Warning: The Wording in Your Prenuptial Agreement is Critical
Getting people to execute a prenuptial agreement is difficult. Then when a prenuptial agreement is executed, if the wording of the agreement isn’t clear, the person trying to avoid paying can still be stuck paying the ex-spouse. That is unfortunate and avoidable.
One such example of a spouse having to pay when he shouldn’t have had to was a recent case that was decided in the Woodrum case by the Appellate Court in McDonough County, Illinois.
In re Marriage of Woodrum — Prenuptial Fail
Greg and Jennifer planned to marry and executed a prenuptial agreement. The parties agreed that neither would have to pay the other maintenance should they divorce. Eight years later, Greg filed for divorce and the trial court granted Jennifer’s request for temporary maintenance. When parties agree that no maintenance would be paid, and the Court rules that they now have to pay, one cannot help wondering what went wrong.
- What was the purpose of hiring the attorneys to draft the prenuptial agreement if the Court is going to grant maintenance anyway?
- What went wrong? And why isn’t the agreement valid?
The Court did find that the prenuptial agreement was valid, but two words left Greg in a bad position and one that he hadn’t anticipated. His prenuptial agreement said the parties had only waived maintenance “upon dissolution” — not upon the filing of a petition for dissolution of marriage. In the judge’s opinion, Greg wouldn’t pay maintenance to Jennifer once they were divorced, but he would pay maintenance to her while the divorce case was ongoing. Greg had to pay Jennifer $1,137.00 per month in temporary maintenance until the divorce was granted. I’m guessing that Jennifer was in no hurry to finalize the divorce. Two words, improperly drafted, now have caused Grey money and a lot of aggravation.
Wife Attempts to Invalidate the Prenuptial Agreement
Jennifer attempted to invalidate the prenuptial agreement when she argued that there was an undue hardship to her if she didn’t receive maintenance. Greg argued that the parties’ premarital agreement could not be circumvented because Jennifer could not prove that she was entitled to maintenance due to an undue hardship that was not reasonably foreseeable at the time of the execution of the premarital agreement, as required to negate the terms of the premarital agreement under section 7(b) of the Illinois Uniform Premarital Agreement Act (Illinois Premarital Agreement Act). See 750 ILCS 10/7(b) (West 2016) (providing that if a premarital agreement modifies or eliminates spousal support that would cause a party “undue hardship in light of circumstances not reasonably foreseeable at the time of the execution of the agreement, a court, notwithstanding the terms of the agreement, may require the other party to provide support to the extent necessary to avoid such hardship”).
Wife Argues for Temporary Spousal Maintenance
Jennifer argued that she should be awarded temporary maintenance pursuant to section 7(b) of the Illinois Premarital Agreement Act because eliminating temporary maintenance would cause her undue hardship in light of the unforeseen circumstance of Greg instructing her to leave his home as a result of her attending religious services as a Jehovah’s Witness. Jennifer claimed that an undue hardship would result because her client relationships and book of business related to selling insurance had lapsed with Greg’s knowledge and for his benefit of being able to help raise his children and take care of domestic duties.
In response to Jennifer’s petition, Greg indicated that he earned a substantially higher income than Jennifer because Jennifer was “unemployed by choice.” He denied Jennifer’s business relationships and book of business had lapsed “for his benefit” and denied that Jennifer had no way to support herself. Jennifer testified that she was selling insurance when she moved in with Greg in 2001. Jennifer was still selling insurance at the time of the parties’ marriage in 2007, but Jennifer had been decreasing her workload over time. Jennifer never specifically told Greg that she was going to quit selling insurance. Jennifer moved out of Greg’s home in 2015, and in early 2016 she had begun working part-time at a grocery store but quit after a few months and had not looked for another job.
Prenuptial Agreement Clause Regarding Maintenance
The parties’ prenuptial agreement stated:
“MAINTENANCE. In consideration of the promises and marriage of the Husband and Wife in this Agreement, the Husband and Wife hereby declare that each is currently self-supporting. Each party states to the other that their educational background and work experience have allowed them to acquire valuable and readily marketable employment skills and their separate assets, and that by virtue of those skills and assets both are able to support themselves through appropriate employment or business and are possessed of sufficient income, each to provide for their own support. Husband and Wife, therefore, hereby waive from the other all right to maintenance for themselves from the other under the laws of the State of Illinois or any other state in which either party may hereafter reside upon divorce or dissolution of the marriage contemplated by this Agreement. This waiver of maintenance shall be binding on each.”
