Contracts between husband and wife have always had a tenuous position in American law. Once forbidden, postnuptial agreements now seem to have crept into the realm of enforceable contracts in most states, though they may not always be enforced on the same terms as other types of contracts are.
In a recent case, Ansin v. Craven-Ansin, the Supreme Judicial Court (SJC) of Massachusetts ruled that an agreement that a husband and wife made after they married, seeking to predetermine the financial consequences of any future divorce, was not against public policy and satisfied the necessary criteria for enforcement.
In this column -- Part One in a two-part series of columns -- I will examine the Ansin ruling, which sets forth a sensible approach to evaluating the validity of postnuptial agreements. Part Two (appearing tomorrow, August 3, on this site) will consider the general landscape -- both historical and contemporary -- of spousal agreements.
Ansin v. Craver-Ansin: The Agreement
Here are the facts of the case the SJC recently resolved: Kenneth Ansin and Cheryl Craven-Ansin married in 1985. At the time, like ninety-five percent of couples entering into a first marriage, they did not enter into a prenuptial agreement, nor did they make any other attempt to privately determine the financial consequences that would ensue, should they divorce. Nineteen years and two children later, however, they entered into a written agreement "settling all the rights and obligations arising from their marital relationship" in the event of divorce.
This was not a so-called "separation agreement." A separation agreement is executed when a couple splits up and intends to divorce. (Such agreements are very common, are generally enforceable, and control the economic consequences of many, if not most divorces today.) To the contrary, both Kenneth and Cheryl testified that they signed this agreement in 2004 with the hope that their marriage would continue. This postnuptial, or marital, agreement was supposed to make their marriage stronger. At least, that's what the husband claimed at they time they signed it.
When the agreement was executed, the couple had been having marital problems since the prior year. They had gone to marriage counseling. But early in 2004, Kenneth told Cheryl that he felt uncertain about her commitment to the relationship, and that he "needed" her to sign a marital agreement if the marriage was to survive. She says that his request for an agreement caused her tremendous stress and made her "physically ill." Some time after his request was made, they separated for six weeks. They then reconciled, once she agreed to enter into the postnuptial agreement.
Under the terms of the agreement, in the event of divorce, Cheryl was to receive a lump sum payment of $5 million, plus 30% of any increase in their marital property from the time of agreement until the time of divorce. Kenneth also agreed to allow her to stay in the marital home for one year following any divorce, at his expense, and to pay her medical-insurance premiums until she died or remarried. The parties essentially waived any other claim to money or property arising out of their marriage.
After the execution of this agreement, the couple reconciled and, in the trial judge's words, assumed a "light and optimistic tone," with both parties committed to "strengthening their marriage." They trained for a marathon, bought and renovated a house, and traveled together. But despite these emphatic efforts at togetherness, the relationship was quickly souring. Kenneth enrolled in a graduate program without Cheryl's approval; Cheryl began to step up her consumption of alcohol.
Within a year of signing the postnuptial agreement, the couple had separated again. Cheryl then got involved with another man, and told Kenneth that "One of us has to be strong enough to take the steps to bring closure to our relationship." Accordingly, Kenneth filed for divorce in November 2006.
The Validity of Postnuptial Agreements in Massachusetts
When Kenneth filed for divorce, he asked the court to enforce his and Cheryl's postnuptial agreement. But Cheryl objected, focusing on the uncertain value of an interest that her husband held in some Florida real estate that was managed by one of his relatives. At the time that they executed the agreement, their combined assets were worth an estimated $19 million, but part of that estimate included a "placeholder" value of $4-5 million for the Florida real-estate interest. Cheryl argued that postnuptial agreements are invalid because they violate public policy and that, even if that is not generally the case, this particular agreement should be voided.
The divorce-court judge upheld the agreement. Cheryl appealed, and the SJC -- the state's highest court -- granted the request for direct appellate review. The basic question in the case was this one: Is a postnuptial agreement enforceable? And that question was one of first impression in Massachusetts.
Ultimately, the SJC agreed with the trial judge. It held that postnuptial agreements could be enforced as a general matter, and also that this particular agreement passed muster. Thus, Cheryl was bound by the agreed-upon financial consequences of the divorce, and she could not seek alimony or equitable distribution of property in excess of the amount agreed to in the postnuptial agreement.
Why the Question of Postnuptial Contracts' Validity Had Not Earlier Been Answered in Massachusetts (and Elsewhere)
It may seem odd that such a basic question of family law would still be unresolved -- but, as Part Two of this series, appearing tomorrow, will explain -- contracts between husband and wife have always occupied an unfavorable position in the law. Although that position has slowly changed -- such that postnuptial (marital) agreements are clearly enforceable in some states -- there are many states in which their enforceability is unclear, even though prenuptial agreements are now clearly enforceable in every state, as long as certain criteria are met.
