Premarital Agreements: "I'll Marry You If You Sign This"
The cost of divorce -- in time as well as money -- continues to rise. Crowded courtrooms mean delays. If a divorce case is not settled, it can take up to two years in Cook County to get to trial. In the meantime, the parties must make temporary provisions for support, custody, and visitation. The parties and their counsel may spend significant amounts of time addressing these matters on an interim basis.
Another factor is the requirement in Illinois law of an "equitable division" of marital property. Disputes over what is "equitable" result in additional delay and expense. A divorcing spouse's concept of "equity" is often highly subjective and the parties may have vastly differing views of what is fair in the circumstances.
One way in which these disputes, delays, and costs can be avoided (or, at least, reduced) is to plan ahead and enter into a premarital agreement setting forth the parties' respective rights and obligations in the event of a divorce. Premarital agreements originally encountered a certain amount of societal resistance and were hard to enforce in court. They are now commonplace and, in most circumstances, can be enforced. In this article, I will examine the state of the law concerning such agreements and make recommendations concerning them.
Illinois Premarital Agreement Act
As of January 1, 1990, Illinois adopted the Uniform Premarital Agreement Act (the "Act"), which laid to rest any continuing doubts about the enforceability of premarital agreements. The Act permits parties to a premarital agreement to make binding contracts with respect to any rights in property, including the disposition of property upon divorce, the modification or elimination of spousal support, provisions concerning testamentary dispositions, and "any other matter not in violation of public policy."
The Act gives spouses the right to protect previously held or inherited property, to divide the assets acquired during marriage, and even to waive or limit maintenance. (Maintenance is spousal support, which used to be called alimony.) The only significant limitation imposed by the Act is that the right of a child to support may not be adversely affected by a premarital agreement.
The Act also sets forth standards for the enforceability of a premarital agreement. Under the Act, a premarital agreement is not enforceable if -- and only if -- the party against whom enforcement is sought proves (1) that he or she did not execute the agreement voluntarily or (2) that the agreement was unconscionable when it was executed and that before execution of the agreement, he or she did not receive fair disclosure of the assets of the party seeking enforcement. If the enforcement of provisions modifying or eliminating spousal support would cause a party undue hardship in light of circumstances not reasonably foreseeable when the agreement was executed, a court may require support to the extent necessary to avoid such hardship.
What this means is that premarital agreements will be routinely enforced provided that there was voluntary execution, fair -- or at least not unconscionable -- financial provisions for the dependent spouse, and adequate financial disclosure. For this reason, it is advisable to set forth the financial disclosure in the premarital agreement or an attachment to the agreement. It is also advisable to state in the agreement that it was made voluntarily and with knowledge of its terms. Having both parties represented by separate and independent counsel is a further safeguard.
The premarital agreement will also be enforced in the event of death. Without such an agreement and notwithstanding contrary provisions in a will, a spouse is entitled to renounce the will and take 1/3 of the net estate if there are children or, if there are no children, up to 1/2 of the estate. This feature of the premarital agreement is particularly useful for parties who are contemplating second marriages and who may have financial obligations to children or other family members.
In short, under the Uniform Premarital Agreement Act, premarital agreements are not difficult, time-consuming or expensive to enforce -- especially when compared with the costs of a divorce.
Many other states have passed the Uniform Premarital Agreement Act, in whole or in part. Not all of them permit the broad waiver of rights permitted by Illinois, especially with respect to the elimination of spousal support. Other states, even without officially adopting the Act, have through case law enforced certain aspects of premarital agreements.
What the Premarital Agreement Should Contain
To be enforceable, the agreement should clearly describe the parties' mutual financial disclosure and set forth their mutual understanding of the rights they are waiving. The agreement should also provide for the disposition of property in the event of divorce or the death of one of the parties. Typically an agreement will provide that each party is awarded the property that he or she brought to the marriage while property acquired jointly is equally divided. If there is a waiver of spousal support, the agreement will usually provide for a payment to the spouse making the waiver. This payment is based on the parties' financial circumstances and typically will increase with the length of the marriage.
