Court rules lopsided prenup ‘unconscionable’
Dear Clients and Friends,
A prenuptial agreement is a contract between marrying spouses, signed before the marriage, that lays out the terms should the couple get divorced. In many instances, prenups can be a very useful way of creating predictability and reducing the acrimony of a divorce. But as a recent California case shows us, if the terms are truly unfair, it may be unenforceable.
In that case, the husband, who ran a hedge fund, had a net worth of $32 million and earned around $4 million per year at the time of the divorce.
California is a “community property” state where all property acquired during a marriage by either spouse is considered to be owned by both spouses equally and if a couple divorces all property is divided equally. But under the prenup signed by this couple, the wife waived her community interest and agreed instead to a $10,000 payment upon moving out of the house followed by $6,000 per month in spousal support. She also waived any inheritance rights should the husband pass away during the marriage.
The wife, who had a history of mental health challenges, went through emotional trauma before the marriage (she terminated one pregnancy at the husband’s request before they were married but refused to terminate a second one) and claimed she only saw the agreement the day she signed it, allegedly against her attorney’s advice.
When the couple divorced, the wife challenged the prenup, arguing she didn’t enter into it voluntarily. The case made it to the California Court of Appeal, which ruled that at least as far as the spousal support provision went, the agreement was “unconscionable” (in other words, its terms were so oppressive and unfair that it shouldn’t be enforced). The court emphasized that the wife had only a high school education and was not employed during the marriage, the husband had a seven-figure income, and the amount she received was 10 percent of what she would have received without a prenup in place.
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