Premarital Agreement
A premarital agreement operate as a contract, entered into before the marriage in order to preserve the status of each party's property as separate property after they enter into the marriage. The premarital agreement may address issues such as waiver of alimony in the event of divorce, waiver of interest in the Estate of a spouse, waiver of interest in each other's earnings and income accrued during the marriage, or waiver of interest in appreciation of premarital property.
Premarital agreements are enforceable in Tennessee by statute (T.C.A. 36-3-501) and are even favored. Perkinson v. Perkinson, 802 S.W.2d 600, 601 (Tenn. 1990). T.C.A. 36-3-501 provides that premarital agreements concerning property owned by either spouse before the marriage are enforceable "provided they are entered into freely, knowledgeably and in good faith, and without exertion of duress or undue influence of either spouse." Many premarital agreements seek to address property acquired or money earned after the marriage will remain the property of the party acquiring the property or earning the money. While the statute does not cover property acquired after marriage, these issues maybe accomplished under common law (case law).
The most common concern underlying the validity and enforceability of a premarital agreement is whether the parties have made an informed decision before executing the agreement. Persons executing a premarital agreement must make full disclosure of the nature, extent and value of their property in order to create a fair agreement which has been entered into with full knowledge and understanding of the possible consequences of the agreement on the part of the parties. Williams v. Williams, 868 S.W.2d 616, 619 (Tenn. App. 1992).
In order to have full and fair disclosure, the parties must exchange information in some fashion regarding their assets and liabilities. This maybe accomplished by exchanging financial statements showing a complete listing of holdings, or it may be a less formal disclosure that simply involves personal familiarity with each other's assets over the course of the parties' premarital relationship. Kahn v. Kahn, 756 S.W.2d 685, 695 (Tenn. 1998). The need for disclosure is more significant when the agreement provides for one spouse to receive a disproportionate share of the other spouse's estate. Williams, Id. at 619. In my opinion, it is best to list the assets and liabilities of each party and attach the list to the premarital agreement.
Since one of the most important elements in the premarital agreement is full disclosure, it is advisable each party be represented by counsel. If one party cannot afford to retain counsel, the party seeking the premarital agreement should offer to pay the other party's attorney fees to ensure full disclosure and proper representation. If they choose not to retain counsel, be sure the agreement contains a statement that the party knowingly and voluntarily chose to waive this right after having been given opportunity to obtain counsel. Since a premarital agreement is a contract, it will be construed against the party who drafted the contract, and therefore, ambiguous provisions of the premarital agreement maybe construed in favor of the economically disadvantaged party. Id. at 620.
Some premarital agreements provide for waiver of alimony or support in the event of divorce. As long as the premarital agreement is entered into freely and knowledgeably, with adequate disclosure, and without undue influence or overreaching, a provision limiting or waiving alimony will be enforced, unless a spouse would be rendered a public charge by specific enforcement of the agreement. Cary v. Cary, 937 S.W.2d 777, 781 (Tenn. 1996).
The premarital agreement may also provide for waiver of interest in the Estate of the other spouse. The parties may waive their right to elect against the will and claim an elective share of the estate. Premarital agreements typically contain waivers of other rights in the event of death of one of the spouses, such as the right to serve as personal representative of the estate, and to claim other entitlements like year's support, homestead and various statutory exemptions provided to a surviving spouse.
After entering into a premarital agreement the parties need to ensure they do not unwittingly change the terms of the premarital agreement by making wills or transferring property after the marriage which are in contravention to the terms of the premarital agreement. These subsequent changes will control. Young-Green v. Green, 2000 WL 286705 (Tenn. App. 2000). Therefore, the parties should take actions after the marriage that are consistent with the terms of the agreement, or risk having abandoned the agreement by conduct and by the titling of assets in a manner inconsistent with the premarital agreement.
A spouse may seek to challenge a premarital agreement on the basis that T.C.A. 36- 3-501 by its terms applies only to "property owned by either spouse prior to the marriage." They may also challenge the facts surrounding the entering into the premarital agreement. Was the agreement entered into "freely", "knowledgeably," "in good faith" and "without exertion of duress or undue influence." Looking at the term "knowledgeably" the court will look to see if full information was provided to the spouse, and if the information was accurate.
The requirement of "good faith" requires a potential spouse to provide full information to the other potential spouse and to do so in an appropriate manner. A confidential relationship exists between a prospective husband and wife who execute a antenuptial agreement while they are engaged to be married which requires the utmost good faith and full disclosure of all circumstances materially bearing on the contemplated contract. Lightman v. Magid, 394 S.W.2d. 151 (Tenn. App. 1965).
"Duress" and "Undue influence" are more ambiguous terms. Duress in Tennessee is generally required to be severe, and it is not enough to allege the agreement was signed hurriedly, or while pregnant, or because the prospective spouse said they would not get married without a premarital agreement. Cantrell v. Cantrell, 19 S.W.2d 842 (Tenn. App. 1999) A spouse's failure to read the list of assets and her lack of interest in disclosure of details was no reason to invalidate the agreement.
To ensure a valid premarital agreement, the parties should spend sufficient time to ensure there has been a full and accurate disclosure of the nature, extent and value of their property in order to create a fair agreement which has been entered into with full knowledge and understanding of all of the possible consequences of the agreement on the part of the parties. Do not wait to the last minute to draft the premarital agreement.