Different Types of Postnuptial Agreements Equal Different Results in Michigan

Michigan law divides postnuptial agreements into three categories. The requirements and enforceability of a postnuptial agreement depends upon its classification. First, postnuptial agreements that are entered by spouses who have separated will be upheld as settlement agreements. Second, postnuptial agreements that deal with inheritance rights are valid, provided the agreement is fair, equitable, and has consideration. However, the third category, postnuptial agreements that deal with divorce rights, entered by spouses who are not already separated, are unenforceable in Michigan.

As recently as 2008, Michigan courts declared unenforceable those postnuptial agreements that are entered before separation and deal with property distribution at divorce. In Wright v. Wright, the court reiterated Michigan’s prohibition on spouses entering contracts that anticipate or encourage a future separation or divorce. Such contracts were held to be against public policy, relying on case precedent from the nineteenth and early twentieth centuries.

Generally, alimony and property settlement provisions in postnuptial agreements are considered to anticipate or encourage future separation. As stated by the Wright Court, an example of when this occurs is if the postnuptial agreement leaves a spouse in a better position in the event of a future divorce. Under this theory, the postnuptial agreement at issue in Wright was held to encourage future separation or divorce. The agreement attempted to protect the husband’s premarital assets and retirement accounts. The agreement also declared all marital property that required substantial financial investment from the husband, including the marital home, was to be the sole property of the husband at divorce.

The primary issue appears to be whether separation or divorce is contemplated when spouses enter a postnuptial agreement. Michigan did uphold the validity of a postnuptial agreement at divorce, even though it was entered before the spouses separated and it did not deal solely with inheritance rights. In the 1965 case of Randford v. Yens, a divided court upheld the postnuptial agreement because it found the agreement did not anticipate or encourage divorce. The purpose of the postnuptial agreement in Randford was to determine what property rights already existed, not to change or define future property rights. Both spouses had substantial premarital property and a conflict arose as to the status of a particular piece of property. The postnuptial agreement was entered to eliminate confusion regarding what property was separate and what was marital.

While states across the nation are changing their public policy to reflect approval of postnuptial agreements, Michigan appears reluctant to change their long-standing public policy. While the Wright case was decided by the intermediate appellate branch of the Michigan judiciary, the state’s highest court declined to address the issue. The Supreme Court of Michigan denied the original appellate request and the request for reconsideration.

Originally, Michigan viewed prenuptial agreements as a way to circumvent the legal duty to support a spouse; a view the court still holds regarding postnuptial agreements. Michigan’s support of prenuptial agreements is not likely to influence the courts’ view on postnuptial agreements in the near future. The public policy considerations that allow prenuptial agreements to be enforceable are not easily applicable to postnuptial agreements.  

When Michigan changed its view on prenuptial agreements, it was for two main reasons, according to Rinvelt v. Rinvelt. The court stated that without the ability to organize finances prior to marriage, people would choose to stay in informal relationships rather than get married. Additionally, the court reasoned that dealing with finances prior to marriage would foster permanency of the marriage. These viewpoints would be hard to attach to postnuptial agreements.

Without a major change in public policy or the legislature providing for postnuptial agreements by statute, a change in enforceability of postnuptial agreements in Michigan is unlikely. Michigan has classified pre-separation postnuptial agreements as different from other marital agreements. Under current law, postnuptial agreements that anticipate or encourage a future separation or divorce are unenforceable.

Debt Considerations for Postnuptial Agreements

Spouses can use postnuptial agreements to manage debt and avoid joint liability. Through the postnuptial agreement, spouses define which debts and assets are separate and which are marital. This establishes who is responsible for specific debts.  However, it may not control what assets creditors are readily able to collect against if there are joint debts (see below). If you enter a postnuptial agreement for debt liability purposes, the agreement must be written in light of debt collection law, and the terms of the agreement must reflect the way you and your spouse actually handle finances.

Both spouses are responsible for marital debt. Separate debt is typically only the responsibility of the spouse who incurred the debt. Generally, the separate property of one spouse will not be used to satisfy the separate debt of the other spouse. However, this requires more than simply saying that finances are separate in a postnuptial agreement. You and your spouse must actually treat your finances as separate in order to be protected from liability. If not done correctly, there could be unanticipated difficulties, especially if debt problems escalate.

