Whether you’re thinking about writing a prenuptial agreement, are getting divorced and want to challenge a prenuptial agreement, or think it’s time to take a second look at a prenuptial agreement you wrote years ago, one of the key questions you’ll need to ask when assessing the prenuptial agreement’s validity is this one: “Does my prenuptial agreement pass the fairness test in Washington state?”
We often hear about the idea of the “ironclad prenup,” but what we should be asking ourselves is not whether a prenup is “ironclad,” but rather, whether a prenuptial agreement would pass the fairness test. A prenuptial agreement is a contract, and as we explore in our Truce Law blog article about ironclad prenups, “no contract can ever be truly called ‘ironclad.” As noted in Re Marriage of Matson, “Although prenuptial agreements are not directly authorized by statute, we have long recognized the right of the members of a prospective marital community to contract between themselves regarding their property.” In plain English, this means that a prenuptial agreement is a contract and married (or soon-to-be-married people) have the right to enter contracts to govern their financial affairs and property, if the contract is “fair and freely made.”
But what constitutes “fairness” in any prenuptial agreement? What factors will the court consider when determining whether a prenuptial agreement was “freely made”? To understand these terms, we’ll need to look at the 2-pronged analysis that courts use to determine whether a prenuptial agreement is valid.
In this article we’ll explore the 2-pronged analysis by which a prenuptial agreement’s validity is tested by the court. We’ll also delve into some of the other questions the 2-pronged analysis raises, including questions of fairness, legal representation, and how the timing of your prenuptial agreement could affect its validity.
The Two-Pronged Analysis
For a prenuptial agreement to be valid, it must pass the two-pronged analysis. In brief, here’s the first part of the two-pronged analysis:
The prenuptial agreement should be fair. If a prenuptial agreement is challenged in court, the court will look to see if the prenuptial is unfair, or if the balance of power is tilted toward the person trying to enforce the prenup.
If the prenup is found to be fair, the courts might not even consider the second step of the two-pronged analysis. If the agreement is unfair, that is, it takes away a spouse’s equitable distribution rights, or leaves a spouse effectively penniless, then the court will look at the second prong of the two-pronged analysis.
Here’s the second “prong” of the two-pronged analysis.
The prenuptial agreement must fully disclose all information about the property involved (that is, both parties must honestly and fairly disclose their assets and debts), and both parties must have signed the agreement having had the option to receive independent advice.
It’s important to note that while receiving independent advice isn’t a requirement of the two-pronged analysis, the courts will look at different factors to determine whether both parties had the option of receiving independent advice or had sufficient sophistication in their knowledge of the law and business affairs to be seen by the court as being capable of representing themselves.
If one or both parties didn’t seek legal advice, the court will look at other factors, like each party’s ability to interpret the contract themselves and understand their rights under Washington state marital law, as well as their ability to understand the rights they might be giving up under Washington state community property law and equitable distribution laws. In other words, unless you and your partner are well-versed in marital law, are lawyers yourselves, or are well-versed in contract law, it might be a good idea for each of you to have your prenuptial agreement reviewed by your independent lawyers to protect the contract. In Re Marriage of Matson, the court acknowledges that while there may be situations where a prenup might be found valid when two people didn’t have their own lawyers review the contract, “we still strongly urge both parties to seek advice from independent counsel before signing a premarital agreement.”
The timing of your prenup can play a role in the validity of the contract, because most people will need some time to assess a contract’s validity or need time to seek independent legal advice.
The two-pronged analysis leaves many things unsaid. What exactly constitutes fairness in a prenuptial agreement? And what kinds of situations would lead to extreme imbalances that the court would find suspect?
What’s Fair in a Prenuptial Agreement?
When there is a great imbalance of wealth or resources between two people about to get married, couples need to be careful that the prenuptial agreement doesn’t result in a situation that favors the wealthy spouse above the less-wealthy spouse. Basically, if your prenuptial agreement leaves one partner with all the money and property, but leaves the other partner with nothing, or worse, destitute, the prenuptial agreement likely won’t be seen as fair and likely won’t be enforced by the court.
According to the book Prenuptial Agreements: How to Write a Fair and Lasting Contract, some things the court will consider when evaluating the “fairness” of your contract will be the assets and income each person brought into the marriage, each partner’s earning capacity, each partner’s contribution to the marriage (including contributions that typically go unpaid, like child-rearing), and each partner’s ability to support himself or herself financially after divorce or after a partner’s death. According to Katherine Stoner and Shae Irving in Prenuptial Agreements: How to Write a Fair and Lasting Contract, when writing or evaluating the fairness of your prenuptial agreement, you should “consider your plan in light of what might happen if the two of you divorce or if one of you dies. If your prenup would leave one of you struggling to make ends meet while the other—or the other’s heirs—are well off, you’ve clearly got some balancing to do.”
Couples also should consider the value of unpaid labor in the marriage, and the time a working spouse might spend during the marriage to build his or her wealth, build his or her business, or otherwise increase the value of what the court would consider community, or shared marital property. If one partner is at home raising the children, while the other is working, community property laws would offer some measure of security and support for the individual who does not work. Furthermore, if one partner works to support the other partner while he or she pursues a medical, law, or other advanced degree, alimony might offer some protection should the marriage end in divorce.
One common reason why couples write a prenup is to protect the inheritance of children from a prior marriage. While you could theoretically set up your prenup in such a way as to keep your assets separate to ensure that your children fully inherit your assets (including money you earned during marriage and appreciation of assets during your marriage), it’s important to think about fairness and balance. If your prenuptial agreement eliminates community property, or your spouse’s right to a share of your assets in death or divorce, the courts may look more closely at the agreement, especially if your heirs stand to receive everything and your former spouse nothing.
