Marriage of Facter: Appellate Court Clues About Unconscionability
of Spousal Support (and Other) Waivers
in Prenups at Time of Enforcement
By TWA III
The lawyers among you will know that California adopted the Uniform Premarital Agreement Act in 1985, amended it effective 1994, and that the last major amendments were added in 2001 by the Legislature in response to the California Supreme Court's decision in Marriage of Bonds (2000) 99 Cal.Rptr.2d 252, which refused to reverse the burden of proof on the part of the party attacking the validity of a prenuptial agreement even though that party was not represented by counsel in the negotiation of the agreement.
The result was the amendment of Family Code section 1612(c) (which made a spousal support waiver unenforceable if (1) the waiving party was not represented by independent counsel at the time of signing and (2) "or if the provision regarding spousal support is unconscionable at the time of enforcement") and Family Code section 1615(c), subsections (1) through (5), both of which have created much consternation for prenup drafting matrimonial and family lawyers ever since.
Section 1615(c) is not limited to spousal support waivers, and augments the 'unconscionability at time of enforcement' exception of section 1612 to whether a premarital agreement is valid and enforceable. In other words, prior to 2001, a premarital agreement might be set aside if the party who later attacked it could establish he or she did not sign it "voluntarily" with 'voluntariness' being established by whether they were "provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party" [section 1615(a)(2)(A)]; proof that that party did not "voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other" [section 1615(a)(2)(B)]; and that that party did not, and could not reasonably have had, "an adequate knowledge of the property or financial obligations of the other...." [section 1615(a)(2)(C)]. These additions, taken together with pre-existing subsection (b) which requires trial courts to determine "unconscionability" "as a matter of law", effectively added a second layer of scrutiny and attack. But those changes don't apply to this case, because agreements under the UPAA will be enforced according to the laws in place when they were executed. In Marriage of Facter, discussed below, 1994 law applies to prenup validity.
Considerations Relating to Premarital Agreement 'Time of Enforcement' Validity
The Key is "Unconsionability"
Family Code section 1615(c) introduced five new considerations that create a presumption against time of enforcement validity relating to "voluntariness," to wit:
- the party against whom enforcement is sought was not represented by independent legal counsel "at the time of signing" or after being so advised did not expressly waive "in a separate writing" representation by such counsel. [1615(c)(1)].
- less than seven days passed between the time the party "was first presented with the agreement" and advised to seek independent counsel and the time the agreement was signed. [1615(c)(2)].
- the unrepresented party, against whom enforcement is sought, was not fully informed of the terms "and basic effect" of the agreement "as well as the rights and obligations he or she was giving up by signing" and was proficient in the language in which the explanation was given and the agreement was written AND another separate writing be signed by that party setting forth they received this information and who provided it. [1615(c)(3)
- the agreements and writings provided for by the first and third bullet points above "were not executed under duress, fraud, or undue influence." [1615(c)(4)].
- "Any other factors the court deems relevant." [1615(c)(5)].
What does "unconscionable at the time of enforcement" look like? After all, it seems a simple matter to determine whether a party had "independent counsel". The answer to this larger remaining question is an evolving target.
Burden of Proof on Party Seeking Enforcement of Pre-Nup
These factors effectively shift the burden of proof to the party who hopes to enforce the ante-nuptial agreement to establish each of the foregoing, as applicable. Since most parties are represented by independent counsel (if the higher wealth, higher earner spouse who wants the prenup has a brain in his or her head) - even if the soon to be "in-spouse" has to pay for the less empowered spouse to obtain an explanation by independent counsel of the terms of the premarital agreement, and the attorney then to sign a certification that the explanation was given - the more common battleground will be unconscionability at time of enforcement. BTW, if you've wondered why you should pay for your cohabitating partner's attorney in order to get him or her to sign a prenup, this is why. Pay it. It is cheap insurance for you if done correctly.
Estate lawyers who draft or review premarital agreements, and family law attorneys who likewise do so, have had until recently little guidance as to how to anticipate and avoid the "unconscionability at time of enforcement" problem. We've long known that prenuptial agreements that are "promotive of divorce" are void as against public policy. So what is "promotive of divorce?"
To Waive or Not Waive Spousal Support?
