Thinking of an Antenuptial Agreement?

An Overview of Minnesota Statutory and Case Law Requirements for a Valid Agreement.

Antenuptial[1] agreements are commonly seen as the antithesis of romance. What could be less romantic than planning for an ending that could be less than happily-ever-after? However, a divorce rate at nearly 50 percent for first marriages and 60 percent for second marriages may contribute to the decision to enter into an antenuptial agreement. It is also important for prospective spouses to realize that an antenuptial agreement can be just one step toward responsible financial planning rather than a vote of "no confidence" in the relationship's future. An antenuptial agreement may be an important and practical part of estate or tax planning, especially for those with children from a previous relationship or significant accumulated assets. It may also simply be a way for a marrying couple to determine, based upon their own understanding of their relationship, what should happen with their assets and liabilities in the event things do not work out.

In Minnesota, absent an antenuptial agreement, property accumulated during a marriage is considered "marital property" and divided "equitably."[2] While, in most instances, courts interpret an "equitable" (or fair) division of property as an equal division, an antenuptial agreement can define what marrying couples want a court to determine is equitable in the event of a divorce. Although the antenuptial statute only expressly applies to non-marital property,[3] the Minnesota Supreme Court has held that agreements regarding marital property can be valid.[4] However, certain financial aspects of a divorce, such as child support or conduct-based attorneys' fees, are difficult to define in antenuptial agreements and a modification of the statutory framework governing them may be considered against public policy.[5]

Historical and Public Policy Background

Courts traditionally allowed antenuptial contracts to regulate economic rights at death, but not at the time of divorce. Antenuptial agreements in the divorce context were seen as harmful to the institution of marriage and the tradition of husbands supporting wives and wives serving husbands. Subsequent to the "divorce revolution" of the 1960's, antenuptial agreements came to be viewed as useful tools to make divorce more efficient and cost effective. As spouses have come to be viewed as equal partners almost all states have given them the ability to contract for certain rights at the time of divorce.

The Minnesota Supreme Court first recognized the validity of an agreement in the divorce context in 1970.[6] The Minnesota legislature then adopted the Uniform Marriage and Divorce Act - along with its recognition of antenuptial agreements - in 1974.[7] The legislature enacted specific, statutory provisions regulating to antenuptial agreements in 1979. Later, in 1983, the National Conference of Commissioners on Uniform State Laws promulgated the Uniform Premarital Agreement Act (U.P.A.A.). Over half of the states have since adopted this model legislation in some form, but Minnesota has not. Although Minnesota generally follows the U.P.A.A.'s tendency to uphold agreements as executed, the Supreme Court has developed a method of reviewing antenuptial agreements with greater scrutiny than would be done under the U.P.A.A.

Statutory Law and Procedural Fairness

Clear statutory requirements dictate that an antenuptial agreement must be procedurally fair. Minn. Stat. § 519.11 governs antenuptial agreements, and sets forth six procedural criteria for executing a valid and enforceable antenuptial agreement:

•(a) There must be full and fair disclosure of both parties' income and property;

•(b) Both parties must have had the opportunity to consult with an attorney of their own choice;

•(c) The agreement must be in writing;

•(d) The agreement must be executed before two witnesses;

•(e) Both parties must acknowledge the agreement before a notary public; and

•(f) The agreement must be executed prior to the day when the marriage is solemnized.

In order to ensure that an antenuptial agreement will be upheld, the parties must fulfill each of these requirements. The Minnesota Court of Appeals has emphasized the importance of the procedural fairness criteria in Siewert v. Siewert.[8] In Siewert, the district court had enforced an antenuptial agreement even though the agreement had been signed before only one witness.[9] The Court of Appeals reversed, holding that an antenuptial agreement can be valid only when the statutory criteria are strictly satisfied and the agreement is signed before two witnesses.[10]

In order to satisfy Minnesota procedural requirements, a complete written financial disclosure is particularly important. To satisfy the requirement, many people attach an Exhibit to the agreement that lists all of the parties' assets and debts, as well as their current incomes. This information should be as accurate and detailed as possible and include specific information to describe each asset, including account numbers, balances, and dates of valuation. With respect to income and certain asset and tax issues, it is helpful to include copies of relevant tax returns. Large assets can be appraised if their value is not known.

