Disuniting states: US prenups

One of the most critical considerations for recognition of a foreign prenuptial agreement in the US is that every single US state has a different body of law, and the legal analysis rests entirely on which state is being asked to recognise the agreement.

The US is subdivided into 50 individual states, a federal district (Washington DC) and other territories. Each of these individual states or territories has its own laws, and family laws are exclusively legislated in each state or territory, not at the federal level.

Given the vast geography, and the disparate political, cultural and social views of the US, individual states may have very different laws on such sensitive topics. States also have different rules on how a judge makes their way to sit on the bench, and whether judges are specialised in an area of practice or generalists.

It is not uncommon to have different outcomes among states when each state court is presented with the same facts. With each state’s divorce jurisdiction premised on a spouse’s domicile, the movement of one or both spouses, even among states, could expose the couple to different laws that could dramatically alter their financial future, with most states applying their own laws for the ultimate outcome.

The Uniform Law Commission (ULC), a non-governmental entity comprised of politically appointed state representatives, has drafted a body of legislation available for states to enact, to harmonise certain fundamental legal principles. Among the legislation are two uniform acts focused on premarital agreements, one from 1983, which is law in 28 states, and another from 2012, as law in an additional two states.

Other states may already have their own legislation, making it unnecessary to enact either uniform act. The trend in the law over the years is to make it more difficult to invalidate premarital agreements, rarely looking outside of the four corners of the document upon enforcement, even if it is a horrible deal for one of the spouses.

Considerations for recognition in the US

Formalities in signing

Generally, a prenuptial agreement only needs to be in writing and signed by both parties. Except for the eventual marriage, no consideration is required. In a minority of states the law may require notarised signatures, an acknowledgment, witnesses to the signing, or recordation, particularly if it impacts real property in the jurisdiction.

Content

US-drafted prenuptial agreements tend to dispose of property upon divorce or death. Typically, they can also address issues of spousal support, although some states may have a higher burden for the prospective spouses to legally waive any future right to support, and some states will void a waiver of support if it ultimately makes a spouse a public charge. In addition, some prenuptial agreements may also include obligations surrounding estate plans, death benefits or life insurance policies.

Nearly all properly drafted agreements will include a choice of law clause, typically of the state where the parties will be residing after their marriage, although this could vary. The agreement can include a range of personal rights and obligations for the spouses during their marriage, so long as those obligations do not violate public policy, such as encouraging divorce. Some prospective spouses insist on including agreements as to future children. However, those terms are typically not enforceable without further review by a court and application of the jurisdiction’s best interest analysis. Courts in US states retain the ultimate authority to reject agreements that are not considered best for the children, and will look at the child’s circumstances as of the date the family is before the court, not the date of the agreement.

Enforcement

For those states with a uniform act, it is typical that a prenuptial agreement will be upheld. As with traditional contracts, the prenuptial agreement must be voluntarily executed. The law usually requires fair and reasonable disclosure of finances before signing a prenuptial agreement (or a written waiver of that disclosure after adequate knowledge of the other’s finances). While not required, most agreements drafted by a US lawyer will include addenda that list all assets, debts and income for both parties, attached to their agreement. This is the surest way to verify that the parties had adequate disclosure, as required under the law in nearly all states.

Parties are not required to have lawyers. In fact, they are not even required to have access to lawyers, but clearly having a lawyer represent a party in negotiation and execution of a prenuptial agreement, or a statement in the agreement that the parties had the opportunity to consult with counsel of their own choosing, further strengthens the agreement if ever challenged. Savvy lawyers will often counsel their economically superior client to pay for their prospective spouse’s legal representation. It would violate most attorney ethics codes in the US for one lawyer to represent both parties. In a minority of states, legal counsel may be required if a party is waiving spousal support. In other states, having a lawyer may create a presumption that the agreement is valid.

Most states only look at whether the agreement was unconscionable at the time of its execution, something overcome by proper financial disclosure required under the law. A small minority of states may also look at whether it was unconscionable at the time of enforcement. Some states may still highly scrutinise these agreements, considering the parties to be in a “confidential relationship”. This type of scrutiny historically developed because husbands were in an economically superior position to wives. Most states, however, have abandoned this antiquated view.

If a party seeks to invalidate the agreement at the time of divorce or death, the burden of proof is typically on them. Only a minority of states will place the burden on the party who seeks to uphold the agreement, and some states have shifting burdens, particularly if a party was unrepresented.

Top tips for UK lawyers

While US state courts appear quick to validate and enforce a prenuptial agreement, regardless of where drafted, there are some key tips that a UK lawyer should consider when drafting an agreement where a party may ultimately end up divorcing in the US.

Know where in the US one or both parties may live after executing a prenuptial agreement. State laws vary. If one party is domiciled in a US state for that state’s statutory period, the parties may ultimately divorce in that state, and any prenuptial agreement will sought to be enforced there, typically under the law of that state, unless there is a clear and enforceable choice of law provision, selecting the law of another country for the validity and enforceability of the contract.

If a spouse intends to create a domicile in a US state, that spouse should consult with local counsel early in the process. The US lawyer should participate in either the drafting of the prenuptial agreement with UK counsel, or in drafting a postnuptial agreement at some later date before domicile shifts. Postnuptial agreements may be prudent, not only for enforceability, but to account for different tax considerations.

Default to the most restrictive requirements when drafting a prenuptial agreement, particularly if you do not know where in the US your client may later reside. Include full disclosure of finances, preferably in writing, attached to the agreement. If there are unique assets, consider getting a valuation. Give both parties sufficient time to review the contract and seek legal counsel before its execution to avoid claims of fraud or coercion. Advise that both clients have independent legal counsel, even if your client must pay for the other party’s lawyer. Ensure that, in negotiation, the ultimate agreement is a generally fair outcome to both prospective spouses. Consider executing the agreement in a more formal process, particularly if there are concerns that one spouse may accuse the other of some undue pressure when signing. If the spouses do not speak English as their first language, translate the agreement, particularly for the disadvantaged spouse.

With pre-planning, and consultation with a competent lawyer in the US state connected to your client or their prospective spouse, you will be able to prepare a strong, enforceable prenuptial agreement.

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