful way would require her to undertake discovery of financial data created a decade earlier to gain the knowledge she is asserting she did not have then and to conclude her testimony by stating that she knew none of it then or what she knew was not adequate.  In this case, it wasn’t difficult to meet her burden because it appears that husband could not, himself, convincingly describe what he owned “then.”  Effectively, his argument was:  “Judge I’m not clear what I owned when she waived disclosure of my assets, but my Wife sure did.”

One of the more interesting aspects of the opinion is its analysis of Lugg v. Lugg, a 2013 Superior Court reported decision. (64 A.3d 1109)  Mr. and Mrs. Lugg were negotiating a divorce agreement and Mrs. Lugg tended to wander away from her attorney’s counsel and negotiate on her own.  Husband’s father and brothers were lawyers so they happily did the drafting.  One day, Mr. Lugg and a secretary from dad’s firm arrived at Wife’s home with an agreement.  This does not appear to have been a surprise but after 90 minutes, voila, an agreement was executed.  The parties then started to process of signing car titles and deeds consistent with the document.  Mrs. Lugg later contested the agreement noting that no disclosure had been provided.  Meanwhile the agreement stated that disclosure was waived.  The trial court in Clinton County and the Superior Court affirmed the agreement.  The Superior Court opinion states “ If there is no allegation that {a party} misrepresented his financial resources and ….{the other party} was aware that {no disclosure was made}, the Court cannot find …fraud or misrepresentation.  The Superior Court states that it was deciding this under Section 3106.

The question of whether prenuptial and post nuptial agreement cases should be decided differently may still be an open one although all of the case law says they should be treated the same. But in this instance the Superior Court held that financial disclosure may be waived in its entirety because that is what the legislature intended under Section 3106.  Bear in mind, the legislature adopted Section 3106 and applied it to prenuptial agreements alone even though case law had long held prenuptial and post nuptial agreements to the same standard  See Holz v. Holz, 850 A.2d 751, 757 (Pa. Super. 2004).  So we have an interesting question.  The Superior Court says waiver may mean waiver of any disclosure.  Judge Bortner’s holding appears to be stating that where a statute says “beyond the disclosure provided” those words must be given their plain meaning which is to say that a disclosure must be provided.

 

We have had a recent spate of pre-marital agreement requests from folks who adhere to Roman Catholicism as their faith.  This creates a rather ticklish situation because for better or worse many American Catholics don’t pay close attention to the Vatican’s Code of Canon Law and Chapter IV’s regulation of matrimonial consent.  Needless to say, to be married within the Catholic Church requires attention to these laws as they bind Catholics throughout the world in the same way that Pennsylvania’s statutes regulate marriages in Pennsylvania.

The Canon Law of note is No. 1102.  It is quite simple and can be read on the Vatican’s website.  “A marriage subject to a condition about the future cannot be contracted validly.”  As most attorneys will confess, simplicity of language does not always connote uniformity of interpretation.  But the accepted interpretation one hears from those trained in canon law is that parties cannot marry with the blessing of the Church where they have already made agreements touching upon the possibility of separation or divorce.

We profess to have no training in canon law, but the conventional wisdom is that the parties can agree upon matters regulating their marriage but they cannot have language that contemplates an end to the marriage because marriage is a holy event intended to last indefinitely.

The typical prenuptial agreement triggers upon either separation or divorce.  Neither of those words can appear in an instrument which the Church would approve.  So what choices are available.  It would appear that some couples simply choose not to reveal the terms of their agreements to the ordinaries who marry them.  It is not the responsibility of secular attorneys to reveal their actions and obviously, others in far higher authority than secular lawyers will judge. The second is to attempt to craft agreements that try to limit rights without incorporating any conditions “about the future.”  This is itself a very slippery slope because just about every element one can contemplate in a prenuptial agreement is an attempt to regulate future conditions.  There are law firms that do have civil attorneys who also profess to specialize in Canon law and it may be worthwhile seek out that specialized assistance because clerics may want to approve of an agreement before their consent to solemnize the marriage.