For an antenuptial agreement to be procedurally fair, each party must also have "unrestrained access to advice from independent counsel."[11] To avoid any appearance of bias, each party should retain and pay for their own attorney, and the attorney should not be recommended by anyone with a relationship to the other party. This requirement can be waived,[12] but doing so should be done with caution. The Supreme Court has noted that "we have never held, nor are we prepared to do so now, that an attorney should never represent both parties seeking an antenuptial agreement." McKee-Johnson, supra at 266. However, the attorney who drafts the agreement must inform the other spouse of the rights he/she is giving up by signing the agreement or at least inquire whether he/she would like the opportunity to meet with separate legal counsel prior to signing the agreement. In re Estate of Kinney, 733 NW 2d 118 (Minn. 2007).

In Minnesota, even if the antenuptial agreement satisfies these statutory procedural requirements, the court might still invalidate the agreement if enforcing the terms of the agreement is not substantively fair, as discussed below.

Common Law and Substantive Fairness

Unlike the Uniform Premarital Agreement Act, Minnesota courts require that antenuptial agreements also conform to common-law requirements to be enforceable. Not only must antenuptial agreements be procedurally fair, as required by statute, and conscionable at the time of execution, as required by the U.P.A.A., Minnesota law requires that antenuptial agreements also be substantively fair at the time the agreement is to be enforced. This difference in state antenuptial law may require the courts to deal with the issue of choice-of-law when an antenuptial agreement has been executed in a state other than the state in which the divorce is taking place. Minnesota appellate courts have not yet made a choice-of-law decision in the context of an antenuptial agreement in a published decision, but did address choice-of-law in Jundt v. Jundt, Nos. A05-693, A05-955, 2006 WL 917592 (Minn. App. April 11, 2006). In Jundt, the parties executed an antenuptial agreement in California and lived in California for approximately nine months following the marriage, the couple then moved to Minnesota where they resided for just over ten and a half years until the dissolution process was commenced. Id. at *1. Wife challenged the validity of the antenuptial agreement and the district court addressed the choice-of-law issue, upholding the choice-of-law provision in the antenuptial agreement and concluding the validity would be determined under California law. The Court of Appeals cited cases involving choice-of-law provisions in contracts other than antenuptial agreements and held that the application of another state's law is constitutionally permissible when that state has a "significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair." Id. at *2, citing Allstate Ins. V.. Hague, 449 U.S. 302, 312-313, 101 S. Ct. 633, 640 (1981). The Court found that the parties had sufficient contact with California to allow application of California law due to the fact that the parties lived in California when they entered into the antenuptial agreement and for a portion of the time they were married. Id.

In considering substantive fairness, the court must also consider whether events have occurred during the marriage that would make enforcement of the terms of the agreement unfair at the time of the parties' divorce. In 1989, the Minnesota Supreme Court issued its opinion in McKee-Johnson v. Johnson, which still stands today as the preeminent authority on antenuptial agreements in Minnesota,[13] although it has been superseded, in part, regarding the requirement of dependant counsel. See Estate of Kinney. In McKee, the Supreme Court established the principle that in order to be enforceable - and in addition to satisfying the criteria of procedural fairness - an antenuptial agreement must be substantively fair both at the time of the creation of the agreement and at the time of enforcement.[14] Specifically, the court held that an antenuptial agreement is not valid "if the premises upon which they were originally based have so drastically changed that enforcement would not comport with the reasonable expectation of the parties at the inception" and if enforcement of the agreement would therefore be "oppressive and unconscionable."[15]

In McKee-Johnson, the court took the view that antenuptial agreements require greater scrutiny than other contracts because of the unique nature of the relationship and rights involved between two people contemplating marriage.

Even though the public policy of the state, as reflected by the common law, has long favored antenuptial agreements, nonetheless, this court has always scrutinized challenged premarital agreements purporting to allot property or limit maintenance for procedural and substantive fairness at the inception. This scrutiny has been prompted by a recognition of the existence of potentiality for overreaching by one party over the other due to the relationship existing between them at the time of the execution. We ascertain no reason why courts should not extend a similar scrutiny to challenged provisions of antenuptial agreements[.][16]

This emphasis on heightened scrutiny recognizes that because the purpose of the antenuptial agreement is to change state laws regarding property and other important rights, such agreements are of paramount interest and importance to the state.[17]