Postnuptial agreements are contracts between spouses. As a general concept of contract law, a contract cannot bind those that are not parties to the agreement. This means that if both spouses were jointly liable on a debt, there needs to be another agreement with the creditor to officially change liability to only one spouse. Even when debt is created after a postnuptial agreement, your behavior could eliminate debt protection. If you and your spouse do not treat your finances as separate, then outsiders will not be required to either. In this case, a creditor could contest the separate status defined by the postnuptial agreement because your actions imply that finances are not separate.

Problems become even more abundant if one spouse needs to file for bankruptcy. The bankruptcy court will look beyond the postnuptial agreement and evaluate all circumstances surrounding debt and assets. Again, if you and your spouse are not acting like your finances are separate, then the court does not have to treat your assets as if they are separate. Separate property of both spouses will be investigated, and the separate status can be disputed by creditors. The bankruptcy court, through the bankruptcy trustee, has the power to track where debt and assets originated. The bankruptcy trustee can inquire as to whether, in recent years, funds were comingled, if a spouse contributed to the purchase of the other’s assets, and if a spouse’s assets were used to repay any debts of the other spouse.

Bankruptcy courts have held that certain postnuptial agreement had the effect of concealing assets and preventing payment of creditors. In these situations, it was when the parties entered the postnuptial agreement in close proximity to when the bankruptcy was filed. The courts were then able to avoid the asset transfers between the spouses because the transfers had the effect of defrauding creditors. Even in situations when the transfer is not fraudulent, the bankruptcy trustee can avoid certain property transfers.

When entering a postnuptial agreement in response to debt, spouses need to be careful of both state and federal fraudulent concealment (i.e., fraudulent conveyance) statutes. To be enforced, a postnuptial agreement cannot be interpreted as a means of defrauding creditors. Since proving actual fraud is extremely difficult, courts rely on circumstantial evidence. Courts have used a variety of situations that may occur in postnuptial agreement property transfers to prove fraudulent concealment. These include gifts of substantial value to family members, continued possession of property after the transfer of title, and transfer of property for substantially less than market value.

One of the best ways to defend against a claim of fraudulent concealment is through the passage of time. Courts are much less skeptical of a postnuptial agreement being used to improperly shield assets when the agreement was not entered contemporaneously with debt collection actions. If a postnuptial agreement is to be useful in protecting against debt liability of your spouse, it is best to enter the agreement as soon as possible. If you wait until things get really bad, it may be too late to protect yourself.

Enforceability of Postnuptial Agreements: A State by State Comparison

Postnuptial agreements are contracts that define the financial rights and obligations of spouses. Each state sets its own laws regarding the enforceability of postnuptial agreements. This chart contains basic information about the general requirements for an enforceable agreement in each U.S. jurisdiction.*

* This information is provided for convenience, and maritalmediation.com assumes no responsibility for the accuracy of the information set forth in this chart. State laws change frequently, and this article may not reflect the most up-to-date legal information. Consult with a licensed attorney in your state for complete requirements of a valid and enforceable postnuptial agreement in your jurisdiction.

Why Hiring Two Lawyers Produces Better Postnuptial Agreements

Yes, spouses really should hire two lawyers when they enter a postnuptial agreement. This is true even when both spouses want to enter the agreement and when they agree on all terms. For purposes of the postnuptial agreement, the spouses are separate parties with separate rights and obligations. It may not be necessary to have two lawyers for the entire process. A couple may successfully negotiate the postnuptial agreement through marital mediation. However, at minimum, each spouse should have a separate lawyer review the document before signing it.

When determining the validity of a postnuptial agreement, courts consider whether lawyers were involved. Courts cannot force anyone to hire a lawyer. However, in order for a postnuptial agreement to be upheld, courts do require that both spouses are given the opportunity to hire independent counsel. There is a concern that one spouse could take advantage of another spouse in a postnuptial agreement. As a result, courts are skeptical of agreements that were not reviewed by two lawyers, especially if the agreement appears unfair or unreasonable to a spouse that did not have separate counsel.