None of this really affects Pennsylvania law.  Church law and secular law are completely separate.  Pennsylvania policy actually supports premarital agreements and that policy is not changed based upon the religious affiliations of the citizens who are governed by Pennsylvania law.

The Instruments of Embarrassment
The Instruments of Embarrassment

A recent story through ABC’s Good Morning America website highlighted the evolution of the prenuptial agreement in the social media age. Divorce lawyers are reporting an increasing amount of requests for language in prenuptial agreements – if not stand-alone agreements – addressing social media usage.

It makes a lot of sense. In an age where nothing ever really seems to be removed from the internet, protecting one’s privacy or “personal brand” on social media is a major personal and professional priority. People have been fired from their jobs due to content someone posted about them online; personal and professional reputations have been tarnished over embarrassing photos.

The concept of this clause does raise some intriguing legal issues. First, your ex-wife posting an embarrassing photo of you is not going to be defamation per se; after all, it is difficult to assert she is lying when the photographic evidence speaks for itself. Secondly, how can financial damages even be measured for someone posting on social media? Unless a job is lost or there is a concrete connection between the posted content and the outcome, I think a person calling “foul” over their ex-spouse posting photos will have a difficult time proving they lost income.

The way to give such an agreement “teeth,” therefore, is to provide for a defined financial sanction against the posting party. One attorney in the story suggests that the sanction should be relative to the earning power of the violating party and apply to each incident in which barred information was published. Practically speaking, the sanction has to be great enough that neither party will feel that the personal satisfaction of humiliating their former spouse outweighs the financial penalty.

I would think such an agreement, however, would need to carve out an exception for trial evidence or at least be narrowly tailored to the dissemination of information through social media platforms. Pictures and video acquired during the marriage can be a valuable resource for the corroborating behavior or actions of a party; it can provide important, admissible evidence. A blanket prohibition of the dissemination of pictures or video could undermine their application at trial and would certainly be subject to a discovery motion as to whether the agreement precluded the use of information at trial or, merely, the use of such information on social media. I would be surprised if people – particularly if they plan to have children – would want to prospectively preclude the introduction of certain types of evidence which may be relevant at a custody trial. An exception for the use of such media evidence at trial or, possibly, an agreement that such evidence would be viewed by the judge “in camera” (i.e. not in open court) could also help address the sensitive nature of the evidence.

It is axiomatic that technology changes faster than the court system can keep up. Private agreements, however, can mirror the shifting landscape of technology and privacy. Expect to see greater creativity in prenuptial and post-nuptial agreements dealing with this and other technologically based issues.

(picture credit: celeritystaffing.com)

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Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty

Not the best use...
Not the best use...

A very interesting opinion recently came down from the Pennsylvania Superior Court awarding attorney’s fees in a divorce case. This case is a non-precedential opinion, meaning it cannot be cited as establishing law on the issue, but it is emblematic of the risk one runs if you do not follow the rules.

The parties, two attorneys, in fact, had resolved their divorce by way of a Marital Settlement Agreement in March 2011, about two years after the wife filed for divorce. They also had a prenuptial agreement, so the distribution of their estate was addressed in a comprehensive way and nothing was preventing them from getting divorced.

After the deal was done, however, the husband came back and raised an issue about the return of jewelry he gave wife and about the payment of a ten-percent referral fee for a case he sent to his ex-wife’s firm.

Another two years pass.  In March 2013 wife files an Affidavit of Consent under Section 3301(d) of the Divorce Code. That form of affidavit is used when two years have passed since separation and, unlike Section 3301(c), wife was the only one who needed to file it to establish the no-fault grounds for divorce. Once the divorce decree is entered, the parties are prevented from raising any other economic claims. In other words, if husband wanted the referral fee and jewelry, then he needed to have them dealt by raising the issues with the court.

Husband filed a Counter-Affidavit in conformity with the rules. This document is used whenever a party wishes to raise an economic claim for resolution by the court and this was the first step husband needed to take to address the referral fee and jewelry issues he first raised two years prior.