It is extremely common in premarital agreements, particularly where there is no waiver of support, to attempt to limit the spousal support that the higher asset-ed, higher earner may have to pay in the future and to tie the amounts that may be paid or ordered or their duration to certain events or milestones. This would seem to be a completely reasonable aim and way to achieve an enforceable waiver, and indeed it could provide valuable incentives to the supported party to induce their signing of a prenup. After all, they may be "guaranteed" a minimum level of alimony or spousal maintenance that ultimately exceeds the parties' standard of living at the time of marriage, so that at that time, in a role reversal it looks and sounds quite attractive to the supported party to end the marriage now; maybe following separation the once more-empowered spouse will seek to declare his or her own spousal provision invalid on these grounds. Things, after all, often look and feel quite different years into the future.
My guess is that in a certain percentage of prenup cases where there is no waiver of support, but instead some form of limitation (or floor) of alimony, they will go unchallenged - just as many people who receive a preprinted waiver of liability for damage to their car may believe they've assumed the risk that a Valet will run it into a wall. Many lawyers write their premarital agreements with this hope - that even as they are throwing the enforceability dice, only a small number of people will ever challenge how the dice fall. This can create, however, sleepless nights for matrimonial lawyers and it is a good explanation for why these things cost way more than the consumer feels they should ("Jeez," the client says, "this is just a simple agreement!"). The consumer is forgetting the malpractice quotient. Some Los Angeles family law firms that draft premarital agreements charge thousands extra just to cover the malpractice premium, given that a claim could erupt against them many years later when the marriage disintegrates.
Many premarital agreements that estate and family law attorneys have written are, at least in part, likely unenforceable, particularly if they contain spousal support waivers or limitations that are tied to some event or timeframe. For instance, many contain graduated payments that are pegged to milestones like the length of marriage. Some contain provisions that the waiver evaporates if the parties achieve the fabled "ten-year" mark that defines a "long term marriage" pursuant to Family Code section 4336.
Imagine a situation where the wife is to receive $10,000/month in spousal support in year nine, possibly after a series of graduated increases - sounds like this promotes the marriage because it encourages her to stay married to receive the higher amounts, right? But what if, as many prenup agreements provide, at the ten year mark the limitation goes away - i.e., the spousal limitation evaporates? Assume further that wife's spouse isn't doing so well any more. Maybe $10,000/month is far more than wife would receive under then current circumstances. Doesn't she have an incentive to divorce NOW? If so, these terms "at time of enforcement" look very promotive of divorce, don't they?
Enter Marriage of Facter
Marriage of Facter provides some important clues to the answers: Create an incentive for ending the marriage, and the agreement may be promotive of divorce and therefore unconscionable either at the time of signing or the time of enforcement. I'll endeavor to give you the short version of the case's facts and shorten the quotes form the First District Court of Appeals.
Jeffrey and Nancy signed a four page premarital agreement in 1994, which Jeffrey himself prepared shortly after graduating from Harvard Law School (that makes you competent, right? - gotta love these attorney cases), even though he had no experience in family law and never intended to practice family law. It purported to avoid the creation of community property and to waive or limit "support" rights - including both spousal and child support (and attorney fees in the event of divorce). Sixteen years later, after a long term marriage, they separated.
In 2011, after the dissolution was filed, Nancy filed a motion for temporary spousal support and child support, and for attorney fees. She declared she was a stay-at-home mom and that Jeffrey earned a lot of dough as an attorney (between $475,000 and $700,000 for the prior five years). Jeffrey had told her, she said, that she would never get spousal support because of the prenup, and her rights to child support were limited. Jeffrey filed opposition pleadings to Nancy's requests, including points and authorities that argued she'd waived spousal in that prenup all those years before, but conceding that the child support and attorney fees limits were puffery. The trial court granted Nancy's requests - including temporary spousal support - and set the matter for an early trial bifurcation of the enforceability of the prenup, which is exactly how these things get determined.
Before the bifurcated trial, Jeffrey again conceded that the agreement was unenforceable as to child support and attorney fees, and made a possibly glib offer that he would forego claiming the spousal support waiver was effective IF Nancy agreed the agreement was enforceable as to its separate property provisions (i.e., no community property). Indeed, there was no clear waiver of spousal support in this agreement, drafted as it was by a baby attorney (Jeffrey) back at the time of marriage. The bifurcated trial took two days.
