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Validity of Premarital Agreements: North Carolina Law

Previous posts regarding prenuptial agreements have discussed the validity of premarital agreements in very general terms, focusing on the broad concepts of procedural and substantive unfairness.  Procedural unfairness creates a very real risk that the agreement might not be enforced.            Substantive unfairness is not so important, but it can create risk when the unfairness is extreme, or when the procedural fairness of the agreement is a close question.

This post will take a look specifically at the law of North Carolina. Twenty-seven states, including North Carolina, have enacted the Uniform Premarital Agreement Act (“UPAA”), a draft statute written by the Uniform Law Commission to standardize the law of premarital agreements.

The key statute governing the validity of premarital agreements is N.C. Gen. Stat. (“G.S.”) § 52B-7. Under that statute, there are two distinct grounds upon which a premarital agreement can be successfully attacked.

The first ground provides that the agreement is invalid if the party attacking the agreement “did not execute the agreement voluntarily.” Id. § 52B-7(a)(1). There is no statutory definition of involuntariness; the issue is left entirely to the courts. This ground is where the procedural fairness of the agreement becomes critical. If procedural unfairness reaches critical mass, the agreement will be deemed involuntary and the court will not enforce it.  The fourth post in this series discusses procedural unfairness in more depth.

The second ground is more complex. It requires, to begin with, that the agreement be unconscionable. Unconscionable means, in effect, extremely unfair. One can see, again, the critical importance of procedural and substantive fairness in determining the enforceability of the agreement.

Assuming that the agreement is unconscionable, it may still be enforceable. Under the UPAA, an unconscionable agreement is still enforceable if the party attacking the agreement:

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Id. § 52B-7(a)(2). These provisions show the importance of ensuring that each spouse has full knowledge of the financial situation of the other. Such knowledge can be provided in various ways, but the best way is always attaching financial statements for both spouses as appendices to the agreement.

The two defenses recognized by the UPAA are a very curious combination. The concept of involuntariness, which is not defined anywhere in the UPAA, is broad and discretionary. By contrast, the unconscionability provision is narrow and precise. It is also somewhat counterintuitive, as unconscionable agreements are unenforceable in most areas of the law.  But the UPAA  allows enforcement of unconscionable agreements if the requirements quoted above are met.

You should be aware that the UPAA, which has been enacted in North Carolina, is no longer recommended by the Uniform Law Commission. Instead, the Commission has drafted a revised and updated version, the Uniform Premarital and Marital Agreements Act (“UPMAA”). The UPMAA is fairly new, and it has been enacted only in two states. The UPMAA retains the broad involuntariness defense, but loosens the second defense considerably, requiring both reasonable financial knowledge and a reasonable opportunity to consult counsel.

Whether North Carolina will adopt the UPMAA remains to be seen. But the broad nationwide trend is clearly toward requiring both reasonable knowledge of the other spouse’s assets and a reasonable opportunity to consult counsel.

Finally, there is a special rule in the UPAA for waivers of alimony. If alimony is waived, and the dependent spouse is left eligible for public assistance,

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Next, we will return to looking at premarital agreements from the viewpoint of parties who are considering signing them. Specifically, they will suggest how to move forward when the parties have different views on the subject.