When people get married, the law automatically grants certain rights and attaches certain obligations. A postnuptial agreement is a private contract that changes those rights and obligations. Sometimes it is by waiver, meaning a spouse completely give up one or more rights. Other times a spouse may agree to a limitation of a particular right. A spouse may also agree to assume more obligations than the law requires.

In order to modify rights and obligations by entering a postnuptial agreement, spouses must first know what rights and obligations the law mandates. Typically, this cannot be accomplished without a lawyer. Also, postnuptial agreements can be complex. It is important that both spouses understand everything in the agreement. This is ensured when spouses have lawyers who explain both the law and the agreement itself. Courts will only uphold postnuptial agreements when both spouses know what their rights are and what effect signing the agreement has on those rights.

Lawyer ethics also play a role in why two lawyers are best. A conflict of interest can arise when one lawyer represents two people. Lawyers owe all of their clients a duty of loyalty. When negotiating a postnuptial agreement, the lawyer advocates what is best for the client. Sometimes what is best for one spouse may not be what is best for the other spouse, and the lawyer becomes conflicted.

A lawyer should not represent multiple clients when there is a conflict of interest because it can interfere with professional judgment. There is a risk that a lawyer could put the best interests of one spouse ahead of the best interests of the other when recommending a course of action. Additionally, there is the risk that the lawyer could be ineffective by giving conflicting advice in an attempt to suggest what is best for each spouse.

Since there are two sets of rights involved in a postnuptial agreement, it is best to have two lawyers. When each spouse has independent counsel, the agreement is more likely to be upheld by a court. Separate lawyers can more effectively protect each spouse’s rights. It might be more money, but that’s better than the agreement being declared worthless if the court finds that a spouse’s rights were not adequately safeguarded.

Moving Past Stereotypes: Why Women Need Marital Agreements

Despite a changing society, assumptions about marriage are too often based on gender. When people think about marital agreements, such as prenuptial or postnuptial agreements, many automatically envision a specific type of couple – the older, wealthy man wed to a younger, unemployed “trophy wife.” People falsely assume postnuptial agreements are entered only when a man wants to escape the responsibility of supporting a soon-to-be former spouse through alimony. The concept of alimony has become engrained into our collective culture as something only rich men pay to women who spent the marriage as a housewife and have no work history or hope for a professional life.

It is time to move past stereotypes. When women are the breadwinners (which increases likelihood of divorce) too few think about the possibility that they could end up paying alimony to an ex-husband.  However, the law has moved towards gender-neutral application of alimony. The point of alimony is to help maintain the standard of living that spouses become accustomed to during the course of the marriage. There are a number of factors that are considered by the judge, but alimony is a possibility for either spouse when there is a significant disparity in income.

Lili A. Vasileff’s recent Huffington Post article explains:

“Almost one in three married women makes more money than their spouses do. And it’s not just high earning women whose paychecks trump those of their mates. More than 97% of these wives who out earn their husbands take home less than $75,000…For many women who are breadwinners (in a failed marriage), they achieved this status ‘de facto’. In many cases, it’s not as if they ever expected to out earn their husbands or be the primary support for their family.”

Improper or mismatched gender assumptions can be detrimental to a marriage. Each person enters a marriage with certain beliefs about what it means to be a husband or a wife. Conflict can arise when couples do not share the same view on marital roles or when reality does not match expectations. Through marital mediation, couples can explore their beliefs on gender roles and develop a model for their marriage together.

When appropriate, a couple can develop an enforceable postnuptial agreement during marital mediation. Both spouses need to be prepared for the potential of paying alimony in the event of divorce. A postnuptial agreement can waive alimony altogether, establish an alimony alternative, or set the amount and duration of alimony payments. Similarly, a postnuptial agreement can be used to determine rights to property acquired before or during the marriage and establish inheritance rights.

The Reality of Marital Agreements

Although more couples are entering marital agreements in today’s society, there are still a lot of myths surrounding prenuptial and postnuptial agreements. The misconceptions involve all areas, such as the purpose of a marital agreement, who should sign one, and why they are needed. If you are trying to determine if a prenuptial or postnuptial agreement is right for you, here are some of the facts you need to make an informed decision.

