By Dennis I. Belcher and Laura O. Pomeroy

It is not unusual for the media to report high profile cases involving challenges to premarital agreements. For example, earlier this year the surviving spouse of Bob Magness (founder of TeleCommunications Inc.) claimed an interest in her husband's estimated $1 billion estate despite a marital agreement that appeared to limit her claim. During the divorce proceedings between Donald Trump and Marla Maples, Maples claimed the premarital agreement was not valid because she did not read it. Both of these cases involved lengthy, expensive and highly publicized litigation in spite of the existence of premarital agreements.

Many clients, after reading these reports, ask their estate planning lawyers for assurance that their estate plans will not be upset by dis-appointed spouses, notwithstanding the existence of premarital agreements. To reassure clients about the enforceability of premarital agreements, the lawyer must know the relevant law and the possible challenges that can be made against these types of agreements.

A quick glance at the cases in which a spouse has challenged a premarital agreement illustrates the importance of careful planning in the preparation and execution of premarital agreements. This article reviews the history of premarital agreements, potential attacks on them and the steps that a careful lawyer should take to have a litigation-proof premarital agreement.

History of Premarital Agreements

Based in part on society's interest in the family and the belief that marital rights cannot be subject to arms' length negotiations, the common law did not recognize contracts between a husband and wife. Courts, however, slowly began to recognize the right of couples to enter into contracts governing marital rights. The first step was when courts started to enforce marital agreements dealing with spousal rights if death terminated the marriage. Courts later recognized the validity of marital agreements dealing with spousal rights if divorce terminated the marriage. Nevertheless, most states were slow to loosen the grip on controlling spouses' rights to contract with each other.

Because of this reluctance, lawyers have been concerned about the uncertainty and lack of uniformity in the enforcement of premarital agreements. Acknowledging these concerns, the National Conference of Commissioners on Uniform State Laws adopted the Uniform Premarital Agreement Act (UPAA) in 1983.

The UPAA

In the prefatory comment explaining the motivation behind the UPAA, the drafters noted the increasing frequency of multiple marriages and the popularity of premarital agreements. Further, the drafters commented on the uncertainty of the enforcement of premarital agreements caused by the "spasmodic, reflexive response to varying factual circumstances at different times."

Twenty-six states have now adopted some form of the UPAA, and most states adopted it with only minor changes. The adopting states to date are: Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, Rhode Island, South Dakota, Texas, Utah and Virginia.

The UPAA defines a premarital agreement as an agreement between prospective spouses made in contemplation of marriage, to be effective on marriage. The UPAA controls only agreements entered into before marriage and not postmarital agreements.

The UPAA permits the parties to agree on the division or distribution of all of their property interests in the event of divorce or death. The UPAA defines "property" that can be the subject of the spouses' agreement broadly to include all types of property, present or future, including income and earnings. The expansive list of potential contractual matters deviates significantly from common law and emphasizes the greater freedom of contract allowed between spouses under the UPAA. The UPAA, however, limits the parties' ability to modify or eliminate spousal support in a premarital agreement if the modification or elimination would cause a spouse to be eligible for public assistance at the time of marital dissolution or separation.

The UPAA requires the premarital agreement to be written and signed by both parties but does not require consideration for the agreement to be valid. The agreement is effective only on marriage. If the marriage is later determined to be void, the agreement is enforceable only to the extent necessary to avoid an inequitable result. Any amendment to or revocation of the premarital agreement must be in writing and signed by both parties.

The UPAA presumes that a writ-ten premarital agreement signed by parties who then marry in a manner recognized by the state is valid. The person opposing enforcement of the premarital agreement bears the burden of proving that the premarital agreement is invalid.

Under common law, the proponent of a premarital agreement bore the burden of proof once the opponent established that the agreement provided a disproportionately small amount compared to his or her marital rights. Unlike the common law, the fact that the person opposing enforcement establishes that the substantive provision for him or her in the premarital agreement is disproportionately small compared to his or her marital rights in the proponent's estate does not shift the burden of proof to the proponent. Placing the burden of proof on the party opposing enforcement favors the enforcement of premarital agreements and makes the opponent's burden substantial.