When filing his counter-affidavit, he checked off the box indicating he wished to raise economic claims. Under that box there is language stating that,

“I understand that in addition to checking (b) above, I must also file all of my economic claims with the prothonotary in writing and serve them on the other party.  If I fail to do so before the date set forth on the Notice of Intention to Request Divorce Decree, the divorce decree may be entered without further delay.”

Husband never filed anything else. When the notice period ended, wife obtained a divorce decree on or about May 2, 2013 and husband lost his chance to address his referral fee and jewelry repossession.

When filing his appeal, Husband took the position that the rule requiring him to file his economic claims with the prothonotary wasn’t really followed in Montgomery County. He argued that the trial court abused its discretion because the court generally does not enforce the rule requiring a party to file their economic claims with the prothonotary. Basically, checking the box was enough, wife knew he had additional economic claims, and they should not have entered the decree (or, rather, declined to strike the decree).

Suffice to say, the Superior Court disagreed and found that husband demonstrated no proof that Montgomery County engages in “[a] routine practice…to allow parties to disregard clear instructions set forth in form documents pursuant to the Rules of Civil Procedure” and that “the trial court flatly denies [husband’s] contention, saying that it ‘is unaware of any unspoken practice not to adhere to the instructions on the form counter-affidavit.”

The Superior Court found the appeal frivolous and agreed with wife’s request for counsel fees from husband. As of this writing, the Superior Court has sent the case back to the trial court to determine how much in counsel fees husband will have to pay wife. He cannot feel very confident that the Court he argued did not, as a practice, follow the rules, is now in the position of deciding how much money he will have to pay his ex-wife.

The major lesson from this opinion is that one should never take the rules for granted and assume they can be ignored; do so at your own risk.

No one is perfect and mistakes do happen, however. No one wants to miss a deadline or misinterpret a rule, but if it happens, do not let your ego or pride push you into making worse decisions.

Opinion available at: Savett v. Rovner, No 1743 EDA 2013

Photo: www.myipadretinawallpaper.com

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Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a resident of Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty.

A South Carolina attorney was recently disciplined for failing to have an active email address.

Despite characterizing herself as “retired” and not having a client in thirty years, the South Carolina Disciplinary Board still found that she “poses a substantial threat of serious harm to the public and to the administration of justice” for repeatedly failing to comply with the Court’s rule about having an active email address.

This case got me thinking about my practice, particularly my frustration with the tiny but hardcore group of attorneys who refuse to use email. One more than one occasion, I have had to take extra measures to hand deliver, courier, or Federal Express a document or correspondence to an attorney who does not use email. This has cost my client extra money to accommodate someone who is a rare exception in an industry that has accepted email, faxes, and smartphones (albeit, begrudgingly at times).

In one situation, I hand delivered a copy of a sizable responsive pleading to an attorney’s office. Faxing wasn’t an option and mailing would not work due to the forthcoming weekend. Though I could have served the document on the attorney at our hearing and been in complete conformity with the rules, I wanted to give the attorney the courtesy of having the pleading in advance. Had he used email, he would have had the PDF Friday afternoon to peruse at his convenience over the weekend. No good deed goes unpunished, however, and though his practice methods made service before the end of business on Friday virtually impossible (or, alternatively, cost prohibitive to the client), he nevertheless wrote a letter to tell me my hand delivery on Monday morning, in advance of the hearing, was “offensive.”

I scanned the letter into the system for future reference and dropped it in the recycle bin.

I recognize that some attorneys feel email is the scourge of the 21st century. The incorporation of email into smartphones makes us tethered to work around the clock. But in an industry that is essentially about customer service, it seems irresponsible – and in South Carolina, a breach of professional responsibility – not to have an active email account to communicate with clients, counsel, and the Court. To the best of my knowledge, no attorney in Pennsylvania has been disciplined for not having an email address or, even minimally, a fax machine. I can only speculate that it is a matter of time before a client – having become frustrated by being limited to either in person visits, phone calls, or “snail mail” letters – finds a new attorney or worse, files a disciplinary complaint against them.