Marital agreements serve a variety of purposes. Most people think marital agreements are only helpful if a couple divorces, but divorce is only one situation when a marital agreement is beneficial. Marital agreements are helpful in any situation where it would be important to identify which spouse has rights to assets or is liable for certain debts. For example, marital agreements are effective tools in estate planning. If a person wishes to leave property to someone other than a spouse, such as a child of a previous relationship, spousal rights may have to be waived by agreement first.

Marital agreements are not just for the wealthy. Marriage automatically grants certain financial rights and obligations, regardless of a couple’s wealth. Assets and in some cases,  debts may become shared in the eyes of the law. Depending upon what happens during the course of your marriage, separate property could be considered to be marital property. Even if you and your partner have little assets or debt now, it does mean that will not change in the future. For example, one may undertake an unsuccessful business venture, or inherit precious family heirlooms.

Marital agreements benefit both partners. Marital agreements do not require one spouse to give up all financial rights. In fact, the court will not uphold a marital agreement unless it is fair and reasonable. A well executed marital agreement will address the needs and concerns of both partners. They are not a one-size-fits-all document; they are tailored to the specific circumstances of your relationship. A marital agreement can be as long and detailed as you need, or it can resolve only a few topics.

Marital agreements are relatively inexpensive. The monetary cost of a marital agreement should be weighed against the risks of not entering an agreement. The alternative to determining financial rights through a marital agreement is to have a court establish financial rights after a problem arises. All litigation, whether divorce, property distribution, or estate contest, is expensive and unpredictable. The upfront cost of a marital agreement is dramatically less expensive than the alternative.

Marital agreements can strengthen your relationship. The cornerstone of a successful relationship is communication, loyalty, respect and trust. However, financial decisions are a major source of stress for most couples. Marital agreements provide the opportunity to discuss important financial matters with your partner and allow you to create a financial plan for the future together. An honest conversation about marital agreements demonstrates that you and your partner trust each other enough to be open about your concerns and wishes for the future.

When people think marital agreements are a bad idea, it is usually because they are relying on incorrect information. Don’t let misinformation prevent you from discussing marital agreements with your partner. There are many reasons why entering a prenuptial or postnuptial agreement might be right for you.

View our state law chart for information on the requirements for an enforceable postnuptial agreement.

In re Marriage of Burkle: California’s Presumption of Undue Influence

California provides for postnuptial agreements by a statute, section 721 of the California Family Code. The statute explains that spouses have a special relationship with each other that “imposes a duty of the highest good faith and fair dealing.” It requires that “neither [spouse] shall take any unfair advantage of the other” when they enter contracts, such as postnuptial agreements.

The Burkle Court explained the situations in which unfair advantage will invalidate a postnuptial agreement. Unfair advantage does not occur simply because a spouse gains a benefit through the postnuptial agreement. The point of postnuptial agreements is to gain a benefit of some kind; for example, financial security. Spouses will almost always benefit from entering an agreement, and spouses can fairly receive different benefits from the postnuptial agreement.

When both spouses receive a benefit from entering a postnuptial agreement, the transaction will be considered a mutual exchange. Under general contract principles, mutual exchange occurs when both parties promise to do something they are not legally obligated to do in return for the other party’s promise. The court will likely consider a postnuptial agreement to be fair when both spouses give up a property right in order to gain another property right. This can occur when spouses divide community property into separate property through the postnuptial agreement. In that scenario, both spouses receive the benefit of increased separate property. These mutual benefits are not unfair advantages.

To be an “unfair advantage,” as prohibited by California law, the benefit one spouse receives must occur to the detriment of the other spouse. For example, when a postnuptial agreement converts community property to the separate property of only one spouse, that spouse has received the benefit of increased separate property. If the other spouse does not receive something in exchange for giving up the right to the community property, then the transaction is to the determent of that spouse and may constitute an “unfair advantage”. When it appears that one spouse has received an unfair advantage, the court will automatically presume that the contract was obtained by undue influence.

Undue influence has a specific legal definition. It is the improper use of trust to pressure or manipulate a person to enter a contract. Requesting or suggesting that you and your spouse enter a postnuptial agreement is not undue influence. Undue influence is abusing the trust your spouse has in you so that you can get a better deal in the postnuptial agreement.