The Premarital Agreement Act omits the prior common law requirement that an enforceable agreement must also be fair and reasonable and must not result in an unforeseen condition of penury for the party challenging the agreement. In re Marriage of Heinrich, 2014 IL App (2d) 121333. Thus, under the Illinois Premarital Agreement Act, a court cannot invalidate a premarital agreement merely because the enforcement of the agreement would result in a disproportionate allocation of assets to one of the parties.
Enforceability of the Premarital Agreement
Section 7 of the Illinois Premarital Agreement Act governs the enforceability of premarital agreements, providing:
“(a) A premarital agreement is not enforceable if the party against whom
enforcement is sought proves that:
(1) that party did not execute the agreement voluntarily; or
(2) the agreement was unconscionable when it was executed and, before
execution of the agreement, that party:
(i) was not provided a fair and reasonable disclosure of the
property or financial obligations of the other party;
(ii) did not voluntarily and expressly waive, in writing, any right to
disclosure of the property or financial obligations of the other party
beyond the disclosure provided; and
(iii) did not have, or reasonably could not have had, an adequate
knowledge of the property or financial obligations of the other party.”1750 ILCS 10/7(a) (West 2016).
In this case, Jennifer acknowledged that she voluntarily signed the premarital agreement. There was no issue as to whether Jennifer made a knowing waiver of her marital rights. Consequently, the parties’ premarital agreement was enforceable unless Jennifer was able to prove, pursuant to section 7(a) of the Illinois Premarital Agreement Act, that the agreement was unconscionable when it was executed and that, before execution, she was not provided a fair and reasonable disclosure of Greg’s property and financial obligations.
Disclosure of Property, Assets and Financial Obligations
There was no waiver by Jennifer, in writing, to her right to disclosure of the property or financial obligations of Greg beyond the disclosure provided, even where she signed the agreement without reading it. Under the Illinois Premarital Agreement Act, the only way that Greg could have been relieved of his statutory obligation of providing a fair and reasonable disclosure was by Jennifer “voluntarily and expressly waiving, in writing, any right to disclosure of Greg’s property or financial obligations. Jennifer did not execute such a waiver. One way that Jennifer sought to prove that she didn’t know the full extent of Greg’s assets, was to argue that Greg failed to provide a “fair and reasonable” disclosure where he failed to disclose his 20% interest in Wayne Woodrum, Inc.; his 20% interest in Woodrum Automotive; assets regarding Maedco, Northwestern Mutual Life, and Illinois Dealers Life Insurance that had generated in excess of $10,000 of income in 2007 (as indicated on the parties’ 2007 joint tax return); the value of his residence; the value of his investments with Edward Jones; and the value and the acreage regarding his interest in the farmland.
Reasonable, Fair and Complete Disclosure Required
Greg argued that he did, in fact, provide a fair and reasonable disclosure where both parties had acknowledged in the prenuptial agreement that they had made a “full and complete disclosure” to each other. Greg additionally argues that the only asset that was not disclosed was his ownership interest in the family automotive dealership, which “generated no actual income or cash value other than his regular salary for managing.” He notes that although his 2014 tax return showed reported income from a sale of land, he did not receive any proceeds of that sale. He also contends that his failure to provide a value for his interest in the farmland was reasonable because his interest in the Tallula farmland was a remainder interest that he had not yet received, the value of a remainder interest was not easily able to be valued, and he did not know the value of the farmland in Tallula or Macomb.
The Court did not agree with Greg. Putting in the agreement that the parties had made a “full and complete disclosure” did not make it so. The question was whether Greg did, in fact, make a full and complete disclosure, regardless of what the prenuptial agreement said. The Court said that Greg had a statutory obligation to provide at least a fair and reasonable disclosure (unless Jennifer waived her right to such a disclosure, in writing, or she had adequate knowledge of his property and financial obligations). See 750 ILCS 10/7(a)(2) (West 2016). The Court determined that it must look to the disclosure actually made, and not the language of the agreement, to determine whether the disclosure was fair and reasonable. The question now is, what is “fair and reasonable,” which can mean different things to different people.
