I have been a family law attorney (divorce lawyer) in the Rochester Hills area of Oakland County, Michigan for over 14 years.  I highly recommend the use of prenuptial agreements in any case where the parties have significant assets, income, a family business, expected inheritance or children from a previous relationship.

The Issue    

What of the several factors required in the preparation and enforcement of a prenuptial contract is the most important for enforcement?

The Answer

In my opinion, full and accurate disclosure of each person’s assets, debts, income and even future earning potential is the most essential ingredient to the preparation and enforcement of a prenuptial agreement.  Once this is provided and explained to the other party, most of the remaining factors will fall into place (of course careful drafting and consideration of the client’s goals is required to have it enforced the way one wants, but that is another issue).

A recent Oakland County probate case, Crystal Waller and Kenneth Waller, Jr. v. Sharon Waller, Michigan Court of Appeals docket No. 300436, decided November 22, 2011, is a good example of the importance of full disclosure.  Crystal and Kenneth, the plaintiffs in the case, are the son and daughter of Kenneth Waller, deceased, and Sharon Waller, the defendant, is the surviving spouse of Kenneth Waller.

On the day of their wedding, Kenneth and Sharon signed a prenuptial agreement.  It appears that the main reason for the contract was to preserve each of their own assets for their children from previous relationships.  When Kenneth passed away, his children probated his estate and sought to distribute his property to themselves as his heirs.  Sharon however disputed this and claimed that she should be able to claim the majority of the estate as the surviving spouse, despite having signed the prenuptial agreement to the contrary.  The fact that the agreement was signed on the date of the marriage was not terminal to the enforcement of the contract.  In fact the trial court upheld the agreement.  The Court of Appeals however disagreed.

The critical flaw in the contract, as pointed out by the Court of Appeals, was the absence of proof that the parties had fully and accurately disclosed their own assets and liabilities.  While the court acknowledged that prenuptial agreements are generally favored by public policy in Michigan, it went on to state such contracts between parties that are to marry require a special duty of fully informing the other person of one’s own assets and liabilities before entering into the contract. This obligation does not exist in most contractual situations where there is a duty to perform one’s own due diligence inquiry. The purpose of the disclosure is to make a party aware of what he or she may be giving up in signing such an agreement.

The court focused on testimony from Sharon that she did not know the value of Kenneth’s stocks, bonds, home or 401(k) account.  The court then pointed out that there was no reference in the agreement to disclosure of assets and there was no testimony to refute Sharon’s claim that she was not fully informed or knowledgeable of his assets and their values. Therefore, the appellate court reversed the trial court and stated that the antenuptial agreement was invalid and that the wife could inherit the husband’s estate against the wishes of his children.

It should be noted that Sharon has her own house, savings, stocks, bonds and 401(k) account to which Kenneth waived any right in the same contract, so it appears that she benefited by the failure of the contract. One cannot know whether Kenneth would have attempted to invalidate the agreement to take Sharon’s property from her children if she had passed away first.

Summation

To avoid this issue, the first thing that I do is request the client meet with their CPA to help them prepare a full and accurate disclosure of their assets, liabilities, income and an estimate of earning potential in an easy to review form. We then provide that to the other person for their review with a cover letter that indicates the person should obtain independent legal counsel to advise them or contact me with any questions about any of the assets, income or liabilities. We also request and will even help prepare the other party’s disclosure form (if the person does not have an attorney or CPA). I require both parties sign the other party’s disclosure form and attach that to the written contract as an exhibit.

In addition, we go through a form with them when they sign the contract where we explain the rights that they are giving up by signing the agreement and have the parties sign that form as well to indicate that we have gone over the form with them and answered any questions about such rights. Finally, I always ask if they will allow me to record the signing of the prenuptial, this is often declined and we have the parties sign a statement that they have declined to have the signing recorded. This should make for an “airtight” prenuptial agreement which will be enforceable upon separation, death or divorce.