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Postnuptial Agreement Vacated for Overreaching 16 Years After Entry

contract ripped by angry woman.jpgIn its December 5, 2012 decision in Petracca v. Petracca, the Second Department affirmed the decision of Nassau County Supreme Court Justice Jeffrey S. Brown that set aside a postnuptial agreement due to the husband’s overreaching at the time of signing.

Four months after the parties’ 1995 marriage, they entered into a postnuptial agreement. The agreement provided that the jointly-owned marital residence, which had just been purchased for approximately $3.1 million and which was subsequently renovated at a cost of between $3 million and $5 million, was the husband’s separate property.

The agreement further provided that if the parties divorced, the wife, who had not been employed other than as a homemaker since just before the marriage, would waive her interest in any business in which the husband had an interest, including any appreciation in the value of such interests accruing during the marriage. At the time the agreement was entered into, the husband valued his interests in these business entities at over $10 million. The wife also waived any and all rights she had to the husband’s estate, including her right to an elective share. At the time the agreement was entered into the husband valued his net worth at more than $22 million.

Finally, the agreement provided that if the parties divorced, the wife would waive maintenance, except in the sum of between $24,000 and $36,000 per year, for varying lengths of time, depending on the duration of the marriage.

In 2008, the wife commenced this action for a divorce. In his answer, the husband sought enforcement of the postnuptial agreement. A hearing was held to determined its validity.

The wife testified that her husband had bullied her into signing agreement, shortly after she had suffered a miscarriage, by threatening that they would not have any children and that the marriage would be over if she did not sign. The wife further testified that she signed the agreement within days of receiving it and, although she reviewed some portions of it, she did not understand its terms and did not consult an attorney. At the hearing, the wife also demonstrated that the statement of the husband’s net worth contained in the agreement was inaccurate at the time it was made, and was undervalued by at least $11 million.

For his part, the husband denied any knowledge of his wife’s miscarriage. He had wanted the postnuptial agreement in order to protect his son from a prior marriage. The husband testified that the parties had discussed the issue of entering into a postnuptial agreement prior to the marriage and that they had negotiated the postnuptial agreement over the course of many weeks.

The husband’s attorney drafted the agreement. Although she had not disclosed the name, the husband believed that his wife had consulted with her own attorney.

In his decision, Justice Brown doubted the husband’s veracity, crediting the wife’s testimony. The trial court found that the wife had not been represented by counsel and had been precluded from effectively analyzing the financial impact of the postnuptial agreement due to the inaccuracies contained in the financial disclosures that had been incorporated into the agreement. Justice Brown determined that the terms of the agreement were “wholly unfair” and, after examining the totality of the circumstances, concluded that it was unenforceable.

Affirming Justice Brown’s decision, the Second Department noted that although a postnuptial agreement will be recognized and enforced in much the same manner as an ordinary contract:

[a]greements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith.” Accordingly, “courts have thrown their cloak of protection” over postnuptial agreements, “and made it their business, when confronted, to see to it that they are arrived at fairly and equitably, in a manner so as to be free from the taint of fraud and duress, and to set aside or refuse to enforce those born of and subsisting in inequity.

The appellate court went on that to set aside an agreement between spouses, no actual fraud need be shown. Relief will be granted if the agreement is manifestly unfair to a spouse because of the other’s overreaching. Courts may look at the terms of the agreement to see if there is an inference, or even a negative inference, of overreaching. Although the spouse seeking to set aside an agreement initially “bears the burden to establish a fact-based, particularized inequality, once that is done, the burden shifts to the proponent of the agreement to disprove fraud or overreaching.

The Second Department agreed that the terms of the postnuptial agreement were manifestly unfair given the nature and magnitude of the rights waived by the wife. That gave rise to an inference of overreaching, bolstered by the wife’s testimony regarding the circumstances which led her to sign the agreement.

What may be noted in this detailed decision is the apparent interchangeability of the case law cited by the Second Department without regard of the type of agreement considered in the cited case. Lumped together are prenuptial agreements, postnuptial agreements, and divorce stipulations of settlement and separation agreements. The “cloak of protection” is to be granted whether the agreement is entered before the marriage, while things are rosy [how rosey could they be?], or when the marriage is breaking up. While each agreement’s setting may provide different dynamics, the scrutiny will be the same.

On the other hand, with divorce settlements and separation agreements, the lapse of time matures into a ratification defense to an attack. Getting or staying married is not viewed as the continuing acceptance of the benefits of prenuptial and postnuptial agreements which may ripen into ratification.

The lesson could not be clearer: agreements with less than complete disclosure and entered without the “weaker” spouse having the advice of independent counsel are subject to attack.

The husband was represented by Glenn S. Koopersmith, Esq., of Garden City. The wife was represented by Sheldon M. Greenbaum, Esq., of Goldman & Greenbaum, P.C., of New York.