After McKee-Johnson, courts considering a challenge to an antenuptial agreement must first determine whether any event has occurred during the marriage that would constitute a change in circumstances as contemplated by McKee-Johnson .[18] For example, the birth of children may constitute a change in circumstances that prompts further substantive fairness analysis.[19] This first inquiry does not require that the change be unforeseeable. In fact, in the unpublished case of Mazzitelli v. Mazzitelli, discussed more fully below, the antenuptial agreement expressly contemplated that the wife would stay home with children and provided her with nominal financial compensation during that period.[20] However, the Court of Appeals held that when the wife stayed home significantly longer than anticipated, there was a change of circumstances that triggered further inquiry.[21]

The presence of changed circumstances triggers a second inquiry, requiring the court to determine whether the premises upon which the antenuptial agreement was originally based "have so drastically changed that enforcement would not comport with the reasonable expectations of the parties at the inception to such an extent that to validate them at the time of enforcement would be unconscionable."[22] The Court of Appeals applied this test in In re Estate of Aspenson,[23] In Aspenson, the Court emphasized that the potential for overreaching by one party is exacerbated if there are significant inequalities between the parties.[24] The Court noted that the parties were close in age and had a similar amount of assets when they married.[25] During eight years of marriage, that equality continued.[26] As such, there was no drastic change that rendered the antenuptial agreement substantively unfair.[27] Similarly, the court upheld an antenuptial agreement where the parties had been [in equal standing at the time of execution], were both well-educated and capable of self-support, were relatively young and in good health and had contributed equally during the marriage.[28]

The Court of Appeals most recently affirmed a substantive unfairness finding in Mazzitelli v. Mazzitelli, an unpublished opinion, finding that a change in circumstances during the marriage made enforcement of the agreement substantively unfair.[29] In Mazzitelli, husband was 41 years old at the time the parties were married and had more than $600,000 in assets. In contrast, wife was 27 years old and had debts of $355.[30] The parties entered into an antenuptial agreement in which they agreed that in the event of a divorce, each would be entitled to those assets that they acquired individually during the marriage.[31] The parties also specifically agreed that if wife stayed home from work, husband would compensate her each month.[32]

After 16 years of marriage, the wife in Mazzitelli sought a divorce and challenged the property division portions of the antenuptial agreement as substantively unfair.[33] Specifically, because she had stayed out of the workforce to care for the parties' children for nearly 10 years, enforcement of the agreement would have resulted in husband being awarded $1 million in retirement assets, his law practice, a homestead, and a cabin.[34] In contrast, wife would have been awarded only $31,000 in retirement assets.[35] On these facts, the Court of Appeals held that even though the parties had anticipated having children, "[t]he reasonable expectations of the parties did not include [wife] remaining out of the work force for almost ten years, unable to accumulate substantial assets, while [husband] was earning a regular income and building a financial estate."[36] Accordingly, the Court of Appeals upheld the district court's determination that the property provisions of the antenuptial agreement were substantively unfair at the time of enforcement and therefore invalid.[37]

The Court of Appeals has found an agreement to be substantively unfair in one other unpublished case, In re Marriage of Kubes v. Kubes. 1995 WL 238805 (Minn. App. 1995). In Kubes, the Court of Appeals upheld the trial court's determination that an antenuptial agreement was unfair after change in employment and a change in retirement planning, resulting in husband receiving an additional $89,540 in retirement assets. However, the Supreme Court reversed the Court of Appeals, finding that the record on appeal did not support the trial court's determination that enforcement of the agreement at the time of dissolution would be "unconscionable and unfair." Kubes v. Kubes, 534 N.W.2d 706 (Minn. 1995).

In contrast, the Court of Appeals upheld the validity of a challenged antenuptial agreement despite arguments of substantive unfairness in the unpublished decision of Grossman v. Grossman, No. A05-2045, 2006 WL 1806409 (Minn. Ct. App. July 3, 2006). Wife argued that the antenuptial agreement was invalid due to a change of circumstances from the parties' reasonable expectations at the time of execution of the agreement and that made enforcement of the agreement was unconscionable. In addition, the Supreme Court found that the trial court erred by instead focusing on the "foreseeability" of the change in circumstances. Id. at *2.