On the issue of independent counsel, Nancy testified that she had been advised by two attorneys before signing the agreement, one of whom she could not remember the name of. She testified she spent 30 minutes with a San Rafael attorney, who gave her certain opinions, like that a child support limitation was unenforceable and that there was no spousal support waiver in the agreement. Nancy admitted to reading the entire agreement before signing it. She did not allege undue influence. She did claim that Jeffrey made certain oral promises outside the agreement (i.e., "pillowtalk"), and that she didn't understand that those promises might not be enforceable because of an "integration clause" the prenup contained (integration clauses purport to limit the court's review of the parties' agreement to the four corners of the document itself, and exclude anything outside of it).
The attorney that Nancy remembered testified at trial. That attorney, some sixteen years later, had no recollection of Nancy, of their supposed meeting, or of what she said - nor would most humans or attorneys. Instead, the attorney testified as to what she thought she would have said to a client about such an agreement at that time.
Jeffrey testified Nancy was involved in a prior divorce, and had some sophistication he lacked about the divorce litigation process and that, for instance, she was knowledgeable about the "Dissomaster" way of calculating spousal and child support. Jeffrey admitted that when he drafted the prenup, he had no family law experience. He also admitted telling Nancy he would "take care of her" for "so long as they were together."
The trial judge threw out the entire premarital agreement. She found the spousal waiver to be unenforceable, and that each provision of the entire agreement was inseverable from the others and that therefore Jeffrey separate property claims arising from the prenup's terms regarding the non-creation of community property were also unenforceable. The trial court apparently did not like Jeffrey.
However, the trial court's ruling was reversed on appeal as it related to the property division, so that possibly Jeffery does win this case. The agreement had a standard "severability clause" which effectively provided that 'even if one portion of this agreement is found to be enforceable, the rest of it will be. Jeffrey withdrew his claims regarding the spousal support waiver by the time of the appeal, in order to salvage his property claims. Smart move. However, not so fast.
IRMO Facter Is a Guide for Writing Enforceable Premarital Agreements
Justices Margulies and Banke (concurring), two very important appellate court jurists, render a thoughtful and important decision in their Opinion that can help to guide us attorneys in drafting premarital agreements. Expect to see one or both of them on our California Supreme Court one day. They found that the spousal support waiver was severable from the rest of Jeffrey's agreement and on that basis reversed the trial court findings. However, what makes their Opinion interesting to this discussion is what they said in their evaluation of spousal support waivers generally - which they decided even though Jeffrey was no longer making that argument at the appellate level. Thanks for that, as their analysis is instructive as it addresses whether the spousal support waiver was unconscionable. It was. However, note that this decision turns on an earlier version of Family Code section 1615, after the 1994 amendments but before the amendments that occurred in 2001 which I mention at the beginning of this Blog. It does appear that premarital agreements will be interpreted according to the version of the UPAA in effect at the time the agreement was entered into.
Justice Margulies ruled as follows:
"As Jeffrey correctly notes, unconscionability upon execution does not, standing alone, render a premarital agreement unenforceable under former section 1615. To render an agreement unenforceable, the contesting spouse also must have lacked actual or constructive knowledge of the assets and obligations of the other party, unless that spouse waived knowledge of such assets and obligations. Pursuant to former section 1615, 'a premarital agreement will be enforced unless the party resisting enforcement of the agreement can demonstrate either (1) that he or she did not enter into the contract voluntarily, or (2) that the contract was unconscionable when entered into and that he or she did not have actual or constructive knowledge of the assets and obligations of the other party and did not voluntarily waive knowledge of such assets and obligations.' (In re Marriage of Bonds (2000) 24 Cal.4th 1, 15 [(Bonds); see former § 1615, subd. (a)(2).)
Nancy does not claim she entered into the Agreement involuntarily. Accordingly, former section 1615, subdivision (a)(2), applies and the trial court had to find both unconscionability and an absence of fair and reasonable disclosure of Jeffrey’s premarital assets in order to deem the entire Agreement unenforceable. The trial court concluded that Jeffrey violated this provision by failing to list the jointly held marital home as his separate property. We do not view this circumstance as constituting a failure to provide fair and reasonable disclosure. In the first place, it would have been rather odd to list a home held in joint tenancy as one’s separate property. In any event, the Agreement specifically discloses the existence of the home in Paragraph No. 2, including the fact that Jeffrey had paid the down payment, and that he would be entitled to reimbursement of that payment. There is nothing in the record to suggest Nancy was unaware of these facts, and she does not claim that Jeffrey failed to disclose any other asset. Thus, there was no evidence that she lacked 'an adequate knowledg'” of Jeffrey’s property and financial obligations within the meaning of former section 1615, subdivision (a)(2)(C). Accordingly, as Jeffrey’s property interests were fully disclosed to her, the dual requirements of former section 1615, subdivision (a)(2), have not been satisfied and the agreement as a whole is not unenforceable."
