As a Houston, Texas Divorce Lawyer I from time to time get questions regarding Premarital or Postnuptial agreements. At the beginning of the year I had several people ask me about whether or not they should sign premarital agreement.
Generally, from a legal standpoint if you are the person who does not have a lot of property there is not an advantage to signing a premarital agreement. If you are the spouse who does have property, there is. Some of these things can be balanced out through negotiations. However, I am going to save that topic for another post.
I wanted to talk about attacking the enforceability of prenuptial agreements because in the last 6 months I have received inquiries from prospective clients on this topic. In one scenario there was a question regarding whether a premarital agreement signed three days prior to marriage in 2003 and not reaffirmed after the marriage by a woman who was not represented by an attorney would be valid. In another scenario there was a question on whether a premarital agreement would be valid if the party had not received a financial disclosure when that party who signed it was also currently undergoing chemotherapy.
Texas Law for Agreements Made on or After 9-1-93
In 1993, the Legislature amended the Family Code by eliminating common-law defenses to the enforcement of premarital agreements executed on or after September 1, 1993. Thus, for premarital agreements executed on or after September 1, 1993, involuntary execution and unconscionability are the only grounds for contesting the enforcement of a premarital agreement. Tex. Fam. Code §4.006(c). While Family Code §4.006(c) indicates that involuntary execution and unconscionability are the exclusive defenses to enforcement of a premarital agreement, a specific term of an agreement (as opposed to the agreement as a whole) can still be challenged if it is a prohibited contractual term.
A premarital agreement is not enforceable if the contestant proves that she did not execute the agreement voluntarily. Tex. Fam. Code §4.006(a)(1).
Neither the Family Code nor the UPAA defines the term “voluntarily.” Sheshunoff v. Sheshunoff, 172 S.W.3d 686, 695 (Tex. App. – Austin 2005, pet. denied) (postmarital-agreement case); Osorno, 76 S.W.3d at 511(premarital-agreement case). Courts have defined “voluntarily” as an intentional act – as opposed to inadvertent or accidental – that is the product of the exercise of free will unconstrained by external interference, force, or influence. Sheshunoff, 172 S.W.3d at 695 (postmarital-agreement case.
One Texas court of appeals has defined “voluntary” as doing something “by design or intentionally or purposely or by choice or of one’s own accord or by the free exercise of the will.” Prigmore v. Hardware Mut. Ins. Co. of Minn., 225 S.W.2d 897, 899 (Tex. Civ. App. – Amarillo 1949, nowrit).
Thus, according to the Amarillo Court of Appeals, “[a] voluntary act proceeds from one’s own free will or is done by choice or of one’s own accord, unconstrained by external interference, force or influence.” Id. One who signs a contract is presumed to know its contents. Emerald Texas, Inc. v. Peel, 920 S.W.2d 398, 402 (Tex. App. – Houston [1st Dist.] 1996, no writ).
In the specific context of a marital agreement, the Houston Fourteenth Court of Appeals has stated “one is presumed to know the contents of a document he has signed and has an obligation to protect himself by reading a document before signing it.” Marsh v. Marsh, 949 S.W.2d 734, 744 (Tex. App. – Houston [14th Dist.] 1997, no writ).
It seems clear that an agreement signed under “duress” is not signed voluntarily. In Matelski v. Matelski, 840 S.W.2d 124, 128 (Tex. App. – Fort Worth 1992, no writ), the Fort Worth Court of Appeals held that, at the time of trial, the husband had the burden of proving that his execution of the partition agreement was not voluntary due to duress.
Evidence of Fraud, Duress & Undue Influence
Texas courts have struggled to determine whether evidence of fraud, duress, and undue influence can be presented to establish involuntary execution of a premarital agreement.
This struggle stems from the Family Code amendment that made involuntary execution and unconscionability the exclusive defenses to a premarital agreement executed on or after September 1, 1993.
For agreements executed before September 1, 1993, Texas courts allowed the contestant to establish involuntary execution using evidence of fraud, duress, and undue influence.
Common law concepts including duress, lack of capacity, fraud, and undue influence, along with the parties' relative bargaining power and knowledge regarding the meaning and effect of the agreement could bear upon the ultimate determination of voluntariness. Sheshunoff, 172 S.W.3d at 695-696.
A premarital agreement is not enforceable if the contestant proves that the agreement was unconscionable when it was signed and that, before signing the agreement, the contestant:
- was not provided a fair and reasonable disclosure of the property or financial obligations of the other party,
- did not voluntarily and expressly waive in writing any right to the disclosure of the other party’s property or financial obligations beyond the disclosure provided, and
- did not have and could not reasonably have had an adequate knowledge of the other party’s property or financial obligations. Tex. Fam. Code §4.006(a)(2); Fazakerly, 996 S.W.2d at 265 & n.4.
