Facts: Husband and Wife were twice married to each other.

The first marriage lasted five years. Both signed a marital dissolution agreement (“MDA”) acknowledging that “a full disclosure of all assets and liabilities” was made to the other.

Husband and Wife remarried each other three months after their divorce was finalized. The day before their marriage, Husband presented Wife with a prenuptial agreement (“Agreement”) drafted by Husband’s brother. The purpose of the Agreement was to prevent Wife from getting any interest in Husband’s father’s successful business, B&B Steel Erection Co., Inc. (“B&B”). They signed the Agreement on their wedding day.

At the time, Husband claims he did not know he owned several nonvoting shares of B&B. He testified it was fairly common for his father to keep such transactions to himself and not inform others of such gifts. The value of the shares was not revealed in the Agreement, nor was the value of any of Husband’s other separate property.

About five or six years after their second marriage to one another, Husband’s father passed away. At that time, Husband and his brother acquired their father’s remaining interest in B&B and continued running the business as officers and 50% co-owners. Husband continued working at B&B throughout the marriage while Wife was a homemaker and stay-at-home parent. Husband’s interest in B&B increased in value by $1 million during the marriage.

Twenty years after they married for the second time, Wife filed for divorce.

The trial court found the agreement valid, enforceable, and applicable to all the increase in value of Husband’s ownership interest in B&B. While the agreement lacked an asset disclosure statement, the trial court noted the parties finalized their first divorce less than three months before their second marriage. In the MDA, both acknowledged that a full disclosure of all assets and liabilities had been made to the other. Under the circumstances, and with the limited scope of the prenuptial agreement, the trial court found the lack of disclosure to be unimportant. Although Husband’s ownership interest at the time was not revealed, the trial court found the parties understood he would obtain an ownership interest in B&B, and that interest was contemplated by the Agreement.

Wife appealed.

On Appeal: The Court of Appeals reversed the trial court.

Prenuptial agreements are enforceable when entered into freely, knowledgeably, and in good faith, without the exertion of duress or undue influence. These elements must be established by the party seeking enforcement of the agreement, and each element is a question of fact to be determined from the totality of the circumstances surrounding the negotiation and execution of the agreement.

Wife argued the Agreement was not entered into knowledgeably or in good faith because Husband did not disclose the value of his then-owned stock in B&B. Husband maintained he did not know he owned B&B stock when the parties entered the Agreement.

The Court found the lack of disclosure to be dispositive:

[W]e respectfully disagree with the trial court that the Agreement is valid notwithstanding Husband’s failure to disclose the value of his interest in B&B…. The requirement of “full disclosure and good faith” rests on the principles that an agreement to marry gives rise to a confidential relationship and thus the parties do not deal with one another at arms’ length. Moreover, requiring full disclosure or knowledge helps to level the bargaining power when there is a disparity between the parties.

Applying the above factors, Wife was at a significant disadvantage when executing the Agreement. Wife was twenty years old when the parties met, and she dropped out of college upon becoming pregnant with the parties’ first son. Husband always handled the parties’ finances and, shortly after [their son’s] birth, agreed that Wife should stay home with him; thus, Wife never had opportunity or reason during the first marriage to inquire into the parties’ finances. While Husband has a high school education, he began working at B&B upon graduating and possesses business acumen. Consequently, although both parties are relatively unsophisticated, Husband is sophisticated in the context of running B&B.

Even entertaining Husband’s claim that he lacked knowledge about his interest in B&B [the time of remarriage] does not change the requirement that “at a minimum,” adequate disclosure for purposes of a prenuptial agreement requires each contracting party be given a clear idea of the nature, extent, and value of the other party’s property and resources. To the extent Husband truly lacked a clear idea of the nature, extent, and value of his own interest in B&B, it remains to be seen how Wife could gain that knowledge.

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Here, the trial court found that Wife had independent knowledge about Husband’s interest in B&B prior to her signing the Agreement due to the MDA the parties signed [three months earlier]. The MDA provides that “each of the parties acknowledges that a full disclosure of all assets and liabilities have been made to the other.” We are unpersuaded by this, however, as Husband states in his brief that “this MDA is indicative of a lack of knowledge of Husband that he held any business interests at that time.” Again, it is unclear how Wife could have gained knowledge from Husband that Husband himself claims to lack. To the extent Husband and Wife entered into the MDA lacking appropriate knowledge about Husband’s assets, that fact serves only to undermine the MDA, not lend credence to the enforceability of the Agreement.

Further, the additional applicable factors weigh in favor of Wife. As addressed already, Wife lacks sophistication in financial matters, and Husband has always managed the parties’ finances. The Agreement was signed the day of the parties’ wedding. Wife testified that at the time, she was desperate to reunite her family because her son missed his father, and both she and [their son] were distraught over the death of the parties’ second child. Wife also testified that Husband threatened to litigate for custody of [their son] if Wife did not sign the Agreement, a claim Husband did not address in his own testimony. Wife had no separate property or income following the first divorce and lacked the resources to seek counsel.

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While public policy favors prenuptial agreements, and engagement to marry creates a confidential relation between the contracting parties and an antenuptial agreement must be attended by the utmost good faith. The parties to an antenuptial agreement are “co-adventurers, subject to fiduciary duties akin to those of partners … the punctilio of an honor the most sensitive, is then the standard which we shall apply it to their agreements.” Here, Husband failed to disclose any information about his ownership interest in B&B and he did not satisfy his burden of proving that the agreement was entered into knowledgeably. The trial court erred, and the agreement is unenforceable.

The Court reversed the trial court’s judgment.

Source: Booker v. Booker (Tennessee Court of Appeals, Eastern Section, October 24, 2023).

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