The Unconscionable Pre-Nup

January 22, 2015 § 5 Comments

It has long been settled in Mississippi law that antenuptial agreements (or prenups) are enforceable in our courts. They are enforced and interpreted as are other contracts, with the added requirements that there be fair disclosure of finances and that they be voluntarily entered into. These heightened requirements are referred to as “procedural fairness.”

But what about the substance of the agreement itself? If the agreement is found to be procedurally fair, does that preclude further inquiry into the fairness of the instrument?

The case of Mabus v. Mabus, 890 So.2d 806 (Miss. 2003) did seem to hold that the trial court could not consider the substantive fairness of a prenuptial agreement, and a chancellor in a divorce action between Mr. and Mrs. Sanderson limited his analysis to the procedural fairness of the prenup, which he found to be fair. He enforced the agreement as written, despite the fact that it was one-sided in favor of Mr. Sanderson. Mrs. Sanderson appealed, charging that it was error for the chancellor not to consider the fairness of the contract.

In the case of Sanderson v. Sanderson, handed down December 11, 2014, the MSSC reversed and held that the substantive unconscionability of a prenup is a matter that should be considered by the trial court. Justice Coleman wrote for the majority:

¶17. Confusion has arisen in Mississippi as to whether courts should consider the substantive unconscionability of prenuptial agreements. The chancellor in the instant case stated in his Final Decree of Divorce that “some states look at both substantive and procedural unconscionability, Mississippi courts do not.” The lack of clarity in the law has arisen perhaps because of the Mabus Court’s use of the phrase “fundamental fairness” instead of “substantive unconscionability.” The Mabus Court wrote as follows:

The claim that the estates of the parties are so disparate that it questions fundamental fairness is of no consequence. An antenuptial agreement is as enforceable as any other contract in Mississippi. Of course, there must be fairness in the execution and full disclosure in an antenuptial agreement in Mississippi.

Id. at 821 (¶ 64) (internal citations omitted). The above-quoted language constitutes a holding that the Mabus prenuptial agreement was not fundamentally unfair but falls short of a blanket prohibition against considering substantive unconscionability in all prenuptial agreements. The Mabus Court’s language does not prohibit considering substantive unconscionability in prenuptial agreements as a rule of law. Mabus also makes two further assertions that have confused our law of prenuptial agreements.

¶18. First, Mabus states that a prenuptial agreement is a contract like any other contract that is subject to the same rules of construction and interpretation applicable to contracts. Mabus, 890 So. 2d at 819 (¶53) (citing Estate of Hensley, 524 So. 2d at 327). However, prenuptial agreements cannot be contracts like any other if courts cannot consider whether a prenuptial agreement can be substantively unconscionable. “The law of Mississippi imposes an obligation of good faith and fundamental fairness in the performance of every contract . . . this requirement is so pronounced that courts have the power to refuse to enforce any contract . . . in order to avoid an unconscionable result.” Sawyers v. Herrin-Gear Chevrolet Co., 26 So. 3d 1026, 1034-35 (¶ 21) (Miss. 2010) (emphasis added); see also Covenant Health & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So.3d 695, 705 (¶13) (Miss. 2009).

¶19. Within contract law, there are many different types of contracts. The Legislature has carved out a remedy for unconscionable sales contracts. See Miss. Code Ann. § 75-2-302 (Rev. 2002). However, Section 75-2-302 has been applied to other types of contracts, such as arbitration contracts. Covenant Health & Rehab. of Picayune, 14 So. 3d at 706. Similarly, the Court has analyzed the unconscionablity of domestic relations contracts. See id. (“We also have found contracts to be unconscionable for clauses other than arbitration agreements.”); In the Matter of Johnson’s Will, 351 So. 2d 1339 (Miss. 1977) (considering unconscionability for a contract between a husband and wife preventing a wife from revoking her husband’s will); West v. West, 891 So. 2d 203, 213 (Miss. 2004) (“A contract may be either procedurally or substantively unconscionable.”). Accordingly, because prenuptial agreements are contracts like any other, substantive unconscionability must be considered.