Unconscionable at Time of Execution
Whether an agreement was unconscionable when it was signed is a question of law. Tex. Fam. Code§4.006(b). Neither the Family Code nor Texas courts have defined the term “unconscionable” in the context of a premarital agreement. Marsh, 949 S.W.2d at 739; see Tex. Fam. Code §4.001 et seq.
To help define the term, courts have looked to the definition of unconscionability in the commercial context. Marsh, 949 S.W.2d at 739-40. In the commercial context, an agreement is unconscionable if, given the parties’ general backgrounds and their particular needs, the contract is so one-sided that no reasonable person would consider it an arm’s-length transaction. In re First Merit Bank, 52 S.W.3d 749, 757 (Tex.2001). The principle underlying the concept of unconscionability is the prevention of oppression and unfair surprise. Id. Courts conduct both a procedural and a substantive review of the contract to determine whether the contract was unconscionable when it was signed.
- Procedural Unconscionability
Procedural unconscionability focuses on the actual making or inducement of the contract. In re Rangel, 45 S.W.3d 783, 786 (Tex. App. – Waco 2001, orig. proceeding).
This form of unconscionability addresses how the parties arrived at the terms of the contract by reviewing the facts surrounding the bargaining process. Under this form of review, courts look at:
(1) the presence of deception, overreaching, and sharp business practices,
(2) the absence of a viable alternative, and
(3) the relative acumen, knowledge, education, and financial ability of the parties involved.
- Substantive Unconscionability
Substantive unconscionability focuses on the terms and conditions of the agreement. Under the Family Code, the terms and conditions of the agreement must be unconscionable when the agreement was signed for the agreement to be unenforceable. Tex. Fam. Code §4.006(a)(2).
Texas courts have followed the statutory directive, focusing on the circumstances when the agreement was signed, not on any resulting disproportionate effect. Fanning, 828 S.W.2d at 145; see, e.g., In re Marriage of Smith, 115 S.W.3d at 135(although division of marital property under contract disproportionately favored one spouse, court reviewed circumstances when agreement was signed, not whether contract was unconscionable years later).
As a result, an agreement that is simply “unfair” because it disproportionately favors one party over another is not substantively unconscionable.
- Texas Courts and Unconscionability
Texas courts have addressed the issue of unconscionability on a case-by-case basis, looking to the entire atmosphere in which the agreement was made. Pearce v. Pearce, 824 S.W.2d 195, 199 (Tex. App. – El Paso 1991, writ denied).
The simplicity of the statutory language notwithstanding, the determination of “unconscionability” may be quite complex, and usually involves a detailed inquiry into the facts and circumstances surrounding a disputed marital agreement. See Bain, Bruce, Pre- And Post-Nuptial Agreements, State Bar of Texas 39th Annual Advanced Family Law Course, August, 2013, Chapter 20.
In determining whether a contract is unconscionable or not, the courts must look to the entire atmosphere in which the agreement was made, the alternatives, if any, which were available to the parties at the time of the making of the contract; the nonbargaining ability of one party; whether the contract is illegal or against public policy; and, whether the contract is oppressive or unreasonable.
At the same time, a party who knowingly enters a lawful but improvident contract is not entitled to protection by the courts. In the absence of any mistake, fraud, or oppression the courts, as such, are not interested in the wisdom or policy of contracts and agreements voluntarily entered into between parties compos mentis and sui juris. Marsh, 949 S.W.2d at 740, citing, Wade v. Austin, 524 S.W.2d 79, 86 (Tex. Civ. App. – Texarkana 1975, no writ).
- ISSUE #1 - Whether the close Proximity of the Execution of a Premarital agreement to the time of Wedding alone makes the agreement unconscionable?
- Williams v. Williams, 720 S.W.2d 246, 248-249 (Tex. App. – Houston [14th Dist.] 1986, no writ)
- HOLDING: According to the Houston appellate court, the fact that the premarital agreement was signed shortly before the wedding (one day) did not make the agreement unconscionable. The Court held that an agreement signed on the day of marriage was not procured through fraud, duress or overreaching because the wife had substantial business experience and the husband testified they had discussed the agreement’s terms six months before the wedding.
- ISSUE #2 – Whether the lack of Legal Representation prior to the Execution Premarital Agreement alone makes the agreement unconscionable?
- Marsh, 949 S.W.2d at 741-743, Citing Pearce v. Pearce, 824 S.W.2d 195, 199 (Tex. App. – El Paso 1991, writ denied)
- HOLDING: Likewise, the fact that the husband was not represented by independent counsel was not dispositive. The Court held that although the wife testified she was not represented by counsel and did not read or understand the agreement, she encouraged her daughter-in-law to sign a similar agreement against the advice of her daughter-in-law’s attorney). Moreover.