Attacking a Premarital Agreement

The enforcement provisions of the UPAA reveal several possible avenues of attack on premarital agreements. Under the UPAA, a court will enforce a premarital agreement only if the parties entered into the agreement voluntarily, if the agreement was not unconscionable when entered into and if the parties met certain disclosure requirements. Accordingly, a disappointed spouse who has signed a premarital agreement may challenge the validity of a premarital agreement by claiming that he or she did not voluntarily execute the agreement. The spouse can also claim that the premarital agreement is not valid because the agreement was unconscionable when the parties executed it and because the proponent did not meet the financial disclosure test.

Challenge based on lack of voluntariness. A spouse may challenge a premarital agreement on the basis that he or she did not enter into the agreement voluntarily because of duress or undue influence. The UPAA neither defines "voluntarily" nor contains any guidance on how to prove duress or undue influence. Courts look to case law to define these terms and determine the level of proof required to sustain a challenge to a premarital agreement.Most state courts hold that duress and undue influence are a form of fraud. Thus, a spouse claiming duress or undue influence as a defense to the enforcement of a premarital agreement must prove specific acts of duress or undue influence by clear and convincing evidence.

One way to deflect a challenge to a premarital agreement based on lack of voluntary execution is with evidence that the challenging spouse had independent counsel. Courts have also held that a spouse's failure to inform a lawyer or any other individual that he or she executed a premarital agreement against the spouse's will is

evidence that the spouse entered into the agreement voluntarily.

Timing of the execution is also an important factor. Evidence that the couple discussed the agreement well in advance of the wedding date will assist in refuting a claim that the challenger entered into the agreement under duress or involuntarily. In contrast, evidence of a wedding eve ultimatum, such as, "I won't marry you unless you immediately sign this long, complicated agreement that I just gave you," tends to show that a spouse entered into a premarital agreement under duress or undue influence.

Unlike common law, the UPAA does not specifically require that each party to a premarital agreement have independent counsel or knowledge of his or her rights in the other person's estate. Accordingly, evidence of the lack of independent counsel or knowledge of the rights in the other person's estate alone is not sufficient to challenge a premarital agreement under the UPAA. Although the UPAA does not require independent counsel, the comments to the UPAA note that the absence of independent legal counsel may be a factor in determining whether the parties entered into the agreement voluntarily. Thus, courts may still consider lack of independent counsel a factor in finding the premarital agreement invalid.

Challenge based on unconscionability and the failure to fully disclose. Although the UPAA does not define the term "unconscionable" or "fair and reasonable disclosure," state law, the comments to the UPAA and legal commentators provide useful insights into how a court may define these terms.

Most states require that the party challenging a contract on the basis of unconscionability prove his or her case by clear and convincing evidence. The test for "unconscionability" under the UPAA comes from the Uniform Marriage and Divorce Act. The comments to this act provide that the standard of unconscionability in negotiations between spouses includes protection against overreaching, concealment of assets and sharp dealing inconsistent with the obligations of marital partners to deal fairly with each other.

In determining the unconscion-ability of a premarital agreement, therefore, a court will look for specific facts and circumstances that show oppressive influences or an unfair process. One circumstance that may indicate an unfair process is disproportionate bargaining power between the two parties. In particular, a court may consider the lack of independent counsel to be a relevant factor in determining unconscionability.

The UPAA makes it clear that a court must determine unconscionability by reviewing the agreement at the time the parties entered into it.

A change in circumstances should not affect the enforceability of the premarital agreement unless enforcement would cause the challenging spouse to qualify for public assistance. Under the UPAA, if a provision in the agreement causes a spouse to be eligible for public assistance at the time of separation or marital dissolution, the court can require the other party to provide support to the extent necessary to avoid that outcome.

