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Pasternak & Fidis Reporter

July 5, 2022

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.

February 17, 2022

Treatment of Vermont Civil Union as a Marriage for Purposes of Divorce in Maryland

In 2020, in a case called Sherman v. Rouse, the Maryland Court of Special Appeals had to decide whether a 2003 Vermont civil union, which pre-dated marriage equality, should be treated the same as a marriage for purposes of granting a divorce and related rights, including spousal support and equitable division of property. One aspect of the problem presented to the trial court was that, unless the parties’ legal status could be treated the same as a marriage, the Maryland court would have no authority to dissolve it; and, because the parties were not residents of Vermont, a Vermont court would have no authority to dissolve it either, leaving them in a rather awkward spot. The other aspect of the problem is that, unless the… MORE >

February 16, 2022

Custodial Accounts, 529 College Savings Plans and Divorce

Common options for families to save for their children’s education are through custodial accounts and 529 savings plans. When a couple divorces, the treatment of these resources needs attention. A recent unreported case from the Maryland Court of Special Appeals points this up. This article highlights issues that should be addressed as part of a settlement agreement or, if necessary, in court.

UGMA and UTMA Custodial Accounts

There are two types of custodial accounts, UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act). UTMA accounts have replaced UGMA accounts in most states and the District of Columbia. Each allows for creation of an account for a specific minor child. An UTMA can hold cash, securities, real estate, and other property. Often… MORE >

February 15, 2022

Premarital Agreements and Post-Execution Conduct

Parties to a premarital agreement are free to make decisions during the marriage that alter their financial circumstances so long as they meet their contractual obligations. Post-execution actions can strengthen the validity of the agreement, result in a claim that the agreement has been revoked, or leave the agreement intact but change the economic outcome.

Conduct that Strengthens Validity

The low standards for validity create opportunity for a claim of duress, especially when a proposed agreement is presented close to the wedding or a weaker party does not get legal advice. (These claims rarely succeed.) Contract law acknowledges that a party may ratify a contract, thus waiving a duress claim. Acceptance of the benefits of a contract is generally considered ratification. When the agreement requires… MORE >

February 14, 2022

Cryptoassets and Estate Planning

The value and popularity of cryptoassets – a term that comprises everything from Bitcoin to other cryptocurrencies and includes nonfungible tokens (NFTs) and utility tokens – has grown exponentially in recent years. In November 2021, Bitcoin reached an all-time high of over $65,000. In March 2021, Christie’s sold a fully digital, NFT-based work of art for $69.3 million. Many people are paying attention to the increasing value of cryptoassets and are acquiring cryptoassets to hold for their own investment. It is now easier than ever to obtain cryptocurrency through popular apps, such as Venmo or PayPal. The internet has made available step-by-step guides teaching how to acquire NFTs and other tokens. Whether you currently hold any cryptoassets or plan to acquire them in the future,… MORE >

October 7, 2021

The Uniform Cohabitants’ Economic Remedies Act and Cohabitation Agreements

In July 2021, at its annual meeting, the Uniform Law Commission adopted the Uniform Cohabitants’ Economic Remedies Act (UCERA). Cohabitants already have the right to enter into a written or oral contract under general contract law principles. If enacted, UCERA would create statutory recognition of these rights and would expand the bases for cohabitant property claims.

UCERA has not been adopted, or even considered, by the legislatures of Maryland, Virginia, or the District of Columbia. It seems unlikely that it ever will. However, it addresses a problem that will continue to exist when two people live together, acquire property, make promises to each other about sharing assets upon death or dissolution, or when one party believes they have done so.  Whether UCERA is ever adopted,… MORE >