- ISSUE #3 – Whether the unfairness of a Premarital Agreement alone makes it unconscionable?
- Chiles v. Chiles, 779 S.W.2d 127, 129 (Tex. App. – Houston [14thDist.] 1989, writ denied)
- HOLDING: The Houston Court of Appeals also refused to accept the husband’s assertion that the one-sided nature of the agreement strongly preponderated toward a finding of unconscionability. Id. Even though a premarital agreement may be disproportionate, the appellate court stated, unfairness is not material to the enforceability of the agreement.
- ISSUE #4 – Whether the inadequate disclosure of property and debts prior to signing of a Premarital Agreement is alone enough to make the agreement unconscionable?
- Marsh v. Marsh, 949 S.W.2d 734, 743 (Tex. App. – Houston [14th Dist.] 1997, no writ).
- HOLDING – No it is not. If the trial court determines that a premarital agreement is unconscionable, the party resisting enforcement must also prove that, before signing the agreement, that party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party. Tex. Fam. Code §4.006(a)(2)(A). In other words, disclosure forms the second prong of the test to rebut the presumption of enforceability, and a lack of disclosure is material only if the premarital agreement has been determined to be unconscionable.
- ISSUE #5 - Whether a waiver of disclosure can replace a financial disclosure?
- Yes and no.
- Tex. Fam. Code §4.006(a)(2)(B) - Under the express language of the statute, disclosure must be waived in writing before the marital agreement is signed. Accordingly, the statute apparently requires two separate written instruments, signed by both spouses, i.e., a waiver and an agreement.
- ISSUE #6 Whether a premarital agreement when signed 14 hours’ prior marriage was involuntary
- Moore v. Moore, 383 S.W.3d 190, 193 (Tex. App. 2012)
- FACTS: At trial, Caroline presented evidence that before she married Gary, he misrepresented his financial condition and claimed he wanted her to sign a premarital agreement to protect her from “loans, liens, and lawsuits.” Gary first attempted to use his own lawyer to assist them to write the agreement in a “collaborative effort.” When he realized this could subject the agreement to attack, he suggested she retain a lawyer at his expense. Gary, however, rejected the lawyers Caroline requested and directed her to a lawyer of his own choice. He then made it effectively impossible for Caroline's lawyer to review the final draft by misrepresenting to her that he did not have the agreement when they went to Martha's Vineyard and then hiding the agreement for several days until just hours before their wedding. The draft Caroline was presented at that time was the first version of the document that did not contemplate a value of Gary's estate being provided. The document also required her to verify Gary had given her full disclosure of the nature, extent, and value of his assets. Gary also requested Caroline to sign a document waiving further disclosure. Caroline panicked, tried to call her lawyer, and could not reach him. Gary then told Caroline that Hunt had approved the agreement and told her it was okay for her to sign.
- HOLDING: There is legally and factually sufficient evidence to support the trial court's involuntariness finding.
Premarital Agreement Reaffirmation
Some attorneys ask that the parties include a “reaffirmation clause” in the premarital agreement requiring the parties to “reaffirm” the agreement after the marriage ceremony. Problems with this can occur if the if the reaffirmation is not mentioned in the premarital agreement and that many parties do not sign the “reaffirmation clause” after they are married.
There is no Texas Case Law holding a premarital agreement could be invalidated for failure to execute a reaffirmation clause after marriage. If such a clause were included in a premarital agreement and then “reaffirmation clause” was not signed in might make for a good argument to invalidate the agreement.
The above cases make it clear that it will take it is an uphill battle to challenge a premarital agreement. The law also places the burden on the party challenging the premarital agreement to show why that agreement should not be upheld. In Williams v. Williams signing an agreement one day prior to marriage was not enough. Therefore, in a situation of having signed a premarital agreement only three days prior to her marriage would probably not be enough to invalidate the agreement.
From my research so far I have not located case law where courts have considered premarital agreements and the health of the signer. However, in a situation where someone was undergoing chemotherapy around the time they signed the premarital agreement would be a relevant fact issue when combined with the timing of the signing of the agreement could be enough to change the outcome.
If in addition to these things the premarital agreement made reference to a financial disclosure and schedules being attached to agreement however account balances were not listed in those schedules. I believe the question could be raised on where there was a fair and reasonable disclosure. A waiver of disclosure can be made however that waiver must be signed prior to the signing of the premarital agreement.
Although in Marsh not having an attorney was not enough to find a premarital agreement invalid when combined with the other facts in a person situation I believe it would lend weight to invalidating the agreement. What I often tell people a lot of times building a case is similar to building a wall. One brick will not necessarily give you a wall. However, if you get enough bricks then you will have a wall.
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