 

              Pre-Nuptial Agreements are a hot button for engaged couples, but they can be a great way to minimize risk, exposure, and litigation in the event of a divorce or death of one of the parties. You may want to consider a Pre-Nuptial Agreement if it is a second marriage for at least one of the spouses and there are children of one or both people who will inherit instead of the spouse; if there is an existing business to be kept out of the marriage; or  if the parties about to marry do not want to share their assets or the increases in value of those assets after they marry.  Without a Pre-Nuptial Agreement, pre-marital assets are valued by the increase value from the date of marriage to the date of separation or distribution (whichever results in the lesser increase). However, with a Pre-Nuptial Agreement, parties can agree that separate assets do not become part of the marital estate. In addition, parties can also determine how assets in joint names will be divided in the event of divorce or death. The parties can also negotiate temporary support and alimony in the event of a separation/divorce. 

A well-written Pre-Nuptial Agreement will provide a clear road map in the event of a divorce or death of a party, and hopefully minimize the inevitable stress associated with either occurrence.

Reported today on MSNBC is the lawsuit filed in Illinois by a 32 year old attorney against her 31 year old fiancé who decided four days before the wedding that marriage was not right for him.  The bride had already reserved the banquet facility for $30,000 and contracted for entertainment and decorations totaling an additional $21,000.  The wedding dress was reported to cost an additional $5,000. The total claim for breach of promise to marry and infliction of emotional distress is recorded at $95,000.

Is this a viable claim?  It may be.  After all the damages are very real as not many caterers, bands or others in the high price wedding business are going to be offering refunds.  The law on this subject is not clear.  In a 1999 Supreme Court of Pennsylvania case it was ruled that an engagement ring is a conditional gift that becomes irrevocable upon marriage and that even if the party proposing marriage is the one giving the ring and he calls the engagement off he gets the ring back.  Lindh v. Surman, 560 Pa. 1.

 But there is another legal doctrine lurking in the mists.  The doctrine of promissory estoppel can sometimes be substituted for actual contractual intent.  If bride and groom agree to pay for a wedding together, there is a mutual promise for the court to enforce.  But suppose the groom goes with bride to select a gown that she will pay $5,000 to acquire while knowing that he is not really committed to the enterprise.  The road of romance is paved with unspoken understandings and this is precisely where problems occur.  When he calls off the wedding, it is probably clear that he did not actually promise to pay for the dress but can he say that he has no responsibility in a world where he stood and watched a woman buy the dress based upon their engagement to be married? Does he have the right to argue to a court that while he might have some responsibility, he thought it was a ridiculous amount to pay for a one day dress.  Better yet, isn’t the real argument that she can use the dress for her next wedding.

 

Lawyers make money when clients don’t reveal their expectations.  Weddings are a prime example.  The wedding industry is a $40 billion dollar business where the average cost is $21,000. Typically, most of that $21,000 is either deposited or financially committed before the limo arrives to get the bride.  Common sense and the history of our lawyer bride in Chicago dictates that understandings about who is paying for what and when should be memorialized in a way that provides a roadmap to cover the damages if the event of a lifetime unexpectedly runs off the highway.

A recent article by Laura Petrecca in USToday highlights a fact which many people forget when considering prenuptial agreements – they are as different as the individuals seeking them.

As we have previously discussed on this blog, the law behind prenuptial agreements makes nullifying a prenup a difficult proposition, but it is also worth mentioning that in the creation of a prenuptial agreement, people have the opportunity to truly define how to deal with existing or future assets, conditions for distribution of assets, and any sort of “behavior insurance” they wish to create. Ms. Petrecca cites examples of limitations on weight gain and cocaine use as illustrative of the range of subject matter people can include in their agreements.

Prenuptial agreements force couples to discuss some uncomfortable truths about their finances and their view of the how money or assets should be treated in the marriage. Ultimately, people can essentially agree to any arrangement they want, provided they are being fully open with each other and making all the appropriate disclosures.

 

If you are considering a prenuptial agreement, take some time to think beyond just the few items you are seeking to protect and don’t be afraid to discuss with your attorney creative ways to structure the agreement so that you and your soon-to-be spouse each feel confident with the level of protection your receiving and secure in your understanding as to how you each are approaching your marriage.