“Fair and Reasonable” Disclosure Requirement
Under the law, Illinois does not require a “full” disclosure standard. See 750 ILCS 10/7(a) (West 2016). The law requires a “fair and reasonable” disclosure, which is less than a complete disclosure, and the failure to disclose any particular piece of property or financial obligation is not, in and of itself, fatal to the enforcement of the prenuptial agreement. Rather, the purpose of a disclosure is to ensure that each party has sufficient knowledge regarding the other party’s financial circumstances in order to understand the nature of the legal rights being waived, with the burden to inform being on the disclosing party. In other words, can the intelligently choose whether to release his or her rights and interests to that party’s property based on the disclosure? Although a fair and reasonable disclosure need not be precise or exact, the requirement of a fair and reasonable disclosure requires each party to provide a “general approximation” of his or her income, assets, and liabilities. Friezo, 914 A.2d at 550. Whether a disclosure is “fair and reasonable” depends on the facts and circumstances of each case, including the information that was actually disclosed (in writing or otherwise), the information that was not disclosed, and the relative size of the non-disclosed information in relation to the parties’ financial circumstances.
There is also no requirement under the Illinois Premarital Agreement Act that a party’s disclosure be in writing or that it be attached to the premarital agreement. See 750 ILCS 10/1 et seq. (West 2016). Although not required, it makes good business sense in my opinion to attach a written schedule of assets from each party to the agreement. Each party’s attachment should have as much information on it as possible, including the income and property interests of the parties at the time the agreement was executed. Since the two parties are employing separate attorneys, and there is typically good money being paid for the agreement, it just seems silly not to ensure its validity by attaching as much information as possible.
Burden of Proof Falls on Party Seeking to Avoid Enforcement of the Premarital Agreement
Under the Illinois Premarital Agreement Act, Greg and Jennifer were required to disclose to each other their property and financial obligations, including their interests in real or personal property and their income and earnings. See 750 ILCS 10/2, 7(a) (West 2016). Furthermore, while Greg correctly argues that Jennifer cannot complain that she did not understand the premarital agreement or that she was misled by the terms of the premarital agreement where Jennifer never actually read the agreement (see In re Marriage of Kloster, 127 Ill. App. 3d 583 (1984)), his argument is irrelevant in determining whether his disclosure was fair and reasonable. Again, each party to a premarital agreement has a statutory obligation to disclose their property and financial obligations, which cannot be waived without an express waiver, in writing. See 750 ILCS 10/7(a)(2)(ii) (West 2016).
Even though each party had a statutory obligation to provide a fair and reasonable disclosure, it is Jennifer who, as the party seeking to avoid enforcement of the premarital agreement, had the burden of proving that Greg’s disclosure was not fair and reasonable. The Court found that she failed in her burden. The evidence showed that Jennifer had been married twice before, and twice before, she had executed prenuptial agreements.
Jennifer’s last argument in an attempt to invalidate the prenuptial agreement was based on the theory of unconscionability. Under the Illinois Premarital Agreement Act, a premarital agreement is not enforceable if the agreement was “unconscionable” when it was executed. The timing is important because the unconscionability applies to when the document was executed, not at the time that the agreement will be enforced.
Wife Argued Agreement Procedurally Unconscionable
One interesting argument that Jennifer made about unconscionability was that the agreement was “procedurally” unconscionable because she did not know that she was represented by Weston, the attorney on record as having represented her during the prenuptial agreement. Jennifer testified that Greg selected Weston to be her attorney, the Woodrum family business paid Weston’s bill, and Weston did not have Greg’s written disclosure when he met with Jennifer. Procedural unconscionability is some impropriety during the process of forming the contract depriving a party of a meaningful choice. “Procedural unconscionability refers to a situation where a term is so difficult to find, read, or understand that the plaintiff cannot fairly be said to have been aware he was agreeing to it,” taking into consideration the disparity of bargaining power between the drafter of the contract and the party claiming unconscionability. Razor, 222 Ill. 2d at 100 (citing with approval Frank’s Maintenance, 86 Ill. App. 3d at 989).
