What is a Marital Agreement?
A marital agreement is an arrangement that a husband and a wife, or a prospective husband and wife, enter into. It contains provisions that define their rights and obligations in the event that they become separated or divorced or that their marriage is dissolved. The primary purpose of a marital agreement is to establish the parties’ rights regarding property matters in the event of a separation or divorce. Other issues addressed by the marital agreement include matters relating to spousal support, custody, and visitation with children , which can be agreed upon prospectively. These agreements may be made prior to the marriage, which are referred to as prenuptial agreements or, after the marriage, which are referred to as postnuptial agreements.
A marital agreement is intended to resolve matters without the necessity of resorting to the courts. However, the agreement is neither immune from change nor is it always honored. If necessary, the provisions of the agreement can be enforced through litigation.
All agreements that deal with marital matters should be drafted or reviewed by an attorney knowledgeable about these issues.
Advantages of Marital Agreements
One of the substantial benefits of having a marital agreement is the ability to identify the assets and liabilities of each party. This brings clarity as to what property each spouse has. This is particularly important for individuals who have been married more than once.
Another benefit of having a marital agreement is the opportunity to identify property and/or income as separate from the marital estate. Individual money and property may be protected in the event of a divorce. For example, if you are involved in a marriage either newly formed or a second/third marriage, the incomes of both spouses, along with their total assets and liabilities, can be identified with specific attention on what is "yours" and what is "mine." It clearly identifies what is to be included in the "marital estate." This is also important for people in a second/third marriage where either or both parties enter the marriage with minor children. Also, this would be crucial in a situation where either spouse has significant debts they brought into the marriage.
A marital agreement can provide a safety net in the event of a divorce. For example, it can identify and protect a spouse’s "rehabilitative" alimony. Alimony refers to a court or tribunal ordering a support payment from one spouse to the other as a result of a divorce decree. The duration of the order will be determined by a number of factors and can also be modified by the court. A rehabilitative support order payments are often made for the goal of assisting the recipient spouse in obtaining skills or qualifications that will assist them in becoming self-supporting.
Formalities
Legal requirements for a marital agreement depend on the subject matter of the agreement. The one area where a spouse cannot give up his or her statutory rights is in respect of financial provision for the other following divorce. Any such agreement made in advance of the consequence must be made in writing and signed, but will only be enforceable if it is approved by the court as a consent order.
Apart from that, there are no formalities required by law, provided that each spouse enters into the agreement voluntarily, understands the terms of the agreement fully and has the benefit of independent legal advice. It is strongly recommended that the agreement be concluded before marriage, or before cohabitation, so that there can be no claim that the parties acted under any undue pressure.
Some family law agreements will only become effective when the final of the marriage has taken place. For example, a prenuptial agreement must be made before the marriage ceremony. A postnuptial one must be made after the marriage ceremony but before the marriage breaks down.
Although the law on prenuptial agreements in England and Wales has improved over the last few years, a prenuptial agreement will not be legally binding until it has been entered into as a consent order. Courts in England have now accepted that a prenuptial agreement is binding on the parties unless the circumstances in the future are much different to those which either party could reasonably have contemplated at the date the agreement was entered into.
Typical Provisions
This section will go through a few of the common clauses to be found in many marital agreements. While not exhaustive or applicable to every couple, the clauses below provide a general sense of what each type entails.
Asset Division – One of the most common provisions is the equitable division of separately and/or jointly acquired property. When married, both spouses have an equitable claim to all marital assets accumulated in the course of marriage. This presumption of equity can, however, be overridden by agreement. An asset division clause may provide for the division of both separately acquired assets and any assets acquired during the course of marriage. Calculation of each spouse’s equitable share may be expressed as a fraction (e.g. a specific dollar amount out of the total value of the asset) or as percentage (the total of both spouses’ interests in an asset expressed as a whole number). For instance, the agreement may specify that "Husband’s interest in the marital home is 30% and Wife’s interest is 70%."
Debt Responsibility – A marital agreement may also include a clause on the allocation of responsibility for pre-existing debts. Even when one spouse accrued an individual debt, the debt can be a joint obligation if it is treated as marital and used for a marital purpose. An agreement may specify that the debt is to be satisfied from the "allotment lying with [the obligated spouse]."
Spousal Support – Provisions regarding spousal support can establish the amount of support to be provided, the duration of the support obligation, the frequency payments are made (e.g. weekly, monthly), and specify whether support is being provided in a lump sum or on a periodic basis. For instance, "Husband shall pay alimony to Wife in the amount of $X per month for Y years."
The information above is useful as a guideline, but the terms of each agreement are highly individualizable and dependent primarily on the couple’s circumstances.
