California Prenuptial Agreements

ENFORCEABILITY OF PRENUPTIAL AGREEMENTS

 By Warren R. Shiell

             In 1976 the California Supreme Court in the landmark decision of In Re Marriage of Dawley in which California’s Supreme Court recognized that prenuptial agreements that contemplated divorce were not invalid per se and against public policy but should be reviewed on a case by case basis to determine if they promoted marital breakdown. In 1986 California took another important step in recognizing the validity of prenuptial agreements by adopting its version of the Uniform Premarital Agreement Act which was further amended in 2002. This Act is now adopted in twenty four other states. The current version of California’s Premarital Agreement Act is contained in Family Code sections1600-1617.

             In order to ensure its enforceability any attorney drafting a prenuptial agreement (also referred to an antenuptial or premarital agreement) should be familiar with the provisions of California’s Premarital Agreement Act and the case law. For prenuptial agreements executed after January 1, 2002, the Family Code provides that an agreement will not be enforceable if either (1) the agreement was involuntary or (2) the agreement was unconscionable and there was no adequate disclosure or (3) the agreement violates public policy.

             The following general conclusions can be learned from these requirements which are discussed in more detail below:

 Both parties should be represented by independent counsel

• Never wait until just before the wedding to sign a prenuptial agreement
• Always provide full, fair and reasonable disclosure of all income, assets and liabilities of both sides
• Ensure that the agreement is fair and does not leave one party without any means of support in the event of divorce

 The agreement must be voluntary

             Family Code 1615 places on the party seeking to avoid enforcement the burden of demonstrating that the agreement was involuntary.[1] All prenuptial agreement executed after January 1, 2002 are deemed to be involuntary and therefore unenforceable unless the court finds that all of the following requirements are met.:

 1.   Independent counsel: The party had independent counsel or was advised to seek independent counsel but waived that right in a separate legal writing. This means that if you can only afford one attorney, the non-represented party must sign a separate written acknowledgment that they have been advised to retain an attorney but declined to do so. It is not enough that the acknowledgement is contained in the prenuptial agreement itself. It is often the case that the idea for a prenuptial agreement is initiated by one spouse: usually the one with the greater assets and income. That person may be tempted to provide assistance in finding and paying for the other’s attorney. It is good practice to find and pay for one’s own attorney. If you must rely on a referral from the other party or their attorney then get at least three referrals. Further, if a party cannot afford to pay an attorney, the other party should loan the money for legal fees rather than paying that attorney directly in order to avoid the appearance that the attorney is not independent.

 2.   Seven day waiting period: At least seven days must have elapsed between the date that the parties were “first presented” with the agreement and advised to seek independent counsel and the time the agreement was signed. This means that if you decide to consult an attorney about drafting a prenuptial agreement days before the wedding, you are too late. Even if you wait until a few weeks before the wedding, you may run foul of this provision because it is not clear whether the seven days runs from the first or last draft of the agreement. A conservative interpretation of the statute requires that once you have negotiated a final draft of the agreement, you must wait a further seven days before signing the agreement.

 3.   Full disclosure to an unrepresented party: If a party waives their right to independent counsel, for the agreement to still be enforceable the court must find the following: (a) they were fully informed about the terms and basic effect of the agreement and the rights they were relinquishing by signing the agreement (b) they were proficient in the language of the prenuptial agreement and in the language in which explanation of the effect of the agreement was given. Further this advice must be memorialized by the attorney in writing and given to the unrepresented party before they sign the prenuptial agreement. These requirements make it very difficult for only one party to be represented by an attorney. If you think that you are saving money by having only one attorney, you are not. That is because that attorney will have to prepare a lengthy opinion letter to the unrepresented party explaining not only the effect of the prenuptial agreement but also all the rights they will be relinquishing under California law. Therefore, both sides should always be represented by independent counsel in preparing a prenuptial agreement. 

