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Pre-Nuptial Agreements

                Public Policy.  Michigan favors prenuptial agreements and permits them by statute. MCLA 557.28.   See also In re Benker Estate,  416 Mich 681 (1991).   While prenuptial agreements were originally designed to bar rights after the death of one of the spouses, the Michigan Supreme Court ultimately held that they are enforceable in divorces also.  See Rinvelt, 190 Mich App 372 (1991).

                Impact on Divorce.  Pre-Nuptial agreements can be used to avoid a 50/50 or other distribution of property during a divorce.  Further, the prenuptial agreement can apply to less than all the marital property, but it is a way of protecting valuable assets in a divorce.  The “pre-nup” can also include a waiver of spousal support in a divorce or limit the spousal support that can be awarded.

                To be enforceable, the parties must disclose their assets to each other.  This is generally done by attaching exhibits to the pre-nuptial agreement.  Also, a pre-nuptial agreement must be signed prior to the marriage (although it could be done the morning of the marriage).

                Enforceability.   A prenuptial agreement is generally enforced unless (1) the agreement was obtained through fraud, duress or mistake, or misrepresentation or nondisclosure of material fact; (2) the agreement was unconscionable when executed; or (3) the facts and circumstances have changed since the agreement was executed, rendering its enforcement unfair and unreasonable. Rinvelt v Rinvelt, 190 Mich App 372, 380-81 (1991).  The party contesting enforcement of a prenuptial agreement bears the burden of proof and persuasion. Reed v Reed, 265 Mich.App 131, 143; 693 NW2d 825 (2005). In determining whether changed circumstances justify refusing to enforce a prenuptial agreement, the first step is to focus on whether the changed circumstances were reasonably foreseeable prior to or when the parties entered into the agreement.  Trudeau-Chene v Chene, 2006 WL 3039908 (Mich App).

                Since pre-nuptial agreements became enforceable in divorce, the Michigan Court of Appeals has dealt with several cases involving pre-nuptial agreements that were contested in a divorce.   Because a pre-nup can be avoided if it would be “unconscionable” to enforce the agreement at the time of the divorce, a court must usually weigh in on the facts at the time of the divorce.  This is also a caveat about the enforceability of a divorce because it is impossible to predict the circumstances that might arise in the future.  In Woodingham v Shokoohi, 288 Mich App 352 (2010), the court held that “[t]o determine if a prenuptial agreement is unenforceable because of a change in circumstances, the focus is on whether the changed circumstances were reasonably foreseeable either before or during the signing of the prenuptial agreement.”

                Also, in Allard v Allard, 2014 WL7202812 (2014), the Court of Appeals decided a case where the parties executed a pre-nuptial agreement before the marriage, and the wife contested it in their later divorce.  During the marriage, the husband had used several LLC’s to purchase real estate.  The pre-nuptial agreement provided that the husband would keep, as his separate property, any property he acquired during the marriage in his individual name.  The Court of Appeals held that an LLC is a separate entity under the law (i.e., MCLA 450.4210), and therefore the property owned by an LLC was not property owned by the husband individually.  Further, since the pre-nuptial agreement did not exclude income earned during the marriage from the marital estate, the court could consider property acquired with marital income as marital property.  The case was then remanded to the trial court to determine the extent to which the husband used marital income to purchase assets titled in the name of the LLC and the extent to which he received income from the LLC. 

                This case provides a tip:  people are well-advised to address income that is received during a marriage in their pre-nuptial agreements.

Pre-Nuptial Agreements Enforced After Death

                Statutory Authority.  MCLA 700.2205 provides that a written agreement executed before or after marriage can be used to bar the right of a spouse to a share of the deceased spouse’s estate.  It is important to emphasize that assets conveyed into a trust are usually outside the reach of a widow/widower.  That means that a widow or widower’s statutory claims may be quite illusory if there is little to nothing in an estate because that property has already been transferred to a trust.

