A recent change in Michigan case law may have a significant effect on the enforceability of prenuptial agreements. Michigan complied laws clearly recognizes prenuptial agreements, stating that “a contract relating to property made between persons in contemplation of marriage shall remain in full force after the marriage takes effect.” So long as the agreement was fair, entered into voluntarily, with full and frank disclosure of all assets, and full understanding of the terms by both parties, prenuptial agreements were generally enforceable – coming into play following the death of a spouse. It was not until 1991, in the Rinvelt case, when Michigan law confirmed that prenuptial agreements were also enforceable subsequent to a divorce. Prenuptial Agreements were upheld, provided that:
- The agreement was not obtained through fraud, duress or mistake, misunderstanding, or non-disclosure of material fact;
- The agreement was not unconscionable when executed;
- The facts and circumstances have not changed since the agreement was executed so as to make the enforcement of the prenuptial agreement unfair and unreasonable.
Point number (3) was clarified in 2005 through Reed v Reed which spelled out the analysis under which a change in circumstances might justify the Court’s refusal to enforce a prenuptial agreement. The Reed Court confirmed that the focus is whether the changed circumstances were foreseeable at the time to agreement was made. In other words, the changed circumstances must not have been reasonably foreseen by the parties prior to, or at the time of, when the prenuptial agreement was executed.
The above provided a reasonably clear roadmap for drafting enforceable prenuptial agreements. However, a recent decision in Allard v Allard calls into questions whether even the most carefully drafted prenuptial agreements will be upheld in court if challenged.
First, in 2014 under Allard (I), the Michigan Court of Appeals basically reconfirmed general principals of contract law regarding what constitutes duress and unconscionability, namely that an unequal outcome was, in and of itself, not unconscionable if the terms were of the agreement were neutral with respect to the parties. Of particular importance is the Court’s ruling that Michigan’s “invasion statutes” do not allow a party to invade separate assets contrary to the terms of a valid prenuptial agreement. There are two statutes which allow a Michigan Court to invade separate property: one based upon need and the other based on contribution to the asset. Allard (I) held that the invasion statutes did not permit a court to invade the other spouse’s separate assets in violation of a valid prenuptial agreement. Allard (I) reconfirmed that parties who negotiate and execute a prenuptial agreement should do so with confidence that their expressed intent will be upheld and enforced by the courts.
In January 2017, a subsequent ruling in Allard (III) removed any assurance that a properly drafted prenuptial agreement would be enforced if challenged. The Court held that a husband and wife could not deprive the trial court of its equitable discretion under Michigan’s invasion statutes to award the wife spousal support or to effectuate an equitable property settlement by “invading” the husband’s separate assets. Simply put, parties cannot strip power away from the court, regardless of what their properly executed prenuptial agreement states.
This recent development in case law leaves more questions than answers; however, there are ways to circumvent Allard (III) – one being to make sure the prenuptial agreement provides sufficient support and maintenance for the other party in the event of a divorce. There are many factors to consider when drafting a prenuptial agreement, including the relevant case law and the facts of your particular situation.