He also stated:
"We note the Supreme Court in Pendleton [24 Cal.4th 39] did not set a precise standard for when a spousal waiver is deemed unconscionable. However, the opinion is instructive: 'We need not decide here whether circumstances existing at the time enforcement of a waiver of spousal support is sought might make enforcement unjust. It is enough to conclude here that no public policy is violated by permitting enforcement of a waiver of spousal support executed by intelligent, well-educated persons, each of whom appears to be self-sufficient in property and earning ability, and both of whom have the advice of counsel regarding their rights and obligations as marital partners at the time they execute the waiver. Such a waiver does not violate public policy and is not per se unenforceable.... (Pendleton, supra, 24 Cal.4th 39, 53–54, fn. omitted, italics added.)
In Pendleton, the wife, who held a master’s degree and was an aspiring writer, sought spousal support in spite of a waiver of such support contained in the parties’ premarital agreement. At the time the dissolution petition was filed, each party had a net worth of approximately $2.5 million. (Pendleton, supra, 24 Cal.4th 39, 42.) Our Supreme Court found the waiver to be valid, observing that the premarital agreement contained an acknowledgment that 'each party had been represented by independent counsel in the negotiation and preparation of the agreement, that counsel had advised each of the meaning and legal consequences of the agreement, and that each party had read and understood the agreement and its legal consequences. Their respective counsel certified that this had been done and that their clients understood the meaning and legal consequences of the agreement and executed it freely and voluntarily.' (Id. at p. 41.)
Similarly, in Howell, the parties had comparable net incomes when they executed their premarital agreement in 1999. (citation omitted). The trial court had ruled that the wife failed to prove the agreement was unconscionable, finding the parties had made '"fair, reasonable and full"' (id. at p. 1069) disclosures of property within the premarital agreement. Additionally, the trial court in that case had found there was not a great disparity in the income of the parties and their respective assets at the time they entered into the premarital agreement, which established there was not 'any significant inequality of bargaining power.' (Id. at p. 1080.) The appellate court affirmed the trial court’s conclusion that the spousal support waiver contained in the agreement was not unconscionable.
Unlike the wife in Pendleton, Nancy was not a 'well-educated person, self-sufficient in property and earning capacity,' at the time that she entered the Agreement. Rather, she was a recently unemployed high school graduate with two minor children, living rent-free in the home Jeffrey had financed for them. In contrast, Jeffrey was an accomplished attorney, a graduate of Harvard Law school who earned roughly half a million dollars a year and had $3 million of separate property at the time of the marriage, including a home in Tiburon. Nancy had no property of her own. Thus, unlike circumstances in Howell, here there was a great disparity in the parties’ respective incomes and assets at the time they entered into the Agreement. This factor also suggests a 'significant inequality of bargaining power' (citation omitted), an inference that is further supported by the fact that Jeffrey not only drafted the Agreement himself but also told that her the spousal support waiver could not be negotiated.
The Supreme Court in Pendleton also suggested that circumstances existing at the time of the enforcement of a spousal support waiver 'might make enforcement unjust.' (Pendleton, supra, 24 Cal.4th 39, 53.) The marriage in the present case lasted 16 years, during which Nancy, with Jeffrey’s assent, did not pursue her education or seek gainful employment. Instead, she devoted her efforts to child-rearing and maintaining the family home, while Jeffrey continued to successfully pursue a financially rewarding career. Without reasonable spousal support, the evidence supports the conclusion that Nancy will never come close to replicating the marital standard of living. As noted above, under Paragraph No. 2 of the Agreement, she will receive a cash payment of $200,000, half of which Jeffrey has the option of paying in undefined increments over a five-year period. In addition, she will receive half of the net proceeds from the sale of the marital home (an amount that cannot be determined at this time), along with the home’s furniture and a Jaguar automobile. Compared to what she is likely to receive in court-ordered spousal support, these assets are manifestly inadequate. Given that Jeffrey’s self-reported separate property is now in excess of $10 million and his earnings $1 million per year, whereas Nancy amassed no separate property during the marriage and has no income at all, we have little difficulty in concluding that the Agreement’s spousal support waiver is presently unconscionable." [Italics added].