4.   Duress, Fraud and Undue Influence: The court must also find that in signing the agreement or any of the other writings referred to above, a party did not act under duress, fraud, or undue influence. Fraud is an intentional concealment of a material fact with intent to deprive the other of a legal right. Duress is where a person has been deprived of their free will by a threat to the safety of their person, family or property. Undue influence takes place where one takes a “grossly oppressive and unfair advantage of another’s necessities or distress” or takes unfair advantage of a confidential relationship. The leading case of In Re Marriage of Bonds (2000) 24 Cal. 4^th is interesting because it suggests that there is a high burden to prove duress or undue influence. The Court found that there was no confidential relationship between parties contemplating marriage. They also stated that the overall fairness or unfairness of the agreement was not relevant to the test of its validity.  They found that the agreement was voluntary in spite of the fact that Bond’s fiancé was unrepresented, was presented with the agreement a day before the marriage, Swedish was her main language and it was unclear whether there had been full disclosure. In December 1987, Barry Bonds, the baseball player, told his fiancé, Sun, a Swedish waitress and make-up artist who was unemployed at the time, that he wanted a prenuptial agreement prior to the planned wedding that was scheduled to take place the following year. The couple were living in Phoenix Arizona and planned to fly out to Vegas on February 5, 1988 and get married the day after. On the day of the flight, Barry and Sun met at his attorney’s office where she was presented for the first time with a prenuptial agreement to sign.  According to evidence at trial she was advised to consult an independent counsel but declined because she had no assets.  The agreement also referred to a schedule of the party’s property and assets but there was no such schedule attached. The Supreme Court of California upheld the trial court’s finding that the agreement was voluntary:

“The trial court determined that there had been no coercion. It declared that Sun had not been subjected to any threats, that she had not been forced to sign the agreement, and that she never expressed any reluctance to sign the agreement. It found that the temporal proximity of the wedding to the signing of the agreement was not coercive, because under the particular circumstances of the case, including the small number of guests and the informality of the wedding arrangements, little embarrassment would have followed from postponement of the wedding. It found that the presentation of the agreement did not come as a surprise to Sun, noting that she was aware of Barry's desire to "protect his present property and future earnings," and that she had been aware for at least a week before the parties signed the formal premarital agreement that one was planned.”

       If the facts had been the same but the prenuptial agreement had been executed after January 1, 2002 there may well have been a different result since there as no written waiver of the right to obtain independent counsel, no seven day waiting period and no written explanation in Swedish of the effect of the prenuptial agreement and the rights that Sun was relinquishing.

       A court might find duress or undue influence if there is a history of domestic violence. The case of In Re Marriage of Balcof (2006) 141 Cal App. 4^th 1509 while dealing with a postnuptial agreement signed after the marriage is illustrative. In that case the court invalidated a post nuptial agreement on the grounds of duress and undue influence where the husband signed a post nuptial agreement transferring a percentage of his business to his wife as a result of continued verbal and physical abuse from the wife, including being hit in the face front of the children and threats by his wife to undermine his relationship with his children.

       In the Dawley case, the Supreme Court held that the fact that wife entered the prenuptial agreement because she was pregnant and was concerned about her financial security did not amount to under influence but only because “James, threatened with a paternity suit and likely loss of his position, was in no position to take advantage of her distress” reflecting this rough equality of bargaining power.” This appears to leave the door open that the threat not to marry a pregnant woman may be partial evidence of duress or undue inference. In other States the courts are split on the issue and one commentator has stated that where pregnancy is the only evidence of duress or undue influence, the cases tend to find agreements valid but where there are other aggravating factors in addition to the pregnancy, the agreement is more likely to be invalidated. [2]

 The agreement was unconscionable and there was no adequate disclosure

             A party may claim that a prenuptial agreement is invalid because it was both unconscionable when the agreement was executed and that there was no adequate disclosure.

             The burden is on the party claiming that the agreement is invalid. Unfortunately, there are no California cases that address whether or not a prenuptial agreement is unconscionable in this context. Applying the test of contractual unconscionability, most commentators argue that there must be both procedural and substantive unconscionability. Procedural unconscionability has been defined as oppression caused by unequal bargaining power and surprise due to hidden and unexpected provisions. Substantive unconscionability involves a one sided and unreasonable agreement lacking in any justification. [3]Factors which might have a bearing on the issue of unconsionability would be whether a party was presented with the agreement as a fait accompli at a lawyers offices just before the wedding or was given advanced warning and had an opportunity to review a draft before signing, whether any revisions were made to the agreement at the request of the party challenging enforcement, whether they were represented by counsel, whether they considered the agreement fair at the time of signing and whether the agreement’s terms were clearly set out and not hidden in small print. There are many cases upholding prenuptial agreements which seem unfair but are “well within the permissible scope of advantage to one of the parties.” [4]

