Prenuptial Agreements Are Routinely Enforced

Prenuptial agreements, when done properly by experienced and competent counsel, are routinely recognized and enforced by both lower courts and Appellate courts in New York. Prenuptial agreements are enforceable by courts in New York, provided they are correctly prepared and executed.  A licensed New York State attorney with experience preparing these instruments is critical to obtaining a valid and enforceable prenuptial agreement.

In addition, for a prenuptial agreement to be valid and enforceable in New York, there must be full financial disclosure between the parties. In addition, the prenuptial agreement must be prepared, executed, and acknowledged correctly.

There are a multitude of factors that are involved in properly preparing a prenuptial agreement to prevent it from being overturned in court. Parties in a divorce action can attempt to attack the validity of a prenuptial agreement. However, when attempting to challenge a prenuptial agreement that is prepared by experienced counsel, such as one routinely prepared on a daily basis by the attorneys at Novak & Novak, the bar is quite high.  Our goal is to make any such attack a very steep climb.  Indeed, as outlined below in the Gottlieb case, the party contesting a prenuptial agreement bears a very high burden to nullify a properly prepared and executed prenuptial agreement.

In anticipation of their marriage, Jacob Gottlieb (the husband) and Alexandra Gottlieb (the wife) entered into a prenuptial agreement. Prior to the agreement’s execution, the wife’s counsel, an experienced matrimonial practitioner, advised her not to sign it, but the wife ignored that advice after the parties’ marriage broke down, the husband filed this divorce action and the wife moved to set aside the agreement, claiming it was the product of overreaching resulting in manifestly unfair terms. The motion court dismissed the wife’s claim that the entire agreement is unenforceable. The motion’s court decision upholding the enforceability of the prenuptial agreement was affirmed by the appellate court.

The wife, 37 years old, received a bachelor’s degree in economics from the University of Pennsylvania. After working for several years in advertising and finance, she decided to pursue a career in real estate and obtained a salesperson’s license and a position with Brown Harris Stevens, Inc. The husband, 44 years old, obtained a bachelor’s degree from Brown University and a medical degree from New York University School of Medicine. After working as a portfolio manager for several firms, the husband started his own hedge fund and built it into a successful business.

The wife retained an attorney with an experienced New York matrimonial law firm.  The husband proposed and renegotiated the prenuptial agreement then declined to enter into an agreement while the wife was pregnant with the parties’ first child, and only finally acceded to the execution of an agreement when the wife was pregnant with their second child.

The wife’s attorney proposed changes to the draft, many of which were incorporated into the final agreement. For example, in various correspondence, the wife’s attorney wrote that she “understands all that she is potentially giving up by virtue of this Agreement.”

The final agreement, executed by the wife against her attorney’s advice (the wife concedes that she ignored her counsel’s advice not to sign the agreement), listed the wife’s net worth at approximately $600k and the husband’s net worth at approximately $100 million. The agreement limited the property to be treated as marital property as property titled in both parties’ names as joint tenants or tenants by the entirety, along with any property agreed in writing by the parties to be marital property, and defined all other property as separate property, including income earned during the marriage, business interests, and the two apartments the husband purchased before the marriage. The wife waived any interest in the increase in the value of the husband’s separate property, along with any rights under the Equitable Distribution Law. The only property distribution provided for by the agreement was that the wife would be entitled to payment of $300,000 for each year of the marriage, plus interest compounded annually at the rate of five percent. Pursuant to the prenuptial agreement, the husband was required to deposit sums into an account for this purpose during the marriage. The current value of that account is approximately $1,586,219.

The prenuptial agreement states that each party had legal counsel of his or her own choosing “who advised him or her fully with respect to his or her rights in and to the property and income of the other and with respect to the effect of this Agreement and that such party understands such advice.” Each party acknowledged that the agreement was “fair and reasonable and not unconscionable,” and was entered into “freely and voluntarily and not as a result of fraud, duress, coercion, pressure or undue influence exercised by the other.” The agreement also stated that the parties had been advised that they might acquire other rights granted to divorcing spouses, but that such rights could be limited or forfeited by the terms of the agreement.

The wife also waived spousal maintenance, except that if any minor children resided with the wife at the time of divorce, during the period in which a child of the marriage was under four years old, the husband would pay spousal maintenance of $12,500 per month, and except that as long as a minor child resided with her, Mr. Gottlieb agreed to pay the carrying costs and utilities for an apartment (of a specified size, location, and type) for the wife until the youngest child attained the age of majority, with all such payments to be treated as child support. The husband also agreed to provide health insurance for the wife until the emancipation of the parties’ children.

The agreement defines marital property as (i) all property held jointly by the parties; and (ii) any property agreed to by the parties in writing. Separate property is defined in the agreement as all other property, including business interests, retirement benefits, professional licenses, and educational degrees, income earned during the marriage, and any interest in the increase in value of the parties’ separate property. Although each party waived any right to equitable distribution, the agreement provided for the following in lieu of a distributive award. Next, the parties agreed to divide equally all wedding gifts, and real property and financial accounts registered in both parties’ names.  Any other marital property would be divided in proportion to each party’s financial contribution to the asset.

Aside from these provisions, the parties waived any additional spousal maintenance and acknowledged that such waiver was fair and reasonable. In addition, in the spousal support section of the agreement, the wife waived any right to counsel fees, both interim and final.

The agreement also provided for certain inheritance rights for the wife and children. The parties agreed that if the marriage was still intact at the time of the husband’s death, the wife would receive her elective share of the husband’s estate. In the event of divorce, the husband agreed to leave, either outright or in trust, a specified percentage of his estate to the children of the marriage. Finally, financial statements annexed to the agreement list each party’s assets, liabilities, and net worth, although the parties’ incomes were not included. The husband and the wife explicitly acknowledged that, upon being advised by counsel, each fully understood the financial information provided by the other and recognized that their financial circumstances could be considerably different at the time of the dissolution of the marriage.