Under Pennsylvania law, traditional contract law principles have been applied in cases addressing the validity of prenuptial agreements. At the same time the case law held that for a prenuptial (i.e., premarital agreement) to be valid there had to be either a fair provision for the financially weaker spouse or a full disclosure. In 1990, the Supreme Court of Pennsylvania abandoned inquiry into fair provision. The single requirement would be a full disclosure of financial resources contemporaneous with execution of the agreement. In 2004 The Pennsylvania legislature enacted 23 Pa.C.S. § 3106. It requires that a party seeking to invalidate a premarital agreement must prove that the party either did not execute the agreement voluntarily, or that prior to execution of the agreement, the party was not provided (i) 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 an adequate knowledge of the property or financial obligations of the other party. 23 Pa.C.S. § 3106. Basically, if the goal is to set aside or invalidate a prenuptial agreement, then that party must prove that they signed the agreement against their will or they signed it without knowing their future spouse’s full financial situation, that they did not waive their right to the disclosure of their future spouse’s financial situation, or that their future spouse left out important financial elements from the disclosure they did make.

The language of the statute emphasizes the disclosure of information between the parties, but it also refers to the “voluntariness” of the agreement. Typically, a factual analysis as to whether a prenuptial agreement was entered into voluntarily by a party involves references to the (usually, close) proximity of the wedding to the execution of the agreement, ultimatums for signing the agreement from one party to the other, or some other circumstance that the signing party could construe as placing a heightened degree of pressure on them and, thereby, making their execution of the agreement seem less than “voluntary.” Bear in mind that in an earlier case, Hamilton v. Hamilton, the future bride signed the prenuptial agreement the night before the wedding while pregnant with her future husband’s child. The Court did not agree with the Wife that the Husband’s threat to call off the wedding made her consent involuntary.

Pennsylvania relies on some well established common law principles for determining whether a contract was voluntarily entered into by a party. Causes of action based on fraud, duress, and/or misrepresentation will invalidate an agreement because they undermine the knowledge the parties had when they entered a contract. Simeone v. Simeone, 581 A.2d 162 (Pa. 1990). Coupled with § 3106, litigants are able to attack an agreement based on information contained within it, as well as the circumstances surrounding its execution. These causes of action, however, are fact-driven and due to the preponderance of the evidence standard applied to such cases, require solid evidence in order to successfully overturn the agreement.

In presenting and executing a prenuptial agreement, it is always the best practice to provide parties with sufficient time prior to the event or ceremony to allow the parties the opportunity to review the information, consult an attorney, and execute the document. None of those conditions or an established period of time, however, are required for an agreement to be validated. 

The Supreme Court has also rejected the contention that the a party must show a future spouse’s awareness of her statutory rights before waived. Stoner v. Stoner, 572 Pa. 665 (Pa. 2003). Recently, the Berks County Court of Common Pleas declined to invalidate an agreement on the basis that it that was not reviewed by an attorney. The party seeking to invalidate the agreement had had the agreement in her possession for weeks and had retained an attorney, but neglected to consult with their designated counsel. She was deemed to have knowingly executed the agreement. Savory v. Savory, C.C.P. Berks Co. January 2009. (cite)

Although not impossible, it is clearly difficult to overturn a prenuptial agreement. Nevertheless, in order to ensure that an agreement withstands the careful scrutiny of trial, it is advisable that parties begin to consider prenuptial agreements at the earliest possible time, because, simply put, the courts will not save people from making bad deals, being inattentive or otherwise showing poor judgment. To ensure that a fair deal is struck, parties should agree to consult separate attorneys as early as possible, make full and fair disclosures of their financial positions, and get what can be an extremely awkward aspect of the marriage process out of the way.

If a person cares enough about another to want to marry it can be hoped that he or she would be prepared to make a full disclosure of his/her financial position, and afford the intended spouse the time and resources to have someone independently advise them of the merits of the proposed agreement.   And if you are engaged to someone who does have a problem with making a disclosure or review of the agreement by an independent attorney the warning bells should be sounding. These agreements will bind you for so long as you are married. The value of the legal rights involved in such an agreement is incalculable.