A finding of unconscionability alone is insufficient to invalidate a premarital agreement under the UPAA. The court must also find that the defending party did not meet the financial disclosure test. The defending party will meet the financial disclosure test if, before execution of the premarital agreement:

• he or she provided the complaining party with a fair and reasonable disclosure of the property or financial obligations of the defending party;
• the complaining party voluntarily and expressly waived in writing any right to disclosure of the property or financial obligations of the defending party beyond the disclosure provided; or
• the complaining party had, or reasonably could have had, adequate knowledge of the property or financial obligations of the defending party.

The UPAA does not define "fair and reasonable" disclosure, leaving it to the courts to determine that fact. The reported cases do not provide significant insight into what will be considered fair and reasonable disclosure. Nevertheless, a court will likely consider complete and accurate financial statements attached to the premarital agreement to be fair and reasonable disclosure.

Other Possible Grounds for Challenge

Although the UPAA does not mention traditional equitable defenses, spouses can also rely on defenses such as fraud and violation of public policy to challenge a premarital agreement. Courts will generally not enforce premarital agreements that encourage divorce or attempt to eliminate pre-existing marital duties. For example, courts do not generally permit spouses to contract for payment of services during the marriage if the services, such as medical care, are considered preexisting marital duties.

Suggestions for Avoiding Attacks

A lawyer can take several steps in drafting and negotiating a premarital agreement to minimize the chances of a successful challenge. Although these steps will not insulate a premarital agreement against challenge, in most cases these steps will make it difficult for the challenging spouse to overcome the burden of proof. It is important to note that the law does not require these for a premarital agreement to be valid. Lawyers and their clients should consider these steps when they are interested in minimizing the costs, delay and risks of litigation.

Retaining independent legal counsel. Each spouse should retain independent legal counsel to represent him or her because courts will consider independent representation as evidence that the parties entered into the agreement voluntarily or that the agreement is not unconscionable.

Although important, this may be difficult to accomplish. Some clients prefer to limit the cost of obtaining a premarital agreement by using one lawyer. Other clients do not understand why the "family" lawyer cannot fairly represent both individuals. The lawyer should stress the importance of each party having independent legal advice about the marital rights he or she is waiving in the agreement and the importance of this advice in upholding the agreement if the agreement is later challenged.

It is also a good practice to name each person's lawyer in the premarital agreement and have both lawyers sign the agreement. This helps remind each lawyer of how serious his or her duty is to meet with the client and discuss the marital rights that are being waived in the premarital agreement.

Timing the premarital agreement. The parties should allow sufficient time before the wedding for meetings with lawyers, negotiations of terms, review of financial records and execution of the final agreement. With sufficient time allowed before the nuptials, it will be harder for the challenging spouse to prove duress or undue influence.

In a perfect world, a client will begin the process months before the wedding. Unfortunately, most clients begin the process with a frantic call to a lawyer a few weeks before the wedding. Nevertheless, executing a premarital agreement shortly before the wedding is not fatal to the validity of the agreement. Accordingly, although not required for a valid agreement, a good practice is to meet early with the client and be prompt in drafting the agreement.

Disclosing financial assets and obligations. The disclosure of the assets and obligations of each spouse prevents the challenging spouse from claiming that he or she did not waive the disclosure requirement or have independent knowledge of the assets and obligations of the other spouse. Although the UPAA permits a spouse to waive the right of full disclosure of assets and obligations, the better practice is for each party to attach a list of assets and obligations to the premarital agreement. The list of assets should indicate the value of the assets and the date of valuation. For hard to value assets such as a closely held business, the lawyer should attach appraisals or financial statements and provide in the agreement that additional disclosure is waived.

Avoiding personal obligations. Many clients want a provision in the premarital agreement imposing personal obligations on their spouses. One of the more frequent provisions deals with living arrangements. For example, some clients want to require the spouse to live in a certain location selected by the client. A provision that places a personal obligation on a party, however, can create enforcement problems.