Similar provisions are usually made in the will, awarding each party some designated percentage of the other's net estate in exchange for a waiver of the right to renounce the will. The percentage is determined by the nature and extent of the parties' wealth and their obligations to other family members.
Who Needs Premarital Agreements?
Premarital agreements are not for everyone. In first marriages between young spouses without significant assets or present earning power, premarital agreements are probably more trouble than they are worth. It is difficult to make appropriate -- much less fair -- provisions without knowing or being able to predict the financial resources the parties will acquire during the life of their marriage. Unless there are particular assets to protect, a premarital agreement in this situation is unlikely to be useful and could put an unnecessary strain on the marriage.
Premarital agreements may be of value even in first marriages, however, if either of the parties has family wealth that he or she desires to protect in the event of divorce. In any marriage where either party has already acquired substantial assets or is earning a high income, a premarital agreement is important to financial and estate planning. Anyone who is contemplating marriage should at least consult an attorney to determine whether a premarital agreement would be beneficial.
Contrary to some popular objections, a premarital agreement is not a sign of a cynical attitude toward the marriage or an expectation that the parties will someday divorce. First, the premarital agreement addresses the termination of the marriage by either death or divorce. All marriages inevitably end, one way or the other, and it is only prudent to plan for that eventuality. Second, caution does not necessarily imply cynicism. We wear seat belts when we drive even if we do not anticipate an accident.
However difficult it may be to address the subject, making provisions for the time when a marriage terminates by death or divorce should be no less a part of the financial planning process than preparing a will. Engaged couples discuss many issues in anticipation of marriage, e.g., where they will live, whether both spouses will be employed outside the home, whether they will have children, how they will raise children. It is just as important to discuss what financial arrangements should be made in the event the marriage terminates. Now that the law of Illinois and other states permits premarital agreements, any person contemplating marriage should consider one.
Special Rules Regarding Retirement Plans Under ERISA and REA
Federal law preempts Illinois law regarding retirement benefits under ERISA and REA. Signing a premarital agreement will not meet the requirements of Federal law because there are separate standards and requirements for timely execution of the appropriate waiver forms. A premarital agreement must require the parties sign appropriate ERISA waiver forms after the marriage. Only a spouse (not a fiancé/fiancée) can waive his or her rights under ERISA. Special documents must be prepared and retirement plans must be examined.
As of the end of 2001, Illinois courts are becoming even more comfortable with premarital agreements and are enforcing them by granting Summary Judgment. This means that the Courts are determining that premarital agreements are enforceable as a matter of law on preliminary motions in the beginning stages of litigation, before discovery, and without a trial.
In August, 2001, the 4th District affirmed a trial court which had entered Summary Judgment enforcing a premarital agreement in the case ofIn re: the Marriage of Barnes. The Court determined that, as a matter of law, it is not considered legal duress to require a premarital agreement as a condition of marriage. The Court stated "We disagree with the assertion that conditioning marriage upon the execution of a premarital agreement constitutes coercion or duress. Acts or threats cannot constitute duress unless they are legally or morally wrong."
This approach has been adopted by other Illinois courts. The Third District upheld a premarital agreement which had been negotiated entirely in the week before marriage and was not signed until the wedding date. As in Barnes, the marriage was expressly conditioned on signing an agreement. The Court described these circumstances as stressful, but not sufficient to challenge the agreement as a product of coercion or duress.
Since the Barnes case was decided, I have had a trial court in Cook County summarily enforce a premarital agreement, even where the future spouse was unrepresented by counsel, was foreign-born and had only limited English skills, signed the agreement only two days in advance of the marriage, and received no property as a result of the agreement. This demonstrates today's broad acceptance of such agreements.
Marc D. Janser is the leader of the Family Law Practice Group at the law firm of Pedersen & Houpt in Chicago. He can be reached at (312) 261-2127 or email@example.com.
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© 1993/2001 Pedersen & Houpt, all rights reserved. Published in the Winter, 1993 issue of the P&H Business Counselor. Updated in 2001.