Wife argued that because she stayed at home following the birth of two children in one year there was a change in circumstances that made the agreement unenforceable. Id. The court disagreed, and the Court of Appeals affirmed, given the mention of children in the antenuptial agreement and the parties' discussions regarding having children before executing the agreement. Id. While Wife stayed at home after the birth of the couple's second child, Wife "was in good health and fully capable of returning to work." Id. The parties had employed a full-time nanny and the antenuptial agreement mentioned the possibility of one or both of the parties being unemployed at some point in the future. Id. The Court of Appeals agreed that Wife staying home was foreseeable and completely within her control.

Wife argued, in the alternative, that the increase in the parties' standard of living constituted a change of circumstances that made the agreement unenforceable. Id. The parties lived a "comfortable" lifestyle both before and after the marriage and given the nature of Husband's assets (real estate and investments), his net worth fluctuated quite dramatically during the marriage "with the rise and fall of real estate and financial markets" (between $8,830,000 and $26,000,000). Id. at *3. The Court of Appeals concluded that this fluctuation was also foreseeable.

Wife lastly argued that the waiver of spousal maintenance and attorneys' fees was substantively unfair at the time of enforcement. The Court of Appeals disagreed, given the short-term of the marriage (6 years), Wife's good health, experience as an attorney, and a significant increase in her net worth during the marriage ($30,000 to $1,000,000). Id.

Conclusion

If, during a divorce, one of the spouses challenges the antenuptial agreement, that spouse will have the burden of proving that the agreement was procedurally defective or substantively unfair at the time of execution or has become substantively unfair.[38]

Anyone contemplating an antenuptial agreement should keep all of these requirements in mind. If the agreement is contested, the court will examine procedural and substantive fairness, and, although there is no way to guarantee that an agreement will be upheld, careful consideration of these criteria and standards will assist parties as they draft an agreement. Knowledge of the criteria will not only help with drafting an effective agreement, but will also help parties and attorneys to understand how various changes in circumstances might affect the enforceability of the agreement.[39]

[1] Commonly referred to as "prenuptial" agreements, Minnesota Statutes use the terms "antenuptial" and "postnuptial" agreement.

[2] See Minn. Stat. §518.58.

[3] Nonmarital property is generally defined as property that is 1) received as a gift from a third party, 2) acquired before the marriage, or 3) appreciation on other nonmarital property or acquired in exchanged for nonmarital property. See Minn. Stat. § 518.54, subd. 5.

[4] See McKee-Johnson v. Johnson, 444 N.W.2d 259, 268 (Minn. 1989) superceded on other grounds by In re Estate of Kinney 733 N.W.2d 118 (Minn. 2007).

[5] See, e.g., Aumock v. Aumock, 410 N.W.2d 420, 421-22 (holding that the district court erred in approving a permanent waiver of child support).

[6] Englund v. Englund, 175 N.W.2d 461 (Minn. 1970).

[7] Adopted through Minn. Stat. §§518.002-.66 (1990).

[8] 691 N.W.2d 504 (Minn. App. 2005).

[9] See id.

[10] Id. at 507.

[10] See Pollock-Halvarson v. McGuire, 576 N.W.2d 451 (Minn. App. 1998).

[11] McKee-Johnson v. Johnson, 444 N.W.2d 259, 266 (Minn. 1989) superceded on other grounds see page 10.

[12] See Pollock-Halvarson v. McGuire, 576 N.W.2d 451 (Minn. App. 1998).

[13] 444 N.W.2d 259 (Minn. 1989).

[14] See id. at 267.

[15] Id.

[16] McKee-Johnson v. Johnson, 444 N.W.2d 259, 267.(Minn. 1989).

[17] See id.

[18] See id.

[19] See id.

[20] Mazzitelli v. Mazzitelli, 2005 WL 221683 (Minn. App. Feb. 1, 2005).

[21] See id.

[22] McKee-Johnson v. Johnson, 444 N.W.2d 259, 266 (Minn. 1989).

[23] 470 N.W.2d 692 (Minn. App. 1991).

[24] Id. at 696.

[25] See id.

[26] See id.

[27] See id.

[28] See Petty v. Reese, No. C8-98-1576, 1999 WL 261952 (Minn. App. May 7, 1999).

[29] No. A-04-420, 2005 WL 221683, (Minn. Ct. App. Feb. 1, 2005).

[30] See id. at *2.

[31] See id.

[32] See id. at *3.

[33] See id. at *2.

[34] See id. at *3.

[35] See id.

[36] Id.

[37] See id.

[38] See Minn. Stat. § 519.11, subd. 5.

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