ICLE has published a very useful treatise on probate law, including a chapter called “Planning to Avoid Spousal Elections” by Marilyn Lankfer and Christopher J. Caldwell.    These authors point out that a widow is entitled to “dower” in her husband’s real estate if real estate remains in an “estate” after a husband dies.

a.            Spouse Dies “Intestate” or Without a Will.  If a spouse dies intestate (without a will), the surviving spouse is entitled to a share of the estate described in MCLA 700.2102.  In 2010, if the spouse died with no surviving descendants but with one surviving parent, then the surviving spouse would get $201,000 and ¾ of the remainder of the estate for example.[1]  Further, if parties marry after a spouse has executed a will and has named children from another relationship, then the surviving spouse will not be entitled to property that was devised to left in trust for those children.  MCL 700.2301(1)(a).  This provision forces a second or subsequent spouse to compete with his/her deceased spouse’s children for a share of the estate if the deceased spouse disinherited the present spouse prior to death and the will was executed before the marriage.

 b.            Spouse Dies “Testate” or With a Will.  If the spouse dies with a will, then the surviving spouse can seek a forced statutory share, which would be ½ of the amount that he/she would have received as set forth above, reduced by all of the property that had been received already, such as life insurance policies, accounts that transferred at death, and possibly an interest in jointly held real estate.    MCLA 700.2202.  In In re Bennett Estate, 255 Mich 545, 662 NW2d 772 (2003), the Court of Appeals discussed the application of MCLA 700.2301. In that case, the testator's will left his entire estate to his first wife, providing that in the event she predeceased him, the estate would go in equal shares to the testator's four natural children and his four stepchildren (his first wife's children from a prior marriage). Id. at 546, 662 N.W.2d 772. The decedent married his second wife after the execution of this will. Id. The Court held that “the statute provides that a surviving spouse in ... [the second wife]'s position, i.e., one who married the testator after he executed his will, is entitled to an intestate share of her spouse's estate.” Id. at 550, 662 N.W.2d 772. The Court then held that in order to determine the intestate share of the second wife, a court must “look to the will, deduct the devises to the natural children, and pay the surviving spouse's statutory share under MCL 700.2102(1)(f) [the intestacy statute] to the extent possible, from the remainder.” Id. at 550, 662 N.W.2d 772 (emphasis added). Accordingly, the second spouse in In re Bennett Estate received the intestate share that was not devised to the testator's natural children. Id. at 554, 662 N.W.2d 772. But note that she married him after he had executed this will, not before.

To some extent, the right to take “against” a will is just that:  a right to take against a will and to reach property in an “estate, not necessarily property in a trust.  In Soltis v First of America Bank-Muskegon, 203 Mich App  435, 513 NW2d 148 (1994), a deceased husband had conveyed assets during his lifetime into a trust and named children from a prior marriage as beneficiaries of that trust.  Then he died.  The wife attempted to assert a claim against his estate—which was basically his trust—and the Court of Appeals held that a spouse is not entitled to a forced statutory share of a trust, only a will.  Since he had little to nothing in his “estate,” the wife lost.

On the other hand, in Thames v Thames, 191 Mich App 299 (1991), the Court of Appeals held:  “The court…has authority to find that assets were fraudulently transferred to a third party to deprive a spouse of an interest in marital property. It follows that another exception exists for situations like the one before us. One spouse cannot deprive the other of an interest in the marital estate by transferring marital property into a trust for the benefit of a third party. Having reviewed the record in this case, we are not left with a definite and firm conviction that a mistake has been committed. The trial court's findings are not clearly erroneous. Accordingly, we affirm the trial court's determination that the trust corpus was an asset of the marital estate subject to division between the parties.”  Notably, the trust in this case purported to be “irrevocable” yet was included in the marital estate.

c.             Homestead Allowance; Family Allowance; and other Rights.  In addition to the foregoing rights, a surviving spouse is entitled to a “homestead allowance” under $700.2402, which was $20,000 in 2010; a “family allowance” under MCLA 700.2403 (which is a form of “support” for no more than a year while a probate estate is pending); and some personal property set forth in MCLA 700.2404 in addition to the rights set forth above.  If the spouse is named as a beneficiary on a retirement account or a life insurance account, then that spouse will receive that property (although it will serve to reduce his/her share of a forced statutory share).  Also, if there is no property in an “estate” when the other spouse died, then there is no property to “fund” a homestead allowance or a family allowance.    Ditto for personal property that was transferred to a trust.

***

                A pre-nuptial agreement can bar a surviving spouse from receiving statutory benefits and/or from receiving any part of a deceased spouse’s estate.  This means, of course, that someone else will inherit from the deceased spouse—and it also means that that now deceased spouse should have had an estate planning that named that “someone else.”  In fact, a pre-nuptial agreement that applies in death is incomplete without an estate plan. 

[1] These amounts were set in 2001, but have been increased annually since 2001 due to MCL 700.1210 which allows for a cost of living adjustment.    For subsections (a) through (e), the current amount is $204K, and the current amount for (f) is $136K.

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