I Did Not Do a Prenuptial Agreement. Now What?
Mid-Marriage Agreements and Are They Enforceable.
Jan L. Bernstein, Lindsey de Stefan
Most people have heard of Prenuptial Agreements, but few use the important tool of a Mid-Marriage Agreement. Mid-Marriage Agreements may be used to modify Prenuptial Agreements, or to put into place an understanding concerning finances, children, or roles and obligations in a marriage after the marriage has occurred.
A Prenuptial Agreement may not have been necessary, or emotionally practical prior to a marriage. However, during the marriage, financial circumstances may have changed as a result of inheritance or professional success; and the priorities of your family may have changed as a result of children, or aging parents, or entrepreneurial endeavors. The changing circumstances during a marriage may benefit from a Mid-Marriage Agreement.
While Mid-Marriage Agreements have a similar purpose as a Prenuptial Agreement, the two are treated very differently by New Jersey Courts. In part, this is because the two types of Agreements raise different legal and equitable issues.
Prenuptial Agreements generally will be enforced so long as they are not obtained by fraud, duress, coercion, or similar wrongful conduct; are entered into voluntarily and after full financial disclosure by both spouses; and are fair at the time the Agreement is executed. On the other hand, Mid-Marriage Agreements must satisfy an additional hurdle: In addition to being fair at the time the Agreement is executed, the Agreement must also be fair at the time it is sought to be enforced.
Mid-Marriage Agreements are considered to be inherently coercive because, unlike a fiancée who when faced with a Prenuptial Agreement can walk away if the terms are unacceptable, a spouse confronted with an ultimatum to sign a Mid-Marriage Agreement has a more difficult choice. In many cases--at least according to the court--such agreements are executed under threat of divorce. Thus, the spouse not initiating the agreement likely has two options: either sign the agreement and accept its terms, whatever they may be, and whatever the legal and financial implications could be down the road; or risk harm to the marital relationship, and perhaps divorce. If there are children involved, the decision likely becomes even more complicated. It is not a difficult scenario to envision, and our judicial system’s concern about the obvious potential for one spouse to use the threat of divorce to bargain himself or herself into an advantageous position is sensible.
To ensure that a Mid-Marriage Agreement is not the product of such strong-arming and intimidation, the New Jersey Superior Court, Appellate Division has held that Mid-Marriage Agreements must “be closely scrutinized and carefully evaluated.” The main considerations in evaluating such agreements are:
Whether the Agreement was obtained by coercion and duress, and is, therefore unenforceable;
Whether the Agreement was unfair at the time it was entered into and is, therefore, unenforceable; and
Whether the Agreement was unfair at the time it is sought to be enforced and is, therefore, unenforceable.
In assessing fairness, a court may consider, among other factors, the percentage of the marital estate allocated to each spouse under the agreement. In other words, what percentage of the estate would each spouse have gotten if the parties divorced at the time they executed the agreement; and what percentage would each get under the agreement at the time of the divorce?
Unfortunately, even if the terms of a Mid-Marriage Agreement are perfectly fair and acceptable to each spouse when he/she signs the Agreement, it is entirely possible that subsequent circumstances could render the Agreement unfair. For example, if a spouse waives his/her interest in the other’s business, which is worth $1 million when they enter the Agreement, and the business prospers to such an extent that its value is $20 million at the time of the divorce, a court of equity, i.e. Family Courts in New Jersey, may not enforce that Agreement as being unfair at the time of enforcement. After all, the marriage may survive for many years after the parties sign their Agreement, during which time the family may prosper due to the efforts of both spouses. It would not necessarily be fair to prohibit both spouses from sharing in post-Agreement wealth. On the other hand, a family may lose assets after entering into a Mid-Marriage Agreement, such that enforcing it as written also would no longer be fair and equitable. Careful drafting of the Mid-Marriage Agreement with appropriate language about the future as well as the current time is critical, and may help to avoid these later possible pitfalls.
Of course, there are cases where spouses amicably enter into a mutually agreeable Mid-Marriage Agreement, and accept its terms if they later divorce. For example, spouses may agree to transfer assets to one or the other, and in the event of a future divorce exclude those assets from future equitable distribution. A Mid-Marriage Agreement has been enforced by the New Jersey Courts to do just that. In one case, the marital home was transferred into the sole name of the other spouse to prevent that spouse from initiating a divorce at the time the Agreement was entered. The New Jersey Court enforced the Mid-Marriage Agreement; and The marital home remained exempt from equitable distribution when the parties divorced, which was the intent of the Mid-Marriage Agreement. Thus, a Mid-Marriage Agreement can be enforceable even if one spouse later files for divorce, if the other factors are met, and the language is clear.
While this article discusses broad themes and considerations, it is important to bear in mind that cases involving Mid-Marriage Agreements are highly fact-specific, and results differ based on the circumstances of each case. For this reason, it is crucial to retain the services of an experienced Family Law Attorney, who can help you decide if a Mid-Marriage Agreement suits your particular circumstances, and how best to achieve your goals and the enforcement of the Agreement if later challenged. Mid-Marriage Agreements may be used strategically to protect assets not protected by a Prenuptial Agreement. These Agreements provide options available to address marital issues short of divorce. Mid-Marriage Agreements are one option all too often overlooked.