Circumstances Surrounding the Execution of the Premarital Agreement
Here, all of the circumstances surrounding the execution of the premarital agreement show that the parties had both previously been divorced twice and had children from their prior relationships. In discussing getting married, Greg clearly indicated to Jennifer that he would not get married again unless there was a premarital agreement in place. Jennifer had been licensed to sell insurance in 1987 and was able to explain and sell insurance policies that could be complicated, so that she was not incapable of understanding the terms of the contract. The premarital agreement was drafted by Greg’s attorney, who advised that Jennifer be represented by her own attorney. Greg testified that Weston had been hired to represent Jennifer because he was a client of Woodrum Automotive and had a good reputation as an attorney. Jennifer met with Weston twice and had months to review the premarital agreement before finally executing it before a notary on June 13, 2007. In the premarital agreement, Jennifer and Greg acknowledged that they were each represented by counsel, with Weston representing Jennifer and Tucker representing Greg; they were each able to support themselves; and they were each waiving their marital rights to the other’s property and to any maintenance.
The Court agreed with Grey that Jennifer could claim a lack of understanding of the agreement or that the agreement misled her where she did not read the agreement. The agreement clearly indicates that Jennifer was being represented by Weston, and therefore, she cannot claim a lack of understanding in relation to Weston’s representation. She also cannot claim that she did not understand that she would be receiving no property or maintenance from Greg. Before the agreement was executed, Jennifer had already decreased her work efforts in regard to her insurance sales but, nonetheless, executed the premarital agreement indicating that she was able to be self-supporting in the event of a dissolution of the parties’ marriage and that she was waiving her marital property rights and any right to receive maintenance.
Is the Agreement “Substantively Unconscionable”?
Jennifer also argued that the agreement was substantively unconscionable. Jennifer testified that the agreement made no provisions for her by way of property or support, even though she was already substantially financially dependent on Greg at the time she executed the premarital agreement. In support of her argument, Jennifer indicates that at the time the agreement was executed she was 53 years old; she only earned $7634 that year (in 2007) and that she was financially dependent upon Greg. She testified that Greg paid the bills, and that she had been out of the workforce for several years.
Substantive unconscionability refers to terms that are “inordinately one-sided in one party’s favor.” Razor, 222 Ill. 2d at 100. Substantive unconscionability is based on the actual terms of the contract in regard to the relative fairness of the obligations assumed and is concern with whether the terms are harsh, oppressive, or so inordinately one-sided as to oppress or unfairly surprise an innocent party and whether there is an overall imbalance in the obligations and rights imposed by the bargain. Kinkel, 223 Ill. 2d at 28.
In this case, the terms of the premarital agreement were not so harsh, oppressive, or inordinately one-sided to be substantively unconscionable where both parties acknowledged they had the ability to be self-supporting and both released any claims to each other’s premarital and after-acquired property and to any maintenance. The Illinois Premarital Agreement Act authorizes parties to contract in regard to, among other things, the disposition of their property upon dissolution and in regard to the elimination of maintenance and looks to whether the agreement was unconscionable at the time of execution, not at the time of the dissolution.
The agreement and the evidence indicated that Jennifer was able to support herself at the time she voluntarily executed the agreement, although she chose not to do so during the marriage, even in light of the terms of the agreement indicating that she would receive no property or maintenance from Greg in the event of dissolution of the marriage. The fact that after Jennifer voluntarily executed the premarital agreement, she chose to continue to rely on Greg for financial support throughout the marriage does not support a finding that the terms of the agreement were substantively unconscionable at the time the agreement was executed.
If you have questions about premarital agreements and protecting future assets in the event of divorce, it is important to get sound legal advice. Contact Anderson & Boback to speak with one of our experienced family law attorneys and learn what you need to know about prenuptial agreements.
THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/prenuptial-agreements/prenuptial-agreement-wording-is-critical/