Postmarital Agreements in the DMV— Lessons from Recent Cases

A postmarital agreement is a contract governing property and support rights between spouses who have no immediate intent to divorce; by contrast a separation agreement settles economic issues between spouses who expect to divorce. Some spouses may want to use a postmarital agreement to address property issues during an ongoing marriage. A postmarital agreement may be appropriate when estranged spouses want to attempt a reconciliation but want to know in advance what their economic rights and obligations will be if the reconciliation does not come to pass. A variety of other circumstances may also cause a spouse to seek a postmarital agreement, such as when parties intended to sign a premarital agreement but ran out of time before the wedding.

Recent cases from the District, Maryland, and Virginia provide a reminder about the law governing these agreements and the importance of doing them right. A key lesson, as the cases below illustrate, is that a party who stands to gain should not overplay his or her hand.

To be valid, a postmarital agreement must have been entered into voluntarily; this is a basic requirement for validity of any contract. The terms of the agreement need not be fair; a party can enter into a valid postmarital agreement that is quite disadvantageous to him or her. Courts uphold agreements that a party later comes to regret; there is no room in the law for a unilateral change of heart. However, when the agreement is extremely unfair, the disadvantaged party may sometimes be able to get a court to throw the agreement out. That’s what happened in Simon v. Smith, a D.C. case.

The wife owned a condo before the marriage. The husband, a real estate professional, had her sign documents that locked her into a 20-year lease under which he would pay her a fixed rent that was less than half of the amount her current tenants were paying and less than the amount of her mortgage. She would be stuck with the mortgage while he pocketed a nice profit. The documents also gave him the right to buy her out at a fixed, below-market price and gave him virtually total control over all decisions about the property. The court found that he took advantage of her trust in him and her naiveté to extract a grossly unfair deal. This is an example of the rare case when a spouse extracted terms in a marital contract that were so harsh – courts use the term unconscionable to describe such an agreement – that the court invalidated the agreement. The husband went to extremes in taking advantage of his superior knowledge and the wife’s trust. Had he exercised restraint, he may have been able to obtain an advantageous agreement that the court would have upheld.

As in Simon, the Maryland case of Avramidis v. Theo presents an example of behavior leading to execution that put validity at risk. The wife had filed for divorce. In mediation the parties agreed to give the marriage another try. They entered into a postmarital agreement that said they intended to remain married and living together in the marital home but wanted to agree on terms in the event of a future separation or divorce. The wife alleged, and the husband denied, that in the days just before she signed, the husband committed multiple acts of domestic violence. As a result, after she signed the agreement, the wife refused to return to the marital home. The trial court found that the wife did not intend a reconciliation and that she used the promise of one to fraudulently induce the husband to enter into the agreement. The terms appear quite advantageous to her in light of the short duration of the marriage. Had the wife made her intent to separate known, perhaps the husband would have agreed to similarly advantageous terms for her as a separation agreement out of guilt or to avoid litigation over her claim of repeated domestic violence. Such an agreement would have been upheld if entered into voluntarily. It was her misrepresentation of her intent that doomed the agreement.

In Worsham v. Worsham, the Virginia Court of Appeals had to decide about the proper interpretation of a postmarital agreement. The dispute was between a former wife and the trustee of her late former husband’s trust. The spouses had entered into a postmarital agreement providing for the wife to be the beneficiary of a trust from which she claimed she was entitled to income for life. The trustee argued that her right to income ended when the parties divorced. The court agreed with the wife although that meant the trust did not receive the favorable tax treatment it would have received had her rights ended at divorce. The trustee offered evidence that the husband intended to cut the wife off at divorce precisely because he wanted the favorable tax treatment. But the agreement itself didn’t say that. The trustee, standing in the shoes of the late husband, sought to get a better outcome than the words of the contract provided. Once a postmarital agreement is signed, it is too late for one party to extract better terms based on an intent not expressed in the agreement itself.

If there is a theme running through these cases, it is that a party should not exploit a spouse’s weakness, naiveté, or guilt to extract terms that are excessively favorable to him or her. Doing so puts validity at risk; and, even when the defending party prevails, it can be an expensive process. Equally important is that it is a mistake for a spouse to think he or she will be able to avoid the consequences of a bad deal. These are unusual cases; most challenges to validity fail.