Drawbacks of Marital Agreements
The drafting and execution of a marital agreement barely qualifies as a legal endeavor because you get to make the rules up for yourself. You have complete control. Rarely do I find parties disagreeing about the terms of a marital agreement. However, the downside to this scenario is that a marital agreement is only as good as you and your spouse make it. Stated otherwise, just because you insert a provision in your marital agreement does not mean that your Marital Agreement Counsel will permit as part of your divorce. As you know from reading this blog, some clauses in a Florida marital agreement are frequently unenforceable, including clauses that designate where the children will reside, clauses that deny a party the right to alimony, and clauses that state that the marital agreement overrides the Court’s equitability. There are also other clauses that appear reasonable, but become unreasonable over time. For example, clauses that prohibit future litigation to collect an equitable distribution payment can become unreasonable. Consider the example of Bob and Sally who negotiate a marital agreement whereby Bob will pay Sally $25,000 directly after their divorce. Bob fails to pay Sally the $25,000 once the divorce is final. Consequently, Sally has to hire an attorney to sue Bob for breach of contract. Bob now counsels with his recently retained marital agreement attorney who argues that the above clause is invalid. The marital agreement provided that Sally had no rights to equitable distribution; Sally’s cause of action is for equitable distribution, so therefore , the clause in the marital agreement precludes the lawsuit for equitable distribution. I am not so sure this argument would hold up in Court, but with Jennifer’s Law coming into effect October 1, 2010, one never knows. One of my pet peeves is to see someone "negotiate" something which is unenforceable. Ultimately, I am not responsible for the lawyer’s poor work, but I feel bad when clients come in with something they paid $300.00 per hour for which has no value. In the above example, I assure you that had I represented Sally, I would not have recommended accepting $25,000 as a condition for waiving equitable distribution. Equitable distribution may always be able to be revisited. As a condition for waiving equitable distribution, I would have recommended that Sally receive $75,000 or some other amount that she could live with. There are also different unique scenarios that emerge after the divorce is final that affect the marital agreement. Considering the same hypothetical as above, let’s say the $25,000 is $250,000 instead. Once the divorce is final, Sally learns that Bob entered a plea in federal court for fraud and is incarcerated for many years, then dies in prison. Sally may not enjoy negotiating the same marital agreement if it means she is going to lose out on $250,000. If the lawyer that was so eager to advise her to waive her rights to equitable distribution was representing Sally, perhaps he would have inserted a clause that would protect Sally after Bob’s death (i.e. nature of a property settlement as marital or other property, etc.). Consequently, marital agreements should be drafted carefully.
Drafting a Marital Agreement
When considering a marital agreement, consultation with a family lawyer experienced in such matters is critical. Generally, the process commences with the drafting of a "term sheet" in which the critical terms of the agreement are negotiated. The ultimate purpose of this phase of the process is to arrive at the concept of what the agreement could look like, without committing anything to writing. Drafting the skeleton of the agreement first allows lawyers and their clients to better focus on the big picture, rather than concentrating on minutia (although this can happen for sure). Once an agreement in principle is reached, a full draft of the agreement can be produced and considered by the parties.
A significant amount of consultation is required for the drafting, redrafting, and fine tuning of a marital agreement as well as addressing the details of the parties particulars. Thus, consultation evolves over time, through many drafts and requires both parties to confer with and actively participate in the process. The term and definition of "actively" of course will vary from time to time, but to have an agreement struck down, the case law confirms that the review of the agreement by the parties or even one party is critical. Full disclosure of one’s financial reserves is required and is typically found in the earlier drafts of an agreement. The process does not end with the agreement being signed, but will require deeper due diligence into the details of exemptionary/non-exemptary assets in preparation for the agreements incorporation to the separation agreement or divorce order.
In summary, a common concern of couples, is that the process of negotiating a marital agreement will be contentious and will breed resentment – however, in our experience, the contrary is true. Couples report to my office that the process of outlining the parameters, allowing for input, and concluding the agreement has brought them closer together. Further, the process of negotiating what may be difficult matters upfront, while preserving the relationship is invaluable.
Enforceability and Defenses
A variety of potential challenges, defenses, and remedies are available for invalidating, enforcing, and avoiding the marital agreement or some of its provisions. The Court can and will consider, among other things: whether specific provisions were unconscionable, signed under duress, and/or accompanied by a failure of consideration; whether there was a lack of mental capacity when the agreement was presented or signed; and/or whether the involvement of counsel was inadequate and/or improper.
To have enforceable provisions in a marital agreement, those provisions should be especially clear and unambiguous. A general presumption exists that the signing of a marital agreement by both parties after its presentation (especially where both parties were represented by counsel) proves that it was not unconscionable, was not signed under duress, and was signed after sufficient opportunities to consider its provisions. An equitable principle suggests that full and fair disclosure of assets can also establish the reasonableness of the signed marital agreement.
The party seeking to invalidate provisions in a marital agreement is usually required to prove by clear and convincing evidence that the provisions being questioned are invalid, while the party seeking enforcement of a marital agreement is usually required to prove by a preponderance of the evidence that the provisions being questioned are proper. The burden of proof may shift to the party seeking to enforce the agreement if the agreements are deemed unconscionable when presented and signed.
Therefore, asking questions such as: should you ask the court to exclude certain marital agreement provisions, or should you ask the court to enforce certain marital agreement provisions, will depend upon the circumstances of your marital agreement and the provable circumstances relating directly and indirectly to the validity and enforceability of the provisions that you may want to invalidate or enforce. Reasons for wanting to enforce marital agreement provisions are usually evident from the language of the marital agreement and particularly those provisions that you wish to enforce.
Marital Agreements vs Cohabitation Agreements
Marital agreements and cohabitation agreements are both legal documents that provide couples with an opportunity to define their legal and financial rights in the case of a future separation or divorce. Despite that commonality, a marital agreement is governed by the Family Law Act of British Columbia and has unique provisions and considerations that differ from a cohabitation agreement.
A cohabitation agreement is designed for couples who are not married. Cohabitation is typically defined as living together in a romantic relationship that is both serious and monogamous . This type of agreement is often completed when the couple have resided together for a significant period of time but have not gotten married. Cohabitation agreements can address similar issues to marital agreements, but are more flexible in terms of defining the financial responsibilities and entitlements of the parties.
In many cases, a cohabitation agreement transforms into a marriage contract after the couple becomes legally married. It is very important that you seek independent legal advice prior to entering into either a marital agreement or a cohabitation agreement.