Particularly in the Second Department, the last few years have brought a host of cases threatening the enforceability of prenuptial agreements. To review a few just type “prenup” in the keyword search at right. It’s going to get worse.
New York’s Domestic Relations Law §236(B)(3) provides that prenuptial and other marital agreements executed with proper formalities are valid and may include
(1) a contract to make a testamentary provision of any kind, or a waiver of any right to elect against the provisions of a will;
(2) provision for the ownership, division or distribution of separate and marital property;
(3) provision for the amount and duration of maintenance or other terms and conditions of the marriage relationship, subject to the provisions of section 5-311 of the general obligations law, and provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment;
and (4) provision for the custody, care, education and maintenance of any child of the parties, subject to the provisions of section two hundred forty of this article.
The December 24, 2014 decision of the First Department in Anonymous v. Anonymous, is a case in point.
In this matrimonial action the wife had sought, among other things, to set aside the parties’ prenuptial agreement.Ruling on several motions, Supreme Court, New York County Justice Ellen Gesmer upheld the validity generally of the the prenuptial agreement, but held the issue of the current unconscionability of the spousal support provision would be resolved at trial.
Upholding the agreement with a voice somewhat more forceful on this issue than the Second Department, the majority opinion, here, noted that New York has a long-standing “strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements.” It is axiomatic that a duly executed prenuptial agreement is presumed to be valid and controlling unless and until the party challenging it meets his or her very high burden to set it aside. However, in many instances, “agreements addressing matrimonial issues have been subjected to limitations and scrutiny beyond that afforded contracts in general.” Although “there is a heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties,” an agreement between prospective spouses may be invalidated if the party challenging the agreement demonstrates that it was the product of fraud, duress, or other inequitable conduct. Nevertheless, such results remain the exception rather than the rule. The burden of producing evidence of such fraud, duress or overreaching is on the party asserting the invalidity of the agreement.
The wife had alleged that the agreement as a whole should be invalidated because she was pressured into signing it just hours before the rehearsal dinner on the night before the wedding. She also claimed that her husband to be told her that he would rip up the agreement after they were married for 10 years.
The First Department held that Justice Gesmer correctly determined that the wife had not met her burden of establishing grounds to set aside the agreement as a whole. Contrary to her claim that she was pressured into signing the agreement, the record was clear that this agreement was negotiated over approximately four weeks. The wife was represented throughout that time by highly competent and experienced matrimonial counsel. The agreement went through 6 drafts before a final copy was signed and changes in the terms of the agreement requested by the wife’s counsel were incorporated into the final document. The agreement expressly disclaimed any reliance on representations other than those set forth in the agreement, and extrinsic evidence regarding the parties’ intent may not be considered unless a court first finds that the agreement is ambiguous, which in this case it was not.
The husband’s failure to disclose the entirety of his financial interests was also not a reason to vitiate the contract. The wife was well acquainted with the husband’s assets, and she specifically acknowledged in the agreement that the amounts she would receive “are so significantly less than either [the husband’s] assets or annual income that the precise amount of [his] assets and income is irrelevant to her decision to enter into this Agreement and the enforceability of this Agreement.” Indeed, the parties anticipated at the time of the agreement that the husband’s assets would continue to rise significantly. In the face of such an acknowledgment, she could not claim that the agreement is invalid based on a failure to disclose assets.
With respect to the wife’s claim that the maintenance provisions were now unconscionable, the appellate court noted the provisions of Domestic Relations Law §236(B)(3). The court ruled, however, that as Justice Gesmer permitted the wife to challenge at trial whether the maintenance provision in the agreement is presently unconscionable in terms of the wife’s current needs, expenses, and income, this issue may serve as a basis to set aside that provision of the agreement. The court noted that the husband has not appealed that portion of Justice Gesmer’s order that set the maintenance issue down for trial.
The prenuptial agreement contained a waiver-of-fees provision on non-child related issues, only. Justice Gesmer awarded the wife $300,000 in interim legal fees for the preparation of the custody trial subject to recoupment, which the First Department affirmed.
Justice Gesmer, however, upheld the waiver of fees provision as it related to the trial of the unconscionability issue. As to that ruling, the First Department disagreed.
Given the unique procedural posture of this case and the great disparity between the parties’ finances both at the time of the execution of the prenuptial agreement and at the time of the commencement of this action , plaintiff’s request for counsel fees beyond those incurred for child-related issues is an issue appropriate to leave for trial. As Supreme Court has ruled that plaintiff is entitled to a hearing on her challenge to the maintenance provisions of the prenuptial agreement, and, as noted, that ruling is not challenged on appeal, an award of counsel fees may be necessary despite the fee waiver, “as justice requires” (Domestic Relations Law § 237[a]) in order to ensure a level playing field to litigate her claim.
Accordingly, the court directed that the question of the validity of the counsel fee provision for non-child-related issues in the parties’ agreement should be considered at trial.
Justice Saxe noted that the court was confronted on this matrimonial appeal with a conflict between the supremacy of two important but divergent facets of public policy: “the strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements” with prenuptial agreements, and the competing policy — enunciated in Domestic Relations Law § 237(a) — in favor of ensuring that nonmonied spouses have the ability to litigate legitimate issues.