The marriage ultimately broke down, and in August 2012, the husband brought an action for divorce. In her answer, the wife asserts a counterclaim, amongst others, seeking a declaration that the entire prenuptial agreement is invalid and unenforceable. In her affidavit in support of the motion, the wife expressly acknowledged that she does not seek to invalidate the agreement based on unconscionability, coercion, duress, or fraud.

The wife, on her appeal, contends that the motion court erred in denying her motion to set aside the prenuptial agreement.

The court held that there is a very high standard to set aside a prenuptial agreement.  In fact, the overturning of a properly drafted prenuptial agreement is the exception rather than the rule. As the court laid out “we are not here to renegotiate a bargain” reached by the parties merely because it is one-sided.

A prenup can be set aside where it is shown to be the product of fraud, duress, or overreaching, resulting in manifest unfairness or other inequitable conduct. However, the wife did not challenge the prenuptial agreement on the grounds that it was the product of coercion, duress, or fraud. Moreover, the wife did not argue that the agreement as a whole was unconscionable. Instead, the wife only argued that “the agreement is manifestly unfair due to the husband’s overreaching.”

The court further opined that “although no actual fraud need be shown to set aside the agreement on this ground, the challenging party must show overreaching in the execution, such as the concealment of facts, misrepresentation, cunning, cheating, sharp practice, or some other form of deception.” In addition, for a party to challenge the agreement, they must show that that the “overreaching resulted in terms so manifestly unfair as to warrant equity’s intervention” and that to nullify the prenuptial agreement “both overreaching and manifest unfairness must be demonstrated,” and in summary, the party contesting the agreement bears a “very high burden.”

Applying those standards, the court concluded that the wife failed to meet this heavy burden to overturn the agreement.  Specifically, the court held that the husband did not engage in overreaching as both parties were represented by counsel, and the agreement was thoroughly negotiated. The court noted that the wife was “an active participant in the negotiations and was the one who was pushing to get the agreement signed,” and therefore, that undermined her claim of overreaching.”

Along those lines, looking at the facts of the case, the wife had time to review and understand the terms and had a capacity contrary to her contentions. At the time of execution of the prenup, the wife admittedly Ignored her own counsel’s advice not to sign a prenup.

Furthermore, even if the wife did not know the exact income of the husband, she lived with him and was “aware of the luxurious lifestyle his income and assets afforded.”  The court further concluded in upholding the agreement that the significant “financial disparity between the parties was fully disclosed at the time the agreement was executed.”

Also, the court disregarded the wife’s claims of fraud as she specifically disclaimed that her motion was based on fraud. This court held that the husband’s threats to not enter the prenuptial agreements and to not marry her until after the birth of their first child, and to also end their relationship if she terminated her second pregnancy were insufficient to invalidate the prenuptial agreement.  The court cited various precedents where threats not to marry a spouse if they didn’t sign a prenuptial agreement provided no basis to invalidate a prenuptial agreement.

The court opined that there were no issues of fact as to whether there was overreaching, and, therefore, there was no need to make an inquiry as to whether the terms of the prenuptial agreement were manifestly unfair. The court did say, however, that viewing the agreement in its entirety, the terms of the agreement were not manifestly unfair as even a significant financial disparity between the parties is “simply not a basis for invalidating a freely negotiated prenuptial agreement. “

The specifically held that “It goes without saying that premarital agreements often involve substantial financial disparities between the parties, with the more-monied party seeking to protect his or her assets and business interests. If the unequal division of assets, or the failure to maintain the marital lifestyle, were to be the test used to determine validity, it would inevitably result in the setting aside of many, if not most, prenuptial agreements.”

Accordingly, the court, in conclusion, held that the prenuptial agreement was valid and enforceable.

Prenuptial agreements, if they are drafted by competent and experienced attorneys*, are routinely upheld by both the lower court level and well as by the Appellate Courts in New York.  While a party is always free to try to overturn a prenup in a divorce action, it is a steep climb as there is a very high standard employed by the courts in New York.  Moreover, just because a party did not negotiate a favorable deal, courts are not here to renegotiate a freely negotiated bargain.

In this case, the wife did not even challenge the agreement utilizing the correct standard.  That is, the wife did not challenge the prenuptial agreement on the grounds that it was the product of coercion, duress, or fraud. Nor did she claim the agreement was unconscionable. Instead, the wife only argued that “the agreement is manifestly unfair due to the husband’s overreaching.”

Again, here, the party contesting the agreement bears a very high burden to nullify the prenuptial agreement: “both overreaching and manifest unfairness must be demonstrated.”  As delineated the court held that the wife failed to meet this heavy burden to overturn the agreement.

One of the more interesting takeaways from this case was how the court bluntly stated the reality of prenuptial agreements, which often involve a financial disparity between the parties, as that is the very purpose of these agreements.  That is, when one spouse is coming into the marriage with substantially more money (the monied spouse) than the other spouse (the non-monied spouse), it is the very intent of that party, in the event that marriage does not work out (which 53% of all marriages in New York do not), to protect that money.  Ideally, if both parties are represented by attorneys and the prenup is freely negotiated between the parties, then, in the Court’s eyes, the unequal division of assets is irrelevant.

The court upheld the validity of this prenuptial agreement in this case and concluded very interestingly, by stating that if an unequal division of assets or a failure to maintain the marital lifestyle were the standard by which to test the validity of prenuptial agreements, then would result in the setting aside of the majority of all prenuptial agreements.

Lastly