Prenuptial Agreements: A wise idea to be entered into wisely

Prenuptial agreements are not on the minds of most cupid-stricken engaged couples. To most soon-to-be-wed, the notion of divorce is about the farthest thing from their minds.

Often, however, people who have gone through a previous divorce or who possess significant assets view prenuptial agreements as a smart “business” move and not a matter of the heart. South Carolina’s highest court has even recognized prenuptial agreements as being “…highly beneficial to serving the best interest of the marriage relationship.” Stork v. First Nat’l Bank of S.C., 281 S.C. 515, 516, 316 S.E.2d 400, 401 (1984).

Keep in mind, though, that not all prenuptial agreements are the same, so it’s important to follow good practices when drafting one.

What makes a prenuptial agreement enforceable?

In drafting a concise and thorough prenuptial agreement, a key consideration is whether a court would enforce the agreement. In Hardee v. Hardee, 355 S.C. 382, 585 S.E.2d 501 (2003), South Carolina’s Supreme Court adopted the following test to determine whether a prenuptial agreement should be enforced:

  1. Was the agreement obtained through fraud, duress, or mistake, or through misrepresentation or nondisclosure of material facts?
  2. Is the agreement unconscionable?
  3. Have the facts and circumstances changed since the agreement was executed, so as to make its enforcement unfair and unreasonable?

 

What does that mean?

Case law has helped us understand the ruling in Hardee. For example, “unconscionability” has been defined as “the absence of meaningful choice on the part of one party due to one-sided contract provisions together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” Hardee, 355 S.C. at 390, 585 S.E.2d at 505. Furthermore, Courts are limited to considering the facts and circumstances that exist at the time of the execution of the contract when determining unconscionability. Holler v. Holler, 364 S.C. 256, 269, 612 S.E.2d 469, 476 (Ct.App.2005).

“Duress” has been described as a condition of mind produced by improper external pressure or influence that practically destroys the free agency of a party and causes him to do an act or form a contract not of his own volition. (see Cherry v. Shelby Mut. Plate Glass & Cas. Co., 191 S.C. 177, 4 S.E.2d 123 (1939); Cox & Floyd Grading, Inc. v. Kajima Constr. Servs., Inc., 356 S.C. 512, 589 S.E.2d 789 (Ct. App. 2003);  Willms Trucking Co. v. JW Constr. Co., 314 S.C. 170, 442 S.E.2d 197 (Ct. App. 1994)).

Keep in mind that different facts can lead to different results.

In Hudson v. Hudson, the South Carolina Court of Appeals reversed the Family Court’s ruling where the lower court had found the parties’ prenuptial agreement to be unconscionable as to the equitable distribution portion.

In Hudson, Mr. Hudson presented the prenuptial agreement to his fiancé less than three weeks before the date of the wedding. He recommended that his fiancé consult one of his attorney friends to view the agreement, and she did. However, the attorney friend, during their meeting, only looked through the agreement, did not discuss specific terms with the fiancé, and mentioned to the fiancé about what a great guy Mr. Hudson was. The fiancé signed the agreement; and, at trial on the divorce proceedings, she argued that the prenuptial agreement was unenforceable.

At trial, a psychologist testified that Wife would have done pretty much anything Husband asked of her at the time she was handed the agreement, given the short amount of time to the date of the wedding and the fact that there was a level of trust she had for her fiancé. These reasons, the family court found, were not enough to establish that Wife was under duress at the time of signing the agreement. As to the “unconscionability prong,” however, the Family Court found the parties’ prenuptial agreement to be unconscionable as it related to the parties’ equitable distribution of the marital estate and, based on the opinion of the only expert witness who testified at trial and his valuation of the marital estate, the estate was distributed 45% to Wife and 55% to Husband.

Reversing the trial court’s ruling, the Court of Appeals quoted the relevant portions of the parties’ prenuptial agreement and determined that it was not unconscionable:

[i]n this case, the Agreement provided both Husband and Wife waived ‘any and all right, title or interest whatsoever which [he or] she may claim in the property now owned, or hereafter acquired, of [the other] by reason of this marriage.’ The Agreement also provided each party waived ‘any interest in any asset in the name of the other party.’ Thus, both Husband and Wife waived interest in the other’s property…. We find the Agreement’s terms were not so one-sided or oppressive that no reasonable person would make them and no fair and honest person would accept them; therefore, the Agreement was not unconscionable as to equitable division.

Hudson v. Hudson, 408 S.C. 76, 757 S.E.2d 727 (Ct. App. 2014).

Although the Court of Appeals expressed concern over the fact that Husband referred Wife to one of his friends as legal counsel, the court noted that Wife willingly agreed to use the services of the attorney, and she recognized his failure to advise her when she signed the agreement. The psychologist’s testimony that Wife was capable of making a decision at the time of signing the agreement also played a factor in the court’s analysis.

In contrast, in Holler, the South Carolina Court of Appeals affirmed the Family Court’s ruling that the prenuptial agreement was unenforceable, because the circumstances surrounding the signing of the agreement did not allow Wife to enter the prenuptial agreement “freely and voluntarily.” Holler v. Holler, 364 S.C. 256, 269, 612 S.E.2d 469, 476 (Ct. App. 2005). The “circumstances surrounding the signing of the agreement” in Holler involved a Ukrainian Wife who was pregnant when she executed the premarital agreement AND whose visa was set to expire in three days, which, unless she married, would require her no longer to reside in the United States AND who could not understand the agreement AND who had no money of her own to retain or consult with an attorney or a translator.

The court in Hudson specifically addressed the third question – have the facts and circumstances changed since the agreement was executed, so as to make its enforcement unfair and unreasonable? – and applied the facts from the record accordingly. The Court of Appeals explained that the facts and circumstances had not changed since the agreement’s execution so as to make its enforcement unfair and unreasonable where Mrs. Hudson entered the marriage with insignificant assets and was unemployed, and, at the time of the separation, she was employed and had substantially the same assets as when she entered the marriage, although she had a debt of approximately $17,000 from a loss incurred due to the sale of her own business. The court did not address the third question in Holler, specifically. However, in Hardee, the Supreme Court noted that although Wife’s health had changed and she was completely disabled, the circumstances at the time of enforcement of the agreement had not changed to such an extent that it was unfair or unreasonable to enforce the agreement, and that Wife still had a meaningful choice not to marry if her fiancé insisted on her signing the agreement. Hardee v. Hardee, 355 S.C. 382, 390-91, 585 S.E.2d 501, 505 (2003).

Take the time to determine whether your situation calls for a prenuptial agreement. Or, if you find yourself on the receiving end of a proposed prenuptial agreement, take the time to seek the advice of a lawyer on whether to sign it. You can contact the team at Hyde Law Firm, P.A. to see whether we can be of service to you.