¶20. The Court has even gone further and defined an unconscionable contract in domestic relations contracts. “[I]t is also the law that courts of equity will not enforce an unconscionable contract. In Terre Haute Cooperage, Inc. v. Branscome, 203 Miss. 493, 35 So. 2d 537 (1948), this Court defined an unconscionable contract as ‘one such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.’” In re Johnson, 351 So. 2d at 1341; see also West, 891 So.2d at 213 (¶ 27) (“Substantively, the terms of the property settlement agreement are less than desirable, but we cannot say that no spouse in his or her right mind would agree to what is, at worst, a begrudging but generous offer . . . to provide alimony . . . .”).

¶21. Second, the Mabus Court appears to have considered substantive unconscionability after stating fundamental fairness was of no consequence. In In re Johnson, the Court explained how to determine if a contract is unconscionable: “In determining whether this contract was unconscionable, it is necessary to analyze what the widow was to receive under the will in contrast to her rights absent the will under the laws of descent and distribution.” In re Johnson, 351 So. 2d at 1342. In other words, the Court considered what the wife would have received if the contract had not existed and if the wife was able to renounce her husband’s will. Similarly, even in light of the premarital agreement, the Mabus Court considered the White factors for lump sum alimony and the Ferguson factors for distribution of the marital property. Mabus, 890 So. 2d at 821-23 (¶¶65-71) (citing White v. White, 557 So. 2d 480, 483 (Miss. 1989); Ferguson v. Ferguson, 639 So. 2d 921 (Miss. 1994)). Also, in Estate of Hensley, in determining whether the prenuptial agreement between the husband and wife was enforceable, the Court noted that “a full reading of the record divulges that Mr. Hensley had actually been very benevolent.” Estate of Hensley, 524 So. 2d at 328. Thus, Mississippi has implicitly considered the substantive unconscionablity of premarital agreements. We hold that, given the contract law on unconscionability, substantive unconscionability for premarital agreements must be considered by trial courts.

¶22. Contract law has largely, with the exception of the sale of goods, remained common law. Therefore, inevitably, contradictions arise. Unconscionability looks at the terms of the contract. See West, 891 So. 2d at 213. Unconscionability also looks at the circumstances existing at the time the contract was made. Vicksburg Partners, L.P. v. Stephens, 911 So.2d 507, 517 (¶ 22) (Miss. 2005), overruled on other grounds by Covenant Heath & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So. 3d 695 (Miss. 2009). We hold that substantive unconscionability feasibly could be measured at the time the prenuptial agreement is made; measuring it at the time the agreement is made would maintain consistency in the law. It also would ensure that the Court does not “relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” Mabus, 890 So. 2d at 819 (¶53) (quoting Estate of Hensley, 524 So. 2d at 328).

¶23. Because the chancellor in the case sub judice operated under the erroneous conclusion that the prenuptial agreement could not be analyzed for substantive unconscionability, we reverse and remand the case for him to do so. We decline the dissent’s invitation to conduct that analysis for the first time on appeal, because the error consisted of making no finding at all rather than the wrong finding. In other words, there is no decision on point for us to analyze for error.

There are some serious ramifications here for the drafting of antenuptial agreements. You will need to discuss the fairness of the agreement with your client, but that is a subject most clients do not care to address; after all, their primary concern is to maintain a status quo that is in all likelihood quite unfair. In Sanderson, for example, the husband’s pre-marital estate was in excess of $3 million, and the wife’s only around $120,000. He wanted to maintain that pre-marital wealth. Is that imbalance unconscionable?

Analyzing antenuptial agreements through the lens of contract law is problematical. The fact is that antenuptial agreements involve considerations that do not enter into negotiation of other types of contracts. As Justice Chandler’s dissent points out, “The decision to marry is not an arms-length commercial transaction, but rather is grounded in personal, moral, religious, and emotional considerations that are off-limits to strangers to the relationship.”