For example, in Re Marriage of Matson, the court found that “when an agreement… attempts to eliminate, totally, community property rights, the court must zealously and scrupulously examine it for fairness.” Under Washington law (without a prenup), any income, purchases, or increase in real estate or investment value that both parties bring into the relationship after they are married would be considered community property and subject to division in divorce. If a prenuptial agreement intends to do away with community property altogether, the prenuptial agreement would be subject to strict scrutiny. In the case of the prenuptial agreement in Re Marriage of Matson, the court found that the prenuptial agreement wasn’t fair because (1) after 13 years of marriage, the prenup would deny the spouse the right to the equitable division of property, and (2) because the agreement failed the second part of the two-pronged test, namely, that the spouse wasn’t given ample time to seek independent counsel (the prenup papers were drawn up the night before the wedding day).
This brings us to the second part of the two-pronged analysis, which had more to do with how the prenuptial agreement is drafted than the contents of the prenuptial agreement itself.
Each Party’s Bargaining Position
If one partner might be perceived as having more bargaining power going into prenuptial agreement negotiations (either because he or she has more money or assets or a background in law or greater social standing, due to celebrity, fame, or other factors), then it’s in the best interests of the person with less bargaining power to have legal representation before entering into a prenuptial agreement. This is why it’s often said that for a prenuptial agreement to be valid, it’s best if both parties have the prenup reviewed by their own personal lawyers, and that both parties seek their own legal representation to review the agreement before it is signed. If one person doesn’t have the means to hire their own lawyer, this is a situation where the person with more bargaining power, or wealth, might set aside money for the other party to independently hire their own chosen legal counsel, (ideally the same amount of money the person with greater bargaining power will spend on their own legal counsel).
For both people to truly be on equal footing, both people truly need to understand the property rights that they would have under Washington state law without the prenuptial agreement, and to understand what rights they are giving up. A prenuptial agreement is a contract that can change the way your marital property will be handled under Washington law. Because most people don’t know how marital property is handled under Washington law, it’s wise to have a lawyer with your interests in mind review your prenuptial agreement, to help you negotiate for fair terms, and to help you understand what rights you might surrender in signing the agreement.
In general, it helps for each party to have their own lawyer to help them understand not only the terms of the prenup, but also the ways in which the prenup deviates from Washington’s equitable division of property laws and community property laws. Because any fair contract requires negotiation, it is important to give you and your future partner ample time to negotiate and work through the contract.
Timing & The Appearance of Pressure
It can take time for two parties to negotiate a contract, seek independent legal advice, and determine whether signing a contract is right for them. For this reason, if you want your prenuptial agreement to pass the fairness test, it’s a good idea to avoid putting paperwork before your fiancé the day before your wedding. While the timing of the prenup is one way that courts might look to see whether the contract was signed under pressure, or duress, there are other circumstances where the courts might become suspicious. For example, if domestic violence or coercive control played a role in your relationship, a prenuptial agreement presented under such circumstances might be subject to questions of fairness. There are other situations where fairness could come into question. It should go without saying, but both people signing the contract should be in good health, free of intoxicants, and the contract should be formally witnessed and notarized.
There are other situations where the court might see the contract as suspect. If your partner is your employer, or employs other family members, or otherwise has control over your finances and wellbeing in ways that could lead to pressure in signing a given contract, this could also affect the appearance of fairness.
Having a lawyer by your side as you negotiate your prenuptial agreement to help identify these issues and address them before the prenuptial agreement is signed is a good idea.
Full Disclosure
For a prenuptial agreement to be considered fair, both parties must honestly disclose their financial situation to the other. This means eliminating even the appearance of dishonesty. Again, a prenuptial agreement lawyer can help you with the disclosure process and help you dig deep into your financial life so that nothing is “forgotten.”
What should be included in your disclosure? Both parties should present each other with a list of bank accounts, debts, and assets. Some people choose to itemize treasured family heirlooms or major assets in their prenup. A lawyer can help you list assets with sufficient specificity so that these assets could be identified during a divorce.
Individuals with complex assets or investments may need to disclose information like tax returns, appraisals, and estimated business valuations. Having a lawyer to help you understand these documents can be helpful, especially if your financial life is “simpler” than your partner.
The disclosures should be exchanged well before you finalize and sign your prenuptial agreement, and disclosures should even be dated and initiated upon receipt to eliminate any ambiguity about each party being given sufficient time to review the disclosures.
Drafting the Agreement Together
Katherine Stoner and Shae Irving in Prenuptial Agreements: How to Write a Fair and Lasting Contract explain that working on a prenuptial agreement together with your partner can go a long way to preserving fairness. “Whoever writes up the agreement alone bears an extra responsibility for clear language.”
The collaborative legal process is one way you and your future partner can draft your prenuptial agreement together with the assistance of your own separate attorneys. With the collaborative process, each of you will be represented by your own attorney who has your interests in mind, but your lawyers will also work with you to help you and your partner negotiate and draft your prenuptial agreement together.
If you’re thinking of writing a prenup before you get married, consider reaching out to the collaborative prenuptial agreement lawyers at Truce Law in Seattle, Washington. Our collaborative attorneys can help you avoid some common traps that can result in your prenup not passing the fairness test. Our prenuptial agreement attorneys can also review your prenup before you finalize it, and, if you are in the process of getting a divorce, we can review your prenuptial agreement to determine whether the agreement might pass the fairness test. If you want to avoid having to fight over the document’s validity in court, the collaborative process might be useful. At Truce Law, we work to help couples find peaceful solutions to some of the most difficult marital and divorce issues. If you have questions, reach out to our Seattle, Washington collaborative divorce lawyers today.
This article is for educational purposes only and does not constitute legal advice. Every situation is unique. For guidance specific to your circumstances, consult a licensed family law attorney in your area.