Antenuptial Agreements and Equity

Antenuptial Agreements and Equity

Article by Ryan Conboy

Antenuptial (Prenuptial) Agreements are often thought of as the tool of a wealthy parent trying to protect the family’s wealth from the upstart son or daughter-in-law to be.   But what exactly are these agreements?  They are, simply, a contractual arrangement between two people who are about to marry.  These agreements most often set the rules between the couple, in the event of divorce or death, as to the control and division of assets which each member of the couple brings to the marriage, and those assets which accrue during the marriage.  Assets which accrue during the marriage and are jointly held or titled versus those which are held separately can even be treated differently.  These agreements are fairly common in circumstances where one or both members of the couple are coming into the marriage with significant assets and perhaps wish to preserve them for their respective sides of the family, there are children from a prior marriage whose inheritance a parent contemplating remarriage wishes to protect,[1] or where a member of the couple believes he or she was “taken to the cleaners” in a prior divorce.  These agreements permit the couple to set certain financial rules for their marriage.

However, there are limits to the terms upon which the couple can agree.  These agreements are subject to modification by the courts, including potentially if the agreement at issue is deemed inequitable.  The Michigan Court of Appeals, in its Allard v. Allard decision, affirmed that while parties certainly have the freedom to enter into such agreements, and that deference will be given to the contracting parties, there are limits to that freedom and deference.  Reviewing applicable statutory authority giving Michigan circuit courts the authority to award either party additional assets to provide for sufficient support, the Court of Appeals noted the Michigan State Legislature’s intent that a division of property must ultimately be equitable under the circumstances presented.  The Court of Appeals did confirm, however, that while Michigan law provides the court with the ability to invade separate assets if necessary to achieve equity (not necessarily equality), those statutes do not give the parties themselves to a divorce action the right to petition for the invasion of those assets—it must be an action the court takes up on its own.  In short, because the courts are charged by statute with fostering an equitable result, parties cannot, pursuant to their antenuptial agreement, compel the court to order an inequitable settlement.  Contracts in violation of a statute will not be enforced.

Considering prior court decisions holding that the division of property in divorce actions is to be equitable; that the courts have the inherent authority to provide for such equity and that the courts can, under the right circumstances, allocate one spouse’s separate property to the other spouse if the couple relied on such separate property for support during their marriage, the Allard decision probably should not come as much of a surprise.  Antenuptial Agreements can still serve as useful planning tools, however it is important to take steps to avoid inequity between the spouses, and a court’s temptation to circumvent the terms of your agreement in an attempt to support what the court believes to be an equitable result.  Further, additional tools such as Michigan’s newly created domestic asset protection trusts, are available to protect spouses’ respective separate property conditioned upon establishment of such trusts prior to marriage.  If you are contemplating marriage and wish to plan for the settlement of assets, Kreis Enderle’s experienced family law and estate planning attorneys are ready to assist you with your planning wishes, including through the use of tools such as an antenuptial agreement and or asset protection trust.

[1] For example, without a prenuptial agreement, assets intended for a child of the first marriage could be elected in a probate setting by the step-parent in the event the child’s parent dies.

 

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Posted on August 03, 2017
Tagged as Divorce Law, Estate Planning , Family Law