             Even if the agreement is unconscionable there must also be a finding that there was no full disclosure for the agreement to be invalidated. The person claiming that the agreement was invalid must also prove all of the following elements: a) the party was not provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party, (b) the party 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 (c) that party did not have, or reasonably could not have had, an adequate knowledge of the property or financial  obligations of the other party.  It is therefore good practice to provide for full disclosure of all the parties’ income, assets and liabilities within the body of the agreement and for the parties to acknowledge that they have exchanged tax returns. The parties should also state in the agreement that they have waived any disclosure beyond that provided.

 Violation of public policy

            Provisions in an agreement that seek to impose moral or religious conduct upon the parties during the marriage, limit child support obligations and divest the Court of the power to make custody decisions in the event of a divorce are against public policy and may make the entire agreement unenforceable. Therefore it is a good idea to have a provision that the agreement is severable. Agreements which attempt to impose a penalty upon a party as a result of that party’s “fault” during the marriage (e.g. infidelity) are generally held to be unenforceable as contrary to the public policy underlying no-fault divorces in California. In one case a provision in an agreement that contained a liquidated damages clause of $50,000.00 payable by a party who was unfaithful rendered the entire agreement unenforceable. [5]  This case therefore makes it very unwise to contain any provisions which seek to place restrictions on the division of property or support on the basis of fault. A more difficult question is whether an agreement that makes provisions for lump sum payouts is unenforceable on the grounds that it promotes divorce.  In the landmark Dawley case the Supreme Court drew a distinction between terms which encourage or promote dissolution (invalid) and terms which reorders the property rights of the parties to fit their needs (valid).  Therefore, in one case a Jewish couple signed a “Kethuba” in which the husband promised in the event of divorce to give wife his separate property house and $500,000 or one half of his assets whichever was greater.[6] The court believed that the settlement was so substantial that it "threaten[ed] to induce the destruction of a marriage that might otherwise endure" and invalidated the agreement. In another case, the court upheld the agreement where the 76 year old husband millionaire promised to pay his 46 year old fiancé $100,000 if they divorced on the grounds that this payment was calculated to compensate her from the loss of spousal support from a former marriage and was therefore a proper "reordering of property rights to fit the needs and desires of the couple" even though the marriage only lasted a year.[7]  For this reason it is good practice to ensure that any payments following divorce are in the form of support instead of lump sum property payments.

 Special rules for spousal support

A waiver or a restriction of spousal support in the agreement is unenforceable if either the party was not presented by independent counsel or the agreement was unconscionable at the time of enforcement. There is no provision for a knowing waiver of the independent counsel requirement. It is impossible to know in advance whether the spousal support provision is unconscionable because it is tested at some time in the future. We know that a spousal waiver will not be enforced if it leaves an ill or disabled spousal unable to support themselves.[8] Unfortunately, there is scant California authority for the meaning of unconscionability in the support context. A leading Oregon case which has been cited by California cases suggest that a waiver of support will be upheld unless the other spouse has no other reasonable source of adequate support.[9] That case made it clear that adequate support means the minimum amount a person needs to support themselves and is not related to the parties’ marital standard of living.  A Colorado Supreme Court upheld a spousal support waiver between a millionaire husband and wife who was earning only $1500 after the divorce.[10] An Arizona Court of Appeals adopted what it called the “majority rule” established in these cases that spousal support waivers will be enforced unless it would render one spouse without a means of reasonable support or a public charge either because of a lack of property or unemployment. [11] However these cases are not binding on California courts which have not shown any reluctance to follow a “minority” rule if they feel that to be the enlightened position. It may be prudent to contain restrictions on the payment of support rather than an outright waiver in any agreement.

 

© 2009 Warren R. Shiell. All rights reserved. Los Angeles Divorce and Family Law Attorney. The information contained in this website is an "Advertisement." It is for informational purposes only and shall not constitute legal advice. Nothing in this   Website shall be deemed to create an Attorney-Client relationship. An Attorney-Client relationship shall only be created when this office agrees to represent a Client and a Client signs a written retainer agreement. This article states the state of the law as of 2009 and there may be subsequent changes in the law which render all or part of this article obsolete.

