Facts: Two years after Husband, 40, met Wife, 18, at the dry cleaners, they married.
Shortly after the relationship began, Wife moved in with Husband and stopped working at the dry cleaners. Husband, the owner of a rent-two-own business, provided for them both, and Wife soon became financially dependent on Husband.
Two days before the parties were to leave to go on vacation and get married, Husband took Wife to his lawyer to sign a prenuptial agreement. Wife was informed that the lawyer was not her attorney and that she could get independent legal advice if she wished to do so, something she never did.
After Wife met with Husband’s lawyer for 30-45 minutes while he explained the prenuptial agreement to her, the parties signed it. Notably, the agreement prohibited an award of alimony to either party, defined marital and separate property, and provided that Wife would receive $100,000 as alimony in solido if the parties divorced after five years of marriage.
Husband and Wife had two children. Wife was a stay-at-home mother and homemaker while Husband continued working in his business.
After 13 years of marriage, Wife filed for divorce.
At trial, the validity of the prenuptial agreement was challenge. The trial court ruled the agreement has been entered into by Wife knowingly, voluntarily, and without duress or undue influence. The trial court found the agreement to be valid and enforceable, except for the provision that prohibited alimony or Wife’s alimony, which the court found to be unreasonable and invalid.
The trial court proceeded to divide the marital property, awarding Wife nearly $1.6 million.
On Appeal: The Court of Appeals reversed the trial court.
Prenuptial agreements are favored by public policy in Tennessee.
Tennessee Code Annotated § 36-3-501 requires the parties to make a full and fair disclosure of the nature, extent, and value of their financial holdings unless the other spouse has independent knowledge of that information.
What constitutes “full and fair” disclosure varies from case to case depending upon a number of factors, including the relative sophistication of the parties, the apparent fairness or unfairness of the substantive terms of the agreement, and any other circumstance unique to the parties and their specific situation.
While disclosure need not reveal precisely every asset owned by a party, at a minimum, full and fair disclosure requires that each party be given a clear idea of the nature, extent, and value of the other party’s property and resources. A simple and effective method of proving disclosure is to attach a net worth schedule of assets, liabilities, and income to the agreement itself.
In the absence of a full and fair disclosure, a prenuptial agreement may still be enforced if the spouse seeking to avoid the agreement had independent knowledge of the full nature, extent, and value of the other spouse’s property and holdings. Factors relevant to that assessment include, but are not limited to, the parties’ respective sophistication and experience in business affairs, the duration of the relationship prior to the execution of the agreement, the time of the signing of the agreement in relation to the time of the wedding, and the parties’ representation by, or opportunity to consult with, independent counsel.
The Court concluded that the entire prenuptial agreement was invalid, not just the prohibition on alimony:
As the proponent of the Agreement, Husband had the burden to prove, by a preponderance of the evidence, that the Agreement was entered into by Wife freely, and knowledgeably, and in good faith. While antenuptial agreements are favored by public policy, Tennessee courts do not simply rubberstamp their validity. The circumstances surrounding the signing of the agreement must be transparent and attended by a sufficient disclosure of property interests.
[Here,] there is the element of Wife being rushed to sign the Agreement. Although Husband had mentioned to Wife that he desired antenuptial agreement months before, Husband and Wife signed the Agreement when the parties met with [Husband’s attorney] only two days before departing on vacation to be married. Husband testified at trial that he encouraged Wife to seek independent counsel, and even offered to pay for it. Nevertheless, even crediting Husband’s testimony as the Trial Court implicitly did, it is at best doubtful that Wife could have obtained independent counsel and made an informed decision before setting out so soon on vacation to be married as planned. . . . Wife’s opportunity to secure independent counsel to review the Agreement was illusory in practice.
In addition to the lack of independent counsel for Wife, there is the issue of the dramatic disparity between the parties in terms of sophistication. Husband was a wealthy, college-educated, and successful businessman. Wife was 20 years old, less than half Husband’s age, and a GED was the summit of her formal education. Wife was financially dependent upon Husband. The balance of worldly sophistication in this relationship was decidedly one-sided. . . .
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The Trial Court found the Agreement invalid insofar as it purported to Wife’s alimony. We decline to cherry-pick the Agreement to find enforceable provisions because we believe that the context in which Wife signed the agreement was such that none of it is valid or enforceable.
Thus, the trial court’s ruling that any part of the prenuptial agreement was valid or enforceable was reversed. The case was remanded back to the trial court for additional proceedings.
K.O.’s Comment: (1) The Court also made this observation that may be helpful to Tennessee family-law attorneys:
While it is not a direct linear relationship, the more sophisticated the spouse is, the less time he or she may well need in order to be able to enter into the agreement freely, knowledgeably, and in good faith without duress or undue influence. Conversely, the less sophisticated the spouse is, the more time he or she may need.
(2) Prenuptial agreements are inherently risky. The drafting attorney must assume that, in the event of divorce, the agreement will be scrutinized by a highly-motivated attorney. It is reasonable in most situations for clients to expect the drafting attorney to produce an enforceable agreement. Prenuptial agreements present a minefield of risk for the unwary. Lawyers who dabble in family law should exercise caution and not hesitate to refer the matter to more experienced family-law attorneys.
(3) The best practice is always that both parties are represented by counsel. In fact, I insist on it for each prenuptial agreement I draft. If, like here, the client wants something done two days before leaving town to get married, my advice would be to decline the representation or, at a minimum, document in the file that the client was advised of your reservations about the agreement’s validity under the circumstances.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family-Law Attorney.