Massachusetts had postponed the question of the validity of marital agreements in a prior case. In that 1991 case, Fogg v. Fogg, the SJC held invalid a marital agreement on grounds of fraud. But it expressly left "to another day" the question whether an agreement of that type could be valid if free from fraud.
The Basis for the Massachusetts SJC's Holding
In Ansin, the court noted that a majority of the states that have considered the validity of marital agreements have found them to be valid, either by court decision or by statute. Generally, husbands and wives, under modern law, do not lose the right to enter into contracts with one another merely as a function of being married. (Only Ohio seems to expressly deprive married couples of this right by statute.)
The Ansin court also noted that Massachusetts law clearly supports the enforcement of premarital and separation agreements, as long as certain criteria are met. It rejected Cheryl's argument that postnuptial agreements should be treated differently because they are "innately coercive," arise when marital failure is already underway, and encourage divorce.
Granted, the court conceded, marital contracts are "not the product of classic arm's length bargaining" -- the predicate for many principles of contract law that take a laissez-faire approach to regulating private agreements. Yet the court did not therefore deem all marital contracts to be inherently unworthy of enforcement, and void as against public policy. Instead, the court set forth specific criteria for the enforcement of such contracts. These agreements must, now, be "carefully scrutinized."
The court's justification for applying greater scrutiny (and a higher standard) to postnuptial agreements than to prenuptial or separation agreement is its view that postnuptial agreements are "on a different footing from both a premarital and a separation agreement." Someone who does not want to sign a prenuptial agreement can just walk away. And, with respect to separation agreements, spouses tend not to be too trusting of the spouse whom they are about to divorce, and spouses also have a strong incentive to protect their own financial interests.
The SJC may or may not be right about the degree of difference among these different types of agreements. I tend to think the court underestimated how hard it is to walk away from an impending marriage, especially when the wedding is looming and already paid for. But clearly, there are greater opportunities in an intact, but potentially precarious, marriage, than in a mere engagement, for one party to play a hold-up game.
The SJC's Five Criteria for Enforceable Postnuptial Agreements
As part of the heightened scrutiny that the Ansin court deemed appropriate for postnuptial agreements, it laid out five factors for courts to consider: (1) whether each party had the opportunity for independent counsel; (2) whether there was fraud or coercion in obtaining consent to the agreement; (3) whether all assets were fully disclosed prior to the execution of the agreement; (4) whether each spouse knowingly waived his or her rights to property-sharing and to support upon divorce; and (5) whether the terms of the agreement are "fair and reasonable."
Importantly, the court imposed the burden of proof on the party seeking enforcement, rather than the party trying to avoid it. This is contrary to the rule that is generally applied to contract enforcement, including prenuptial agreements, and this rule makes enforcement less likely -- by ensuring that the enforcer starts at a significant disadvantage.
Applying the five factors, the SJC concluded that Cheryl's and Kenneth's marital agreement was valid. It pointed out that Cheryl had been represented by "separate, experienced" counsel, and the agreement had followed "lengthy negotiations." She also was able to get more under the agreement through these negotiations, which suggests that her consent was not coerced. And although Cheryl claimed that her husband defrauded her by falsely claiming that he intended to make the marriage work, the trial court made a finding to the contrary. The trial-court judge believed, instead, that both parties had, in the spirit of the agreement, worked hard to make the marriage work, and that it failed despite their efforts.
Cheryl also claimed that she did not have adequate knowledge about the value of the Florida property prior to signing the agreement. But the SJC noted that she appeared to have had regular and open access to the couple's financial records, and that she was told explicitly, before she signed the agreement, that the exact value of her husband's interest was uncertain. The SJC thus agreed with the trial judge that the disclosures were sufficient.
And, although Cheryl probably did bargain for less than she could have received in divorce court, the SJC also concluded that the substantive terms of the agreement were fair and reasonable. It pointed to the fact that, under the agreement, she received not only a significant fixed payment, but also a share of any appreciation. And if the couple's assets had gone down in value, it noted, she was protected against any such loss. Given all the relevant factors, the court concluded that the agreement could be specifically enforced against the wife: In other words, she would have to take her $5 million, her health-insurance premiums, and her housing expenses and go.
In Part Two of this series, I will consider how the Ansin ruling fits with the approach to postnuptial agreements taken by other states, both historically and today.
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