Protecting Your Family Business for When Marriages End
February 2, 2024
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Premarital agreements offer persons contemplating marriage the ability to plan for the distribution of their assets and liabilities in the event of separation and/or divorce.
While the concept of planning for divorce may seem counterintuitive for persons pledging promises of life-long fidelity and companionship, premarital agreements offer solutions for a variety of scenarios, including estate planning protection and the protection of interests in closely held businesses in the event of separation and/or divorce.
In many cases, the signed agreement will become a distant memory as the routines of married life evolve. Yet years later, the agreement will be retrieved from the file cabinet by the party seeking its protection when one or both spouses conclude that the marital contract should be dissolved. The agreement may then be challenged by the spouse, who concludes that enforcement of the bargain made decades earlier will produce egregiously "unfair" results.
As will be shown below, the burden to be met when challenging a premarital agreement is steep. It is, therefore, imperative that persons being asked to enter into such an agreement fully and completely understand its legal consequences before signing on "the dotted line."
Legal Framework for Premarital Agreements in North Carolina
In North Carolina, premarital agreements are governed by the Uniform Premarital Agreement Act. See N.C. Gen. Stat. §§ 52B-1 through -11.
To avoid enforcement of a premarital agreement, the party challenging the agreement must prove either that (1) she did not execute the agreement "voluntarily" or (2) that the agreement was unconscionable when it was executed and before its execution she (a) was not provided, (b) did not waive the disclosure of, and (c) did not have, or reasonably could not have had, adequate knowledge of the property or financial obligations of the other party. N.C. Gen. Stat. § 52B-7(a).
In this article, we will review two North Carolina cases that shed light on what is meant by the term "voluntary" when it comes to the execution of a premarital agreement.
Case Study 1: Howell v. Landry
In Howell v. Landry, Mary Landry challenged the enforcement of the couple's premarital agreement. She challenged the agreement on the grounds that her execution of the agreement was not "voluntary." She complained:
- that her husband first presented her with a draft of a premarital agreement which had been prepared by his attorney without the wife's knowledge at 8:00 pm on the day before they were to travel to Las Vegas, Nevada for their wedding;
- that her husband told her that if the agreement was not signed, they would not get married;
- that she had never seen a premarital agreement before, and she advised her husband that she wanted her own attorney to review the document;
- that she advised her husband that she did not want to sign the agreement.
Ms. Landry argued that these facts support a conclusion that the agreement was the product of duress and was, therefore, unenforceable. The case came before Judge Russell Sherill in Wake County. Judge Sherill agreed with Ms. Landry and ruled in her favor, concluding that the Agreement was the product of duress and therefore invalid.
Mr. Howell appealed Judge Sherrill's ruling to the North Carolina Court of Appeals. The Court of Appeals rejected wife's argument that the agreement was the product of duress. The Court's ruling is instructive. The Court observed that:
[d]uress is the result of coercion. It may exist even though the victim is fully aware of all facts material to his or her decision.
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Duress exists where one, by the unlawful or wrongful act of another, is induced to make a contract or perform or forego some act under circumstances which deprive him of the exercise of freewill. An act is wrongful if made with the corrupt intent to coerce a transaction grossly unfair to the victim and not related to the subject of such proceedings.
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The mere shortness of the time interval between the presentation of the premarital agreement and the date of the wedding is insufficient alone to permit a finding of duress or undue influence . . . . The shortness of the time interval when combined with the threat to call off the marriage if the agreement is not executed is likewise insufficient per se to invalidate the agreement.
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Here, the threat to cancel the marriage and the execution of the premarital agreement were closely related to each other. The marriage would have redefined the respective property rights of the parties, and the premarital agreement would have avoided that re-definition to some extent. Indeed, the cancelation of a proposed marriage would be the natural result of failure of a party to execute a premarital agreement desired by the other party.
In summary, Ms. Landry's decision to sign the agreement was deemed to have been a voluntary decision despite the fact that it was presented to her the night before the couple was to leave for their wedding and despite her request to have an attorney review it for her.
Case Study 2: Kornegay v. Robinson
Our second real-life example contains facts that appear even more favorable to the complaining spouse than those presented in the Howell v. Landry matter. In Kornegay v. Robinson, the wife signed a premarital agreement that included a waiver of her spousal share of her husband's estate.