Finally, Justice Margulies noted the historical and evolving public policy as to spousal support waivers in California. He observed:
"At the time the California version of the Uniform Act was adopted, this court had held that agreements waiving the right to spousal support were unenforceable as being against public policy if the waiver would promote or encourage dissolution. This court had held in In re Marriage of Higgason (1973) 10 Cal.3d 476, 485 (Higgason), speaking of both spousal support and property division, that to be valid, premarital agreements must be made 'in contemplation that the marriage relation will continue until the parties are separated by death. Contracts which facilitate divorce or separation by providing for a settlement only in the event of such an occurrence are void as against public policy. [Citations.] [¶] Insofar as an antenuptial agreement relates to the disposition of the property of the respective parties, and does not seek to alter support obligations imposed by law, it will be upheld.' At issue in Higgason was an agreement in which both husband and wife waived all interest in the property of the other party as well as the right to support. The court concluded that a purported waiver was invalid as against public policy insofar as the agreement sought to alter the wife's statutory obligation to support the husband during marriage. The court also held that the agreement did not preclude exercise of the court's discretionary power to award post-dissolution support. (10 Cal.3d at pp. 487-488.) Although the basis for the latter holding is not made clear in the opinion, it appears to be that married persons assume, by means of the marriage contract, an obligation for support that continues throughout the lifetime of the parties regardless of whether they live together or apart, and any agreement to waive that obligation is also unenforceable." [Emphasis added].
Tips and Take-Aways for Drafting Premarital Agreements
Therefore, this decision gives us important clues for drafting enforceable premarital agreements. Remember, Jeffrey had abandoned his spousal support claims, but Justice Margulies had the bit firmly in his teeth - possibly to help family law practitioners reason through this landscape by giving us some insights. Family Code section 1615(b) states unconscionability in these agreements are to be decided "as a matter of law." These tips include:
- Provisions in agreements that promote divorce, or could be so construed, may be set aside.
- Recitals to premarital agreements concerning the parties relative circumstances at the time of drafting may be very important to their later interpretation and enforcement, and may provide an avenue for helping to secure validity (or setup downstream invalidity!) - especially where those recitals are made conclusively true by reference to Civil Code section 622.
- The attorney representing the non-drafting party who is responding to limitations or waivers tendered by the other party has a very different role then attorneys traditionally do when they endeavor to write agreements that will pass muster - their clients may have an interest in inserting little bombs into the agreement, or allowing bombs the drafting party inadvertently placed in the prenup or missed the implications of, to remain.
- Milestone events seem to promote divorce, because they may create an incentive to file a dissolution proceeding in order to achieve the benefits of the milestone. However, whether they do render the agreement or its provision enforceable or not may depend on who is attacking the agreement, and when.
- The separate property provisions of a prenup may be upheld, and are certainly severable from unenforceable spousal support waivers and yet those self same property provisions may guarantee the unenforceability of the spousal support waiver.
- The parties' relative financial and educational circumstances at both the date of execution and date of enforcement matter a lot, including how they will end up with whatever property division that does take place.
- Trial courts are apparently entitled to calculate the value of a spousal support waiver by taking into account how much temporary support, if not waived, a supported spouse might have received and then purportedly gave up - at the time of enforcement - by comparing these numbers to how else the party fared under the agreement (including division of property) in determining "unconscionability" at enforcement time! They certainly have wide discretion in evaluating the parties' relative circumstances.
- If you want a spousal limitation or waiver in your prenup, but had hoped to avoid litigation and lawyer fees by signing such an agreement in the first instance, you may not get what you bargained for.
The property aspects of this prenup may well survive, but Jeffrey will be paying spousal support (and child support, of course). Each party was ordered to pay their own costs on appeal - and you can be sure these were each in the tens of thousands, not to mention what came before. It is difficult to tell who the loser was here, but it looks to be Nancy given that Jeffrey had withdrawn his support waiver claims and the litigation at the appellate level really involved the property provisions.
Settle your cases instead and good luck out there! Collateral attack on premarital agreements at relationship road's end is alive and well!
Thurman W. Arnold III, C.F.L.S.