Justice Saxe agreed with the majority that under the unique procedural posture of this matter, it was appropriate to leave for trial the question of whether the wife may be entitled to an award of counsel fees for the litigation of the non-child-related issue of maintenance. However, Justice Saxe believed that given the strong possibility that this ruling may be misunderstood or misapplied, substantially more examination and discussion of our holding was required.
Initially, Justice Saxe noted that it was important to strongly emphasize that under most circumstances, courts should enforce counsel fee waivers contained in prenuptial agreements. The law sets the bar very high for a party seeking to void provisions of a prenuptial agreement.
Prenuptial agreements most often involve substantial disparities of wealth between the parties; nevertheless, such disparities by themselves do not create grounds to set aside marital agreements.
Only in the specified and limited respects does D.R.L. §236(B)(3) dictate that prenuptial agreements waiving or limiting claims by one spouse against the other must receive a greater degree of scrutiny than ordinary contracts when considering whether they must be enforced.
That heightened standard that the Domestic Relations Law creates for review of maintenance and child support provisions of marital agreements has no counterpart for counsel fee waivers contained in such agreements. There is simply no statutory basis for setting aside a presumptively valid counsel fee waiver on any grounds other than the usual grounds for setting aside a contract provision, such as unconscionability based on overreaching or inequitable conduct in the execution of the agreement. Accordingly, when a valid prenuptial agreement includes a waiver of counsel fees, ordinarily there is no viable basis for an award of such fees under § 237.
Nevertheless, Justice Saxe recognized that there may be circumstances when a triable issue emerges despite the existence of a prenuptial agreement, and the possible need for litigation of that triable issue creates with it a possibility — not a certainty — that the agreement’s fee waiver may be found unenforceable to that extent.
Justice Saxe was seemingly disappointed that the husband had not chosen to appeal that aspect of Justice Gesmer’s ruling that the wife’s challenge to the maintenance provisions of the prenuptial agreement needed to be tried. , and that ruling is not challenged on appeal. “Consequently, although nothing in the record before this Court justifies the need for such a hearing, we must accept, based on the unchallenged ruling, that plaintiff has made the requisite showing establishing the existence of a potentially meritorious challenge to the maintenance provision of the prenuptial agreement, which could, in turn, give her a legitimate basis to challenge her fee waiver.”
The need to conduct a fact-finding inquiry into whether justice requires an award of counsel fees despite a fee waiver will only emerge where the party challenging the waiver has made a prima facie showing that there is a meritorious, or at least potentially meritorious, challenge to terms of the prenuptial agreement, prompting the need for litigation.
Justice Saxe cautioned that “awarding counsel fees despite a fee waiver, or even finding a triable issue regarding whether counsel fees should be awarded despite a fee waiver, is not normally warranted where the parties entered into a valid prenuptial agreement — and a disparity between the parties’ finances does not, in itself, change that fact. Rather, the presented circumstances must be such as would actually preclude the nonmonied spouse from carrying on or defending a viable claim requiring litigation, so that justice could require an award of counsel fees to the non-monied spouse as contemplated by Domestic Relations Law § 237(a), notwithstanding that spouse’s fee waiver.”
To be clear, awarding counsel fees or trying the issue of whether such fees should be awarded despite a fee waiver, should be considered only in the narrowest of circumstances, when (1) litigation of an issue is required although it is covered by the parties’ prenuptial agreement, and (2) justice requires an award of fees to allow the nonmonied spouse to litigate that issue (Domestic Relations Law 237[a]).
Comment: So why will prenuptial attacks get messier? Defining unconscionability in this limited circumstance may require its own rules. The majority noted that Justice Gesmer had permitted the wife to challenge at trial whether the maintenance provision in the agreement is presently unconscionable in terms of the wife’s current needs, expenses, and income. Are those the factors, or are all the statutory factors in play? Is the maintenance provision unconscionable because of an equitable distribution waiver? Does the maintenance amount to be fixed reflect what the wife (here) gave up? Does the wife get a “full” maintenance award, or just enough to not make it unconscionable? Should the court do its best to uphold the intent of the parties?
Unconscionablity under contract law reflected not only the gross unfairness of the provision on its own (“substantive unconscionability”), but also the process by which the agreement was reached (“procedural unconscionability”)? Will the process be ignored? Do the terms stand only on their own and not in context? If the wife signs the agreement against the advice of her counsel because counsel perceived the agreement to be unfair, will that fact be ignored at the time of divorce?
Moreover, the subsection here involved, Domestic Relations Law §236(B)(3)(3), covers provisions “for the amount and duration of maintenance or other terms and conditions of the marriage relationship.” What are the “the other terms and conditions of the marriage relationship?” What aspect of a prenuptial agreement does not relate to “terms and conditions of the marriage relationship?”
Harriet Newman Cohen and Bonnie E. Rabin, of Cohen Rabin Stine Schumann LLP, of Manhattan, and Charles F. Miller, of Boies, Schiller & Flexner LLP, of Manhattan, represented the parties. New York ( of counsel), for respondent-appellant.