The spouse who receives the unfair advantage has the responsibility to prove there was no undue influence. If there is substantial evidence to rebut a presumption of undue influence, then the postnuptial agreement will be upheld. To successfully rebut the presumption of undue influence, you must show that your spouse voluntarily entered the postnuptial agreement with knowledge of all the facts and an understanding of the effect of the postnuptial agreement. The voluntary component can be satisfied by providing evidence there was no fraud or duress. Knowledge of the facts is shown by completing a full and fair financial disclosure prior to entering the postnuptial agreement. Understanding the effect of the postnuptial agreement is most easily proven if your spouse has independent legal counsel.

If the postnuptial agreement is fair, then the presumption of undue influence will not apply. To help ensure that the agreement will be considered fair by a reviewing court, both spouses should provide a full financial disclosure and have the opportunity to consult with separate lawyers. However, the best way to guard against invalidation of your postnuptial agreement is to provide benefits for both spouses.

Marriage Vows and Credit Scores

Couples are often willing to enter postnuptial agreements to preserve certain assets, such as a house, personal savings, or an inheritance. However, couples should also consider preserving purchasing power. If one spouse has a low credit score, a couple may want to separate finances or define financial responsibilities through a postnuptial agreement.

Credit scores have a significant impact on finances. Lenders use credit scores to analyze the amount of risk involved in loaning money to a person. Among other things, your score helps determine whether you will be approved for a mortgage, the amount of interest you will be charged on credit cards, and the amount you must pay for a deposit on loans.

A recent MSNBC article explains:

“Marriage itself doesn’t automatically trigger changes in scores but the history each spouse brings into the union can significantly impact shared and individual fortunes…Ultimately, it’s a good idea to understand your spouse’s credit standing and habits. It may not change how you feel, but it could change how you decide to proceed financially as a couple.”

Credit scores can impact a couple’s financial decisions. For example, purchases may be more likely to be made in the name of the spouse with the higher credit score. This could result in one spouse owning the marital home and a disproportionate amount of the assets. If purchases are predominately made in one spouse’s name, that spouse can also be left with an extreme amount of liability while the other has little debt.

If you and your spouse make purchasing decisions based upon each other’s credit, consider entering a postnuptial agreement. Postnuptial agreements establish each spouse’s rights and obligations regarding marital property and debt.

Postnuptial Agreements bad for public policy? The Connecticut Supreme Court said “No” in Bedrick v. Bedrick

Throughout the country, states are grappling with the question of whether postnuptial agreements are valid and enforceable contracts. Until recently, state courts were not willing to uphold postnuptial agreements, believing they offended public policy. The agreements were originally thought to be contrary to the states’ interest in promoting and protecting marriage. That rationale has proven to be outdated by the unfortunate fact that today’s marriages are just as likely to fall apart as they are to succeed, and postnuptial agreements can help married couples stay married.

Connecticut is the most recent state to declare postnuptial agreements do not violate public policy. In the case Bedrick v. Bedrick, the state’s highest court referred to the increased rate of divorce, serial marriage, and the fear many people have of financial instability that stems from divorce. When postnuptial agreements alleviate financial worries or eliminate an area of contention, spouses are able to focus on continuing their marriage. For these reasons, the Connecticut court found “no logical or compelling reason why public policy should not allow two mature adults to handle their own financial affairs.”

Connecticut, like other states, is reluctant to judge postnuptial agreements by the same standards as other contracts. Inherent in postnuptial agreements is the risk that one spouse will take advantage of the other spouse. Generally, people are less cautious when they enter a contract with their spouse than when entering a contract with a stranger. A lower level of caution may create a greater level of risk. As a result, postnuptial agreements in Connecticut are subject to a special standard of scrutiny. The postnuptial agreement must be fair and reasonable when it is created and not unconscionable at the time of divorce.

The fair and reasonable standard requires that postnuptial agreements are entered voluntarily and that neither spouse is coerced into signing the agreement. Both spouses must provide a full and fair financial disclosure of all assets and debts. Additionally, both spouses must have access to independent counsel and ample time to review the agreement before signing.

