Facts: During this 5 ½ year marriage, Husband created a revocable trust into which several pieces of real property were transferred. Wife signed warranty deeds whereby she conveyed any marital interest she had in the properties to Husband as trustee of the Trust. Husband designated Wife and her children as beneficiaries of the Trust and named Wife as successor trustee.
Before the Trust was created, Husband and Wife had a conversation about creating the Trust. Wife recorded the conversation and introduced a transcript of the recording as an exhibit at the trial. The parties began by discussing the issues of distrust with each other and agreeing that they intended to stay married. The discussion then turned to the creation of the Trust to protect the properties from potential lawsuits connected to Husband’s land survey business. The recording did not indicate that the parties discussed divorce issues related to the division of the properties transferred into the Trust.
Husband testified the Trust was created to protect his assets in case of a divorce.
Wife admitted signing the trust agreement and the accompanying warranty deeds but said she did not know that she was conveying any marital interest she might have had in the properties. Wife explained she signed the documents because she “took [Husband] at his word” and believed that the Trust was created to protect his personal assets from potential lawsuits from third parties.
The trial court concluded that the parties held different understandings about the purpose of the Trust. Thus, there was insufficient mutual assent for the parties to have a meeting of the minds and, as a result, there was not an enforceable postnuptial agreement.
The trial court divested the Trust of the properties and reverted the titles of those properties to the way they existed prior to the creation of the Trust. The trial court then divided the marital estate 50% to each party.
On Appeal: The Court of Appeals affirmed the trial court.
Prospective spouses execute prenuptial agreements in contemplation of marriage, whereas reconciliation agreements and postnuptial agreements are entered into by spouses after marriage.
Spouses execute reconciliation agreements after a separation or the filing of a complaint for divorce. Postnuptial agreements, on the other hand, are entered into before marital problems arise.
Postnuptial agreements are interpreted and enforced the same as any other contract.
The principle of contract law is that most contracts can be expressed, implied, written, or oral. Valid, enforceable contracts require a meeting of the minds, adequate consideration, and sufficient definiteness to be enforced.
There must be mutual assent to a contract in order for the contracting parties to have a meeting of the minds. If there is insufficient mutual assent, no contract exists.
The Court of Appeals agreed there was no postnuptial agreement:
In order for an enforceable written postnuptial agreement to exist in the current case, Husband and Wife must have had a meeting of the minds regarding creation of the Trust as a postnuptial agreement. The trust documents neither reference a postnuptial agreement nor do they discuss divorce and separation issues pertaining to the division of the real properties transferred into the Trust. The trust agreement appoints Husband as the sole trustee and grant him the power to pay himself, or pay for his benefit, “as much of the net income and principal from the Trust as [he] shall request.” Husband also has the power, as trustee, to dispose of, by sale or other means, any properties transferred into the Trust. Thus, there is no guarantee that any assets would remain in the Trust until Husband’s death because he could have, as the trial court found, “done away with all assets of the Trust and attempted to take possession of the Trust property or proceeds and transferred them to himself in his individual capacity.” The record does not reflect that the parties discussed or considered this possibility before Husband created the Trust. In light of these facts and the parties’ differing views of the purpose of the Trust, there was insufficient mutual assent to form a contract.
Thus, the trial court’s judgment that there was no enforceable oral or written postnuptial agreement was affirmed.
K.O.’s Comment: Congratulations to my colleague, Mandy Hancock, Esq., for her successful representation of Wife in this matter.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family-Law Attorney.