Justice Chandler goes on to add that the majority’s decision ” … leaves our chancellors to forage in the dark, with no guidance as to many issues[;] for instance, whether a prospective marriage partner with children from a previous marriage may protect and provide for those children in a prenuptial agreement, without fear that a court will void the agreement as unconscionable and leave the children at the mercy of the former spouse.” As a drafting or advising attorney, you likewise are in the dark as to whether a particular prenup will withstand scrutiny.

A Primer on the Law of Pre-Nups

August 18, 2014 § Leave a comment

Only a couple of weeks ago I posted some random thoughts on pre-nuptial agreements that I thought you might find useful.

Then, last week, as if on cue, the COA handed down its decision in McLeod v. McLeod on August 12, 2014, a case involving a pre-nuptial agreement. Judge Griffis’s opinion is a concise statement of the law that you would need in a case involving one of these agreements. Here it is, extracted for your use:

¶11. The Mississippi Supreme Court has held that prenuptial agreements must be fair in the execution, and a duty of disclosure shall be imposed. Smith v. Smith, 656 So. 2d 1143, 1147 (Miss. 1995) (citing Hensley v. Hensley, 524 So. 2d 325, 327 (Miss. 1988)).

¶12. Prenuptial agreements are enforced like contracts: the first rule of interpretation of contracts is to follow the intent of the parties. Long v. Long, 928 So. 2d 1001, 1003 (¶14) (Miss. Ct. App. 2006). This intent was recognized initially by the prenuptial agreement, which provided:

Each of the parties shall retain all rights in his or her own separate property, as hereinafter defined, whether now owned at the time of the marriage of the parties or acquired thereafter, and each of them shall have the absolute and unrestricted right to dispose of such property during his or her lifetime and upon his or death, free from any claim which may be made by the other by reason of their marriage, and with the same effect as if no marriage had occurred between them, and such separate property shall not be subject to any division between the parties . . . as marital property subject to equitable distribution or division under the laws of Mississippi . . . .

¶13. “A contract may be either procedurally or substantively unconscionable.” West v. West, 891 So. 2d 203, 213 (¶26) (Miss. 2004). Procedural unconscionability deals with the formation of the contract. Id. (citing East Ford, Inc. v. Taylor, 826 So. 2d 709, 714 (Miss. 2002)). Substantive unconscionability is apparent “when the terms of the agreement are so one-sided that no one in his right mind would agree to its terms.” Id. (citing In re Last Will & Testament of Johnson, 351 So. 2d 1339, 1341 (Miss. 1977)).

*   *   *

¶15. Each party must enter a prenuptial agreement voluntarily. Deborah H. Bell, Bell on Mississippi Family Law § 23.02[2] (2nd ed. 2011). In In re Last Will & Testament of Cooper, 75 So. 3d 1104, 1108 (¶11) (Miss. Ct. App. 2011), this Court affirmed the chancellor’s judgment and found that there was no evidence to support a claim of involuntariness, because neither party was “forced in any way to sign” the prenuptial agreement.

¶16. This Court has held that “it is well established that ‘a person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract.’” Ware v. Ware, 7 So. 3d 271, 277 (¶20) (Miss. Ct. App. 2008) (quoting Oaks v. Sellers, 953 So. 2d 1077, 1082 (¶17) (Miss. 2007)). And, as this Court has stated, “it is not now and never has been the function of this Court to relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” In re Cooper, 75 So. 3d at 1107 (¶9).

*   *   *

¶21. … While disclosure is of “paramount importance,” this Court has found that a prenuptial agreement can still be valid even if a financial disclosure is not attached. Mabus v. Mabus, 890 So. 2d 806, 819-21 (¶¶53, 59, 64) (Miss. 2003).

¶22. Here, the agreement stated that a full disclosure was made. Specifically, it provided:

[Willie] hereby states: that he has been fully informed regarding the property and estate of [Jeanell] and has examined the statement of her assets set forth in Exhibit “A” annexed hereto prior to signing this Agreement . . . .