“Unconscionability” is a legal term that basically means extremely unfair. The unconscionability standard is satisfied if no injustice occurs by upholding the postnuptial agreement. On a case-by-case basis, the court considers the circumstances that took place since the postnuptial agreement was created. It evaluates the impact of unforeseen changes in marital relations, such as unemployment, the birth of a child, or moving to another state.

The postnuptial agreement at issue in Bedrick was found to be unconscionable at the time of divorce because of a major financial change. Approximately twenty years passed between the time the postnuptial agreement was last modified and when the parties filed for divorce. The most recent modification was entered before the birth of their child and before the husband’s car wash business became lucrative. The postnuptial agreement entitled the wife to only a $75,000 cash settlement and no alimony payments. However, when the parties filed for divorce, their combined assets totaled almost $1 million.

In Bedrick, the change in financial circumstances was highlighted by the parties combined efforts in increasing their net worth. During the twenty years, both spouses worked at the husband’s car wash business, and for a period of several years the wife managed almost all business operations. When the business experienced financial trouble, the wife took additional outside employment to provide stable income for the family. As a result, the Court found that an injustice would occur if the postnuptial agreement was upheld and the wife received only $75,000.

Absent a finding of unfairness or unconscionability, public policy supports enforcing postnuptial agreements in Connecticut. There is a great benefit in allowing spouses to privately resolve family financial issues. When possible, the courts will uphold postnuptial agreements to minimize the emotional turmoil of a long and costly divorce case.

Read more about postnuptial agreements.

Marital Agreements as an Estate Planning Tool

A number of unique challenges arise when balancing the inheritances of a spouse, children from different relationships, and stepchildren. Unfortunately, the difficulties can continue after death, as lawsuits involving challenges to estate documents are more common in blended families than traditional families. A marital agreement (also known as a postnuptial agreement) can help prevent bad feelings after the death of a remarried parent.

Marital agreements (i.e., postnuptial agreements) are an essential tool for estate planning, especially for blended families. They are useful to clarify intent as to sharing assets upon the death of the spouses among the respective children of each of them. Marital agreements can put this intent into effect, if the spouses had not entered into a prenuptial agreement prior to the marriage addressing this issue. In many cases, developing a postnuptial agreement can eliminate conflict between the spouses, and among the children.

When people remarry, they tend to say things like, “I’ll keep my assets for my children, and you can keep your assets for your children.” However, an informal arrangement like that is difficult to administer and is legally unenforceable. Separate property can easily become comingled during the course of a marriage. “Mine” and “yours” becomes more difficult to define the longer a couple stays together. More significantly, the law will not uphold the verbal agreement without contractual documents reflecting the intent to keep property separate.

Many states have enacted “Spousal Elective Share” laws. These laws were designed to prevent a spouse from being completely disinherited, and also guard against substantial disinheritance. The surviving spouse has the option to receive whatever assets were designated in the estate plan or a predetermined percentage of the estate that is established by state law. The percentage a surviving spouse may elect to inherit ranges from a life interest in 1/3 to 1/2 of the estate. That means the property would be put in trust, and the surviving spouse would get the income from the investments for his or her life. In some states, the spousal elective share applies to both probate and non-probate assets, such as trusts.

Under the Uniform Probate Code, the asset distributions to an electing surviving spouse are much more complex, and may take into account other property, the length of the marriage, the existence of step children, and other factors. Some laws provide additional protections, like the ability to remain in the marital home for a certain amount of time regardless of who the house is devised to under the estate plan. The surviving spouse does not automatically inherit the larger amount, and must request application of the protective laws from the court that is overseeing the probate process.

Postnuptial agreements allow the parties to define exactly what they want, and can specifically state that the spousal elective share will not apply. For more information on the requirements for a valid postnuptial, view our state law chart.  There are many reasons why a nontraditional spousal inheritance might make sense: your spouse may have sufficient assets to provide for him/herself; property transfers made during your life might provide for your spouse; your spouse could be the named beneficiary on non-probate assets, such as life insurance; or the disability of your child or other loved one may compel you to leave a substantial inheritance to provide for that person. Because postnuptial agreements are mutually negotiated, the decision as to what happens to assets after death is a mutual one.