When her husband passed away without providing for her in his will, she challenged the premarital agreement in an attempt to receive a share of the estate. Ms. Kornegay claimed that the premarital agreement had not been voluntarily executed because:
- She had only a high school education;
- She learned that her husband wanted her to execute a premarital agreement only after she had moved in with him and obtained a license to marry him;
- She was presented with the agreement in her husband's attorney's office on the same day that she and her husband were to be married; and
- She did not have the opportunity to review the agreement with independent counsel before signing it.
The trial judge who heard the case ruled against Ms. Kornegay. She appealed the matter to the North Carolina Court of Appeals. A majority of the panel who heard the case were persuaded that the trial court's ruling was improper. However, one member of the panel filed a dissenting opinion and concluded that Ms. Kornegay's claim to set aside the Agreement was properly denied. The husband's estate appealed the matter to the North Carolina Supreme Court.
In a unanimous opinion, the Supreme Court adopted the dissenting opinion, which rejected Ms. Kornegay's argument. The dissenting opinion adopted by the Court is informative.
Plaintiff (Ms. Kornegay) now contends she did not voluntarily sign the premarital agreement due to the totality of the circumstances existing at the time of execution of the Agreement. Plaintiff argues her lack of legal counsel and lack of an opportunity to obtain legal counsel are important elements in the circumstances surrounding her execution of the Agreement. Plaintiff acknowledged in her deposition she never requested "(1) additional time to read the Agreement; or (2) another attorney to be present to explain the Agreement before she signed it." This case fits squarely within the facts and holding of Howell ….
This Court has held contract rules apply to premarital agreements.
Absent fraud or oppression . . . parties to a contract have an affirmative duty to read and understand a written contract before signing it.
Plaintiff's argument that her execution was not voluntary because she did not read the agreement was without merit. Plaintiff had an affirmative duty to read and understand the premarital agreement before signing it. Plaintiff provided no evidence she was prevented from reading the agreement or that she sought separate counsel prior to signing the agreement. Plaintiff admitted both in the agreement and at her deposition that she voluntarily signed the agreement.
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Plaintiff asserts no inequality in education or business experience between her and her husband. Plaintiff did not assert she made any disclosures to Defendant of her pre‑martial assets to any greater extent than her knowledge of Defendant's assets on the date of the agreement.
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Plaintiff's chief complaint of unfair appears to be based upon the current value of her husband's assets, from which she has received and enjoyed the income over the fifteen years of their marriage, and not her knowledge of the nature and extent of the decedent's assets on the date of the agreement. The value of decedent's assets on the date the contract was signed controls. Plaintiff's bootstrapped claim that her execution of the agreement was not voluntary does not create any genuine issue of material fact to overcome the plain language in the agreement or her sworn admissions during her deposition. The trial court's judgment should be affirmed in its entirety.
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The fact that the decedent's assets grew during the marriage does not make the agreement unconscionable or unfair.
The North Carolina Supreme Court rejected Ms. Kornegay's claim the agreement should be set aside. Once again, not even the presentation of the agreement in the husband's attorney's office on the day of the wedding was sufficient fact from which to find that the Agreement had not been signed "voluntarily."
Lessons Learned
The Howell v. Landry and the Kornegay v. Robinson decisions reveal the steep climb required to meet one's burden of setting aside a premarital agreement on the grounds that it was not executed "voluntarily."
Persons asked to sign a premarital agreement on the eve of the wedding should be aware that the "last minute" presentation will more than likely not be sufficient cause to set aside the agreement. When it comes to premarital agreements, the following advice is in order:
- Timely ask your prospective spouse whether he or she is considering the use of a premarital agreement;
- Advise your prospective spouse that you will need time to have an attorney of your choice review the agreement before you will be able to sign it;
- While inconvenient and potentially embarrassing, consider postponing the wedding ceremony if an agreement is presented at the last moment.
Ward and Smith's Family Law attorneys are well-versed in navigating the complexities of premarital agreements and can provide guidance to ensure that such agreements are entered into voluntarily and with a full understanding of their legal implications.
This is a part of our February series: "Love, Relationships, and the Law." For more insights, click here.
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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.
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