To be Enforceable, a Premarital Agreement May Not be Unconscionable

Just hours before Husband and Wife married, they executed a premarital agreement whereby the property that they each acquired before marriage would remain the separate property of the acquiring party, without any rights, title, or control vesting in the other party.

The bulk of the assets were solely in Husband’s name and valued at more than $20 million.  With this premarital agreement, Wife would receive relatively little upon divorce. Without the premarital agreement, Wife could have reasonably anticipated receiving approximately one-half of the marital assets upon divorce under New Jersey law.

Wife’s divorce lawyer argued that the premarital agreement was unenforceable because: 1) Husband did not fully and completely disclose his finances, and 2) Husband exerted undue influence upon Wife in that he was more business-savvy than she.

The divorce court pointed out the three requirements for enforceability of premarital agreements:

1. That there be no fraud or duress in the execution of the premarital agreement and that both parties sign the premarital agreement voluntarily.  Wife alleged she did not sign the premarital voluntarily because Husband presented her with the agreement just a few hours before the wedding ceremony and threatened to cancel the wedding. She privately consulted with a lawyer (that Husband selected) who advised her not to sign the premarital agreement.  Wife signed the agreement anyway.
2. The premarital agreement must not be unconscionable.  A spouse cannot be left destitute or as a public charge as a result of enforcing a premarital agreement.  Here, Wife enjoyed a substantial income from employment and had an interest in a trust Husband created, and which had assets of between $2 million and $5 million.  Wife would not have been left destitute if the premarital agreement were enforced.
3. The spouse seeking to enforce the premarital agreement made a full and complete disclosure of his/her financial wealth before the agreement was executed.  Husband disclosed only that he is the owner of substantial real and personal property and he had reasonable prospects of earning large sums of monies. Such statement was insufficient to satisfy his obligation to make a full and complete disclosure of his financial wealth.  There must be a written list of asset and income attached to the premarital agreement.  With this “disclosure,” Wife could not have knowingly and intelligently waived her rights to additional assets.

The New Jersey Superior Court pointed out that Wife’s divorce lawyer filed suit for, and was granted, a divorce in California, but at about the same time she filed her complaint, Husband’s divorce lawyer sued for divorce in New Jersey and requested the New Jersey court assume jurisdiction over the dispute.

Only a week after the New Jersey court ruled that the California proceedings were invalid, the parties, both represented by California and New Jersey divorce lawyers, mutually agreed to submit to a full hearing on the issue of the validity of the premarital agreement before a retired California judge.  After a full hearing, the California judge upheld the validity and enforceability of the premarital agreement.  Husband urged that those proceedings constituted an arbitration proceeding and under New Jersey law both parties are bound by the decision.

The New Jersey court recognized the parties’ rights to be bound by arbitration in a formal written separation agreement, and applied that holding with equal force to this case involving a premarital agreement.

DeLorean v. DeLorean (1986) 21 N.J. Super. 432