[Jeanell] hereby states: that she has been fully informed regarding the property and estate of [Willie] and has examine the statement of his assets set forth in Exhibit “B” annexed hereto prior to signing this agreement.

*   *   *

¶24. Prenuptial agreements “must be fair ‘in the execution’ or procedurally fair.” Bell, at § 23.02[5] (citing Mabus, 890 So. 2d at 821; Smith, 656 So. 2d at 1147). Fairness in the execution can be affected by the presence of individual counsel, whether the parties had time to review the agreement, education of the parties, and whether the agreement was explained. Id.

*   *   *

¶26. This Court in Ware, 7 So. 3d at 277 (¶20), found that there was no evidence to suggest that one of the parties was forced to sign the prenuptial agreement, although one party admitted that she did not read the contract nor take it to an attorney to review it before she signed it. This Court held that “it is well established that ‘a person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract.’” Id. (quoting Oaks, 953 So. 2d at 1082 (¶17)). Additionally, “independent counsel is not required to fairly execute a prenuptial agreement.” Id. (quoting Mabus, 890 So. 2d at 821 (¶63)).

*   *   *

¶29. Substantive unconscionability is apparent “when the terms of the agreement are so one-sided that no one in his right mind would agree to its terms.” West, 891 So. 2d at 213 (¶26) (citing In re Johnson, 351 So. 2d at 1341). The Mississippi Supreme Court has defined an unconscionable contract as “one such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.” In re Johnson, 351 So. 2d at 1341 (quoting Terre Haute Cooperage, Inc. v. Branscome, 203 Miss. 493, 503, 35 So. 2d 537, 541 (1948)).

¶30. Two clauses were included in the agreement that provided what would happen if one of the parties died:

Upon the death of either party during their marriage, with the other Party surviving, the Parties agree that all property which is joint tenancy with right of survivorship property or survivorship marital property shall pass to the surviving party by right of survivorship.

Both parties agree that a Will of the estates and properties will be executed at a later date that will outline estates, beneficiaries, survivorship, and or any other grounds not covered by this agreement.

¶31. In his order, the chancellor stated:

Under the prenuptial agreement, Jeanell was entitled to only that which Willie promised he would leave her in his Last Will and Testament, whenever he decided to have that document prepared. No specifics regarding what he intended to leave her in order to provide for her as she had requested were provided and are purely speculative. As written, this provision is inequitable and unenforceable and does nothing to provide for Jeanell at the time of a divorce or at the time of his death. On the other hand, under the laws in Mississippi, without a prenuptial Jeanell would be entitled to an equitable share of the marital estate at the time of divorce.

. . . As such the court finds that the prenuptial agreement “ . . . was such an agreement that no wife in her senses and not under a delusion would agree to and no fair-minded husband would propose.”

¶32. In Crisler v. Crisler, 963 So. 2d 1248, 1252-53 (¶9) (Miss. Ct. App. 2007), this Court stated:

[P]arties are bound by what they promise in writing. But, we are not bound to adopt a construction not compelled by the instrument in which we would have to believe no man in his right mind would have agreed to. A construction leading to an absurd, harsh or unreasonable result in a contract should be avoided, unless the terms are express and free of doubt.

(Citing Frazier v. Ne. Miss. Shopping Ctr., 458 So. 2d 1051, 1054 (Miss. 1984)). Further, in Hensley, the court stated: “[I]t is not now and never has been the function of this Court to relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” Hensley, 524 So. 2d at 328.

The COA reversed the chancellor’s ruling that this particular agreement was unenforceable. I recommend you read the opinion to see how the COA reached its conclusion. You will find it instructive as to how the court views these contracts.

I stand by my previous recommendations, however. You should be careful to see that every i is dotted and every t crossed. Even though every desirable formality was not observed in McLeod, there was adequate language in the agreement to overcome Ms. McLeod’s objections to it on appeal, and the facts were found by the COA to be in favor of enforcement. Sloppy drafting and unfavorable facts would probably have produced a different outcome.

Where Am I?

You are currently browsing entries tagged with prenuptial agreements at The Better Chancery Practice Blog.