TODD W. GRANT, M.H.S.A., J.D.

Attorney at Law
Ann Arbor, Michigan

Copyright © 1993, Institute for Continuing Legal Education,
1020 Greene Street, Ann Arbor, Michigan 48109-1444

Published in the October 1993 issue of the "ICLE Focus," a monthly periodical published by the Institute for Continuing Legal Education in Ann Arbor, Michigan, which owns the copyright.

PITFALLS IN PREPARING ANTENUPTIAL AGREEMENTS

Antenuptial (or prenuptial) agreements are usually straightforward in drafting. Michigan practitioners should be aware that explicit reference can now be made to divorce. They should be aware, however, of avoiding federal statute problems, including probable ERISA preemption, federal gift taxes in some situations, and dischargeability in bankruptcy. Finally, practitioners should be aware of other reasons for antenuptials in addition to merely dividing property at the close of a marriage.

Historically, antenuptials were originally treated as anti-nuptial agreements. (1) While antenuptials providing for the disposition of property upon death have been favored by public policy and statute, (2) contracts providing for property division upon divorce were considered to be against public policy and void. (3)

With the Rinvelt decision in 1991, Michigan now appears to have joined the majority of states in allowing antenuptials to explicitly address divorce and well as death as a condition precedent to the disposal of marital property. (4) In Rinvelt, the previously widely held view that antenuptials addressing divorce were contrary to public policy was dismissed as dicta. (5)

Antenuptials are not ordinary contracts. The contracting parties are not at arms' length; instead they are in full embrace. Hence, an antenuptial must be freely entered into and it must be fair and reasonable both when it is entered into and later when it takes effect. This means that a general or even a specific "zipper clause" preventing any parole evidence as to the circumstances of its creation is without effect.

Furthermore, the future marrieds' relationship of "extreme mutual confidence" gives rise to a special duty of full disclosure when the agreement is entered into. (6) Full disclosure requires that each party understand not only each other's assets and liabilities but the relative extent of the waiver of common law and other rights each is giving up with respect to each other. (7) Certain circumstances can give rise to a rebuttable presumption that one of the parties did not meet his or her duty of full disclosure. (8)

In preparing antenuptials, practitioners should require the other spouse to have independent counsel and to document full disclosure by videotaping the signing and by having CPA's, appraisers and other financial experts prepare the statements of assets and liabilities. Where the difference in wealth of the parties is great, practitioners should consider a gradual buy-in at a certain percent each year as opposed to sudden "cliff-vesting" or a total waiver.

Practitioners should know that under ERISA a nonparticipant spouse likely cannot waive retirement benefits before marriage by means of an antenuptial. (9) In particular the Retirement Equity Act of 1984 (REA) mandates spousal consent before benefits are relinquished, even if the nonparticipating future spouse consents to the waiver. (10) Ironically, under Michigan law, pre-marital retirement benefits may be the subject of a division of property. (11)

Inter vivos transfers under antenuptial agreements are not immune from federal estate and gift taxes, because the relinquishment of marriage rights or marriage itself is not "adequate and full consideration in money or money's worth" under IRC 2512(b). (12) Therefore, a gift tax would be appropriate where, for example, an irrevocable trust is set up in accordance with an antenuptial. (13)

Depending upon the facts and circumstances, promises of support in an antenuptial may be viewed as "in connnection with" a separation agreement or divorce decree and not dischargeable in bankruptcy. (14) An agreement that obligations are not dischargeable in bankruptcy is not enforceable. (15)

Finally practitioners should be aware that antenuptials can be used for other reasons than to simply divide up property. They can be used: (1) to avoid community property laws, (2) to avoid the application of state laws pertaining to intestacy or the surviving spouse's right to elect against the will, (3) as grounds to prevent an inter-vivos transfer to children designed to defeat a provision in an antenuptial, (4) to protect the beneficiaries of life insurance policies, (5) to contract the making of a will or trust, and (6) to clarify expectations of domicile, freedom to pursue career opportunities, etc.

Antenuptials cannot be used to adversely effect a child's right to future child support; they cannot provide for no spousal support if the marriage ends because of that spouse's adultery; and they cannot regulate the intimately personal aspects of marriage, such as the frequency of coitus.

The biggest practical concern facing practitioners drafting antenuptials is that, once they are written and signed, they are often forgotten until death or divorce.

1. For example, 2 Rest. of Contracts 587 (1932): "A bargain between married persons or person contemplating marriage to change the essential incidents of marriage is illegal." The common law doctrine of coverture, whereby the wife's legal identity is merged into that of the husband, has been abrogated. MCLA 557.23.

2. In re Estate of Benker, 416 Mich 681; 331 NW2d 193, 196 (1982); MCLA 557.28.

3. Scherba v Scherba, 340 Mich 228; 65 NW2d 758 (1954); In re Muxlow Estate, 367 Mich 133; 116 NW2d 43 (1962).

4. Rinvelt v Rinvelt, 190 Mich App 372; 475 NW2d 478 (1991).

5. Id. 475 NW2d at 482.

6. Benker, 331 NW2d at 196 (citing MCLA 700.291).

7. Id. at 195, 197-98.

8. Id. at 198; In re Estate of Halmaghi, 184 Mich App 263; 457 NW2d 356 (1990); and Sumpter v. Kosinski, 165 Mich App 784; 419 NW2d 463, 470-71 (1988).

9. ERISA 205(a); 29 USC 1055(a) IRC 417(a). See Rose, Pension Plans: Why Antenuptial Agreements Cannot Relinquish Survivor Benefits, 43 Fla. L. Rev. 723, 729 (1991). Also see Melbinger & Melbinger, How to Allocate Pension Benefits in Prenuptial Agreements, Tr. & Est. 26 (July 1986).

10. ERISA 205(c)(1)(A)(i); 29 USC 1055(c)(1)(A)(i); IRC 417(a)(1)(A)(i).

11. Booth v Booth, 194 Mich App 284; 486 NW2d 116, 119 (1992).

12. Comm'r v Wemyss, 324 US 303 (1945). See Treas. Reg. 25.2512-8.

13. Merrill v Fahs, 324 US 308 (1945). See Thomas, The Tax Consequences of Antenuptial Agreements, 32 The Practical Lawyer 13 (July 1983).

14. 11 USC 523(a)(5); In re Jackson, 27 B.R. 892 (Bankr. W.D. Ky. 1983).

15. 11 USC 727(a)(10).