 

California Prenuptial Agreements, California Prenups, California Premarital Agreements

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[1] In Re Marriage of Bonds (2000) 24 Cal, 4^th 1, at 37.

[2] Drafting Prenuptial Agreements by Gary N. Skoloff, Richard H. Singer, Jr. Ronald Brown (2008 Supplement case review)

[3]  Little v. Auto Steigler, Inc. (2003) 29 Cal. 4^th 1064.

[4]  In Re Marriage of Dawley (1976) 17 Cal. 3d 342 (premarital agreement in which all property, earnings and income acquired during marriage remain the acquiring party’s separate property); Marriage of Bonds (2000) 24Cal. 4^th1, (premarital agreement wherein each party waived any interests in any earnings and acquisitions of the other during marriage); Marriage of Cleveland (1976) 76 Cal. App. 3d 357 (agreement signed 15 minutes before marriage providing that all property then owned by each party acquired daring marriage would remain the acquiring party’s separate property).

[5]  Diosdad v. Diosdado (2002) 97 CA4th 470.

[6]  E.g Marriage of Noughrey (1985)  169 Cal App. 3d 326

[7]  In Re Marriage of Bellio (2003) 105 Cal App. 4^th 630.

[8] In Re Marriage of Rosendale (2004) 1119 Cal App. 4^th, 1202 (spousal support waiver unenforceable where wife suffered brain damage, on life support, numerous injuries. Court also stated that Family Code section 1612 only clarified prior common law requirements.)

[9]  Unander v. Undander (Ore. 1973) 506 P.2d 719.

[10]  Newman v. Newman (Col 1982) 653 P.2d 728.

[11] Williams v Williams (ariz 1990) 801 P.2d 495.

Surge in Child Support Modifcations Reported By Los Angeles Times

By Molly Hennessy-Fiske May 3, 2009 Los Angeles Times

Surge in child support modifications

Mark Boster / Los Angeles Times

Doreen and Carlos Mazariego wait for their case to be called at L.A. County’s Central Civil West Courthouse, where they are appealing for lower child support payments for Carlos’ children from a previous marriage.

As unemployment rises, so does the number of cases being reassessed. Collections are up as the state garnishees more unemployment checks, and more from the middle class are seeking the state's help.

By Molly Hennessy-Fiske 
May 3, 2009

California's rising unemployment rate is driving a steep increase in child support cases, as the newly jobless appeal for increases in monthly payments or argue that they can no longer afford the amounts ordered by the court.

In Los Angeles County, about 450 new cases are filed each day, double the amount at this time last year. More than 3,000 calls come in daily -- up 25% -- increasingly from custodial parents asking child support staffers to crack down on deadbeats. The number of parents seeking help with child support modifications has tripled during the last month and a half, with some parents showing up at 5 a.m. to wait in line.

 

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"Can we handle it? No," said L.A. County Child Support Services Director Steven J. Golightly.

Family court judges and commissioners are calling it the worst avalanche of new cases they have seen in 30 years, many involving laid-off workers who have struggled to find new jobs.

Paradoxically, higher unemployment rates have led to a slight rise in the amount of child support collected this fiscal year, in part because the state can easily garnishee unemployment checks.

As child support money taken out of payroll checks dropped by more than $20 million through the end of February, compared with the same period a year ago, money withheld from unemployment checks nearly doubled, rising to $64 million from $34 million.

Parents who once hired lawyers or handled child support privately are now going to courts or child support services for help, according to staff members.

"I have never seen the situation as bad as it is now," said Christine Reiser-Juick, lead attorney at the state-run Office of the Family Law Facilitator in Los Angeles County Superior Court's Central Civil West Courthouse, which helps parents who cannot afford to hire attorneys.

Reiser-Juick, a 10-year veteran of the system, said her staff can assist about 150 people a day and regularly have to turn away an additional 60 to 80. Many of the people they see are newly unable to afford their payments or to provide their children with health insurance, she said.

It appears to be a national trend. The American Academy of Matrimonial Lawyers in late March reported a 39% increase nationwide in the number of divorced spouses requesting changes to child support agreements.