Although the UPAA permits parties to contract on "any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty," there are no special provisions in the UPAA for enforcement of these types of provisions. Further, few court opinions address the enforceability of premarital agreements containing provisions regulating the ongoing marriage. A review of those cases indicates that courts typically do not uphold personal obligations imposed in premarital agreements. An exception to this general rule is when the obligation involves the religious education of children or other religious issues contracted by the parties.

If the client insists on including personal obligations, the drafting lawyer should clearly define all terms used in the provision to assist the court in determining whether a breach has occurred. The lawyer also should provide a remedy that the court can enforce if a breach occurs.

Specifying marital rights waived. A premarital agreement should be specific about the marital rights waived. Otherwise, the challenging spouse may later claim he or she was not aware of the specific rights waived. The drafting lawyer should be careful when drafting provisions that waive marital rights. It is better to be specific about the type of rights the spouse is waiving than to use an all-inclusive statement, such as "any and all rights the spouse may have by reason of marriage." In other words, the agreement should separately list each right waived by the spouse, such as the rights to a family allowance, a probate homestead and exempt property, the right to serve as a personal representative and the renunciation of the will.

This list should include rights that may not exist in the particular state in which the parties are residing, such as community property rights, to ensure that a later move by the parties to another state will not create a problem. The agreement should also generally state that the list is just an example of the claims and rights waived. Finally, the agreement should recite that the parties intend to waive, release and relinquish all rights, claims and interests of any kind.

Including recitals. Recitals are important. If each spouse and his or her lawyer reads these recitals before execution, it will make it hard for a spouse to later claim that the facts and circumstances described in the recitals did not exist. The recitals should reflect the situation of the parties at the time of the agreement and the fact that all elements of a valid and enforceable premarital agreement have been met. For example, each party should acknowledge and agree that:

• the parties enter the agreement freely and voluntarily and without duress or undue influence;
• the parties are each represented by independent legal counsel (with the names of counsel listed);
• each party has provided the other with a fair and reasonable disclosure of the property and financial obligations of the other party;
• the values assigned to the assets reflected in the financial information attached to the agreement are estimates and each party recognizes and acknowledges that he or she is not entering the agreement in reliance on the accuracy or completeness of the asset information;
• each party voluntarily and expressly waives further disclosure of the property and financial obligations of the other party beyond what was provided;
• each party has been advised with regard to the legal effects of the agreement, including the rights, claims and interests that the party is waiving, relinquishing, renouncing and releasing by entering into the agreement; and
• ù the terms of the agreement are fair and equitable.

Many challenges to a premarital agreement are little more than strike suits. Some disappointed spouses believe it may be financially worthwhile to challenge the validity of the agreement to make it difficult to properly administer the estate. Faced with expensive litigation and delay, many personal representatives settle challenges to premarital agreements without regard to the merits of the case.

One approach to minimizing these suits is to build disincentives to challenges into the agreement. Creating a financial disincentive, such as a provision in the premarital agreement that the losing litigant pays all litigation expenses, makes it expensive to litigate. Another method is to provide a financial benefit to the spouse with a forfeiture provision if the spouse challenges the agreement.

Conclusion

Although it is impossible to prevent a spouse from later challenging a premarital agreement, a lawyer and his or her client can take certain steps to minimize the risk of a court refusing to enforce a premarital agreement. Often the lawyer will find that the hardest part of negotiating and drafting a premarital agreement that can withstand a test in court is not necessarily the inability to predict the outcome in court, particularly in states that have adopted the UPAA, but rather taking the extra steps discussed in this article.

Dennis I. Belcher is a partner in McGuire, Woods, Battle & Boothe LLP in Richmond, Virginia and is a Section Delegate to the ABA House of Delegates. Laura O. Pomeroy is an associate with McGuire, Woods, Battle & Boothe LLP in Richmond, Virginia.