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Premarital Agreements and Substantive Fairness

Our last premarital agreement post discussed the fairness of the procedures used when a premarital agreement was signed. This post will discuss the substantive fairness of the agreement itself.

As noted previously, courts give considerably more attention to procedural fairness than to substantive unfairness. As long as fair procedures are used, the courts are willing to enforce agreements that contain considerable substantive disparity. In particular, agreements that waive the parties’ interests in substantial property, or that waive alimony completely, are often enforced in the courts, so long as they were signed freely and voluntarily.

But substantive fairness still has a role to play when the court reviews an agreement. To begin with, extreme substantive disparity can be a problem in itself. For example, if the agreement is so disparate that it leaves one spouse on public assistance, the court may not fully enforce the agreement. If the court must choose between having one spouse supported by the other and having one spouse supported by the public, it is likely to choose the former.

In addition, substantive disparity can be relevant even where it is not extreme. The courts face many cases in which it is a close question whether an agreement was fair procedurally. For example, there may be a situation where one spouse’s knowledge of the other’s assets was incomplete, or borderline pressure tactics were used, or where there is reason to doubt whether a spouse truly had a fair opportunity to obtain counsel.  In these close cases, the court is more likely to enforce an agreement if the agreement is substantively fair.

Another way to state the same concept is that agreements are invalid when the level of procedural and substantive unfairness reaches critical mass. In reaching this critical mass, procedural unfairness is considerably more important that substantive unfairness, but substantive unfairness is not irrelevant. When the procedural unfairness issue is close, substantive unfairness can make the difference in determining whether an agreement is enforced.

A different concern, less tangible but still real, is the effect of a substantively unfair agreement upon the marriage itself. When a wealthier spouse asks a less wealthy spouse to sign a premarital agreement, and the agreement waives all rights of property division and support, the agreement is asking for a very substantial sacrifice. Some prospective spouses will refuse to sign such an agreement; some may even resent being asked to sign one.

Even if the other spouse initially signs such an agreement, asking for a complete waiver of rights is a powerful sign of distrust. It may not be the best note on which to start a relationship as intimate as a marriage. As the marriage continues and the value of the waived rights becomes more substantial, the resentment of the less wealthy spouse may grow.

Another specific problem is agreements that give the less wealthy spouse a materially larger financial settlement upon death than upon divorce. Taken to an extreme, if divorce starts to look likely, this sort of agreement can create a situation that uncomfortably resembles the opening chapters of a murder mystery.

An agreement that waives all marital rights can be financially attractive to the wealthier spouse. But substantively unfair agreements create risks, not only that a court will refuse to enforce the agreement, but also that the marriage may not survive and prosper. The better approach is to tailor the agreement carefully so that it benefits both parties.