At the Central Civil West Courthouse, benches outside 16th-floor family courtrooms were full of parents, some with children in tow.

Martha Padilla, 35, of Santa Fe Springs listened as her ex-husband pleaded with a judge not to raise his $758 monthly payments for their three children. Rogelio Gallegos, 40, a delivery truck driver, said his monthly pay was recently cut from $3,000 to $1,900, and he had a new wife and two other children to support. He wanted to pay less.

"I understand, sir, but having children means making sacrifices," Family Court Commissioner Nicholas Taubert said.

Padilla, a restaurant cashier, had asked for increased payments but offered to make do with the status quo, which she said she relies on to pay for after-school child care. Gallegos, holding his head in his hands, grudgingly agreed.

Two floors above them, dozens more parents waited for their names to be called for child support mediation.

Amador Rios, a mechanic, pays $225 a month to support his 11-year-old son. He came to ask for a reduction after his workweek was reduced to two days, lowering his weekly pay to $160.

"I earn very little, and I have to eat and buy gas," Rios, 43, said as he sat next to the windows, waiting for his name to be called. "There's no work. You go out and look, and they don't have it."

County child support attorneys used to postpone unemployed parents' cases for a few months until they found work, but that is no longer an option, they said.

"There's no guarantee they'll find anything," said Barbara Catlow, head attorney at the Central Civil West child support office.

Most of the cases Catlow sees involve blue-collar workers, but child support officials say they are seeing the same phenomenon in low- and high-income areas, urban and suburban. In Orange County, family courts received 722 requests for child support modification in February, compared with 518 during the same month last year. In the Bay Area county of San Mateo, modification requests were up 30% in February.

"They are either furloughed and they are working less hours, or they have become unemployed and they are trying to avoid accumulating that debt," said Iliana Rodriguez, director of San Mateo County's Department of Child Support Services.

In L.A. County, child support staff withheld 144% more in child support from unemployment checks in February than in the same month last year. The rise in collections from unemployment checks has offset other drops, at least so far. In March, L.A County collected $47.7 million in child support, about half of what was owed and a 2% increase from the same month last year.

Many custodial parents who are owed child support are on the swelling welfare rolls. When the state tracks down fathers and mothers who are delinquent in those cases, their monthly payments offset state aid already paid out to their families.

But there are also signs that more middle-class families are relying on child support to make ends meet. Typically, about 25% of families in L.A. County child support cases have never received government assistance. That rose to 34% in recent months.

In Orange and Ventura counties, the number of parents who had never received assistance and were referred by social services to child support offices increased 14% as of February, compared with the same period last year.

Child support officials said the increases underscore the needs of families who have fallen on hard times but still have resources that make them ineligible to receive welfare, food stamps or other aid. Getting child support owed to them is crucial, said Jennifer Coultas, a lawyer and special assistant to L.A. County's director of Child Support Services. "It's just really hard out there for families."

Coultas and other county child support officials are pushing for California to rethink its "fair share" formula for monthly child support payments owed by noncustodial parents. The guidelines, which take into account how much time children spend with each parent, work out to roughly 25% of the noncustodial parent's net income after state and local taxes for one child; 40% of net income for two children; and 50% of net income for three children. If a parent becomes unemployed, the payments may be adjusted based on new income -- the unemployment pay -- but only after an appeal to a judge for a modification.

Other states, such as New York, which is second only to California in child support collections, take both parents' income into consideration and allow judges to issue "poverty-level" child support orders if a parent becomes unemployed.

"Those states are quicker to respond to economic downturns," Golightly said.

In San Mateo County, Rodriguez, who also serves as president of the state Child Support Directors Assn., compares massive child support debts to foreclosed homes that people walk away from, unable to pay the mortgage.

"At some point, you set the bar too high and the person just feels defeated," she said.

But any attempt to change payment guidelines is likely to face strong opposition from mothers' groups. So far, state child support officials have not taken a position on whether changes should be made in light of the deep recession.

"We understand it's a difficult economic time, but we are focused on collecting child support and making sure those monies go to the individual it is owed to," California Department of Child Support Services spokeswoman T. Maria Caudill said. "Oftentimes, child support makes the difference between a family remaining economically self-sufficient and applying for aid."

child support modifcation