Historically, antenuptial agreements have been seen as the antithesis of romance. What could be less romantic than planning for an ending that could be less than happily ever after? However, with a divorce rate at nearly 50 percent for first marriages and 60 percent for second marriages, many people are reconsidering the use of antenuptial agreements as a way to avoid a long, financially and emotionally taxing divorce if the marriage does not work out. It is important for a couple planning marriage to understand that an antenuptial agreement can be a step toward responsible financial planning rather than a vote of “no confidence” in the relationship’s future. An antenuptial agreement may also be an important and practical part of estate planning for those with children from a previous relationship or who have accumulated significant assets. It may also be a way for a couple to determine what should happen with respect to their assets, liabilities and spousal maintenance in the event things do not work out.
MARITAL PROPERTY CONSIDERATIONS
In Minnesota, property accumulated during a marriage is considered “marital property” and divided “equitably” upon divorce. If you have property owned prior to the marriage, inherited or gifted to you by a third party during the marriage, you have the opportunity to prove that this inherited or gifted property is not marital and not included on the marital balance sheet. Even if a party can prove assets are non-marital and should be awarded only to that party, a court can still award up to 50 percent of the non-marital assets to the other spouse due to an “unfair hardship.” Having an antenuptial agreement in place may avoid the implementation of this statutory framework. In Minnesota, the Supreme Court has developed a method of reviewing antenuptial agreements with greater scrutiny than many other states.
STATUTORY FOR AGREEMENTS
Statutory requirements dictate that an antenuptial agreement must be procedurally fair. Minn. Stat. § 519.11 governs antenuptial agreements and sets forth six procedural criteria for executing a valid and enforceable antenuptial agreement:
a. There must be full and fair disclosure of both parties’ income and property;
b. Both parties must have had the opportunity to consult with an attorney of their own choice;
c. The agreement must be in writing;
d. The agreement must be executed before two witnesses;
e. Both parties must acknowledge the agreement before a notary public; and
f. The agreement must be executed prior to the day when the marriage is solemnized.
In order to ensure an antenuptial agreement will be upheld, the parties must fulfill each of these requirements. The Minnesota Court of Appeals has emphasized the importance of the procedural fairness criteria holding that an antenuptial agreement can be valid only when the statutory criteria are strictly satisfied and the agreement is signed before two witnesses.
ACCURATE FINANCIAL DISCLOSURE A MUST
In order to satisfy Minnesota procedural requirements, a complete written financial disclosure is particularly important and many people attach an exhibit to the agreement that lists all of the parties’ assets, liabilities and income. This information should be as accurate and detailed as possible and include specific information to describe each asset, including account numbers, balances and dates of valuation.
IF SITUATIONS CHANGE SO MUST THE ANTENUPTIAL AGREEMENT
In 1989, the Minnesota Supreme Court issued its seminal opinion on antenuptial agreements in McKee-Johnson v. Johnson. In that case, the Supreme Court established the principle that in order to be enforceable – and in addition to satisfying the criteria of procedural fairness – an antenuptial agreement must be substantively fair both at the time of the creation of the agreement and at the time of enforcement. Specifically, the court held that an antenuptial agreement is not valid “if the premises upon which they were originally based have so drastically changed that enforcement would not comport with the reasonable expectation of the parties at the inception” and if enforcement of the agreement would therefore be “oppressive and unconscionable.”After McKee-Johnson, judges who are considering a challenge to an antenuptial agreement must first determine whether any event has occurred during the marriage that would constitute a change in circumstances as contemplated by McKee-Johnson. For example, the birth of children may constitute a change in circumstances that prompts further substantive fairness analysis.
The presence of changed circumstances triggers a second inquiry, requiring the court to determine whether the premises upon which the antenuptial agreement was originally based “have so drastically changed that enforcement would not comport with the reasonable expectations of the parties at the inception to such an extent that to validate them at the time of enforcement would be unconscionable.”
BURDEN OF PROOF IS ON THE CHALLENGER
If, during a divorce, one of the spouses challenges the antenuptial agreement, that spouse will have the burden of proving that the agreement was procedurally defective or substantively unfair at the time of execution or has become substantively unfair at the time of divorce.
Anyone contemplating an antenuptial agreement should keep all of these requirements in mind. If the agreement is contested, the court will examine procedural and substantive fairness and although there is no way to guarantee that an agreement will be upheld, careful consideration of these criteria and standards will assist parties as they draft an agreement. Knowledge of the criteria can not only help with drafting an enforceable agreement, but will also help parties and attorneys understand how various changes in circumstances might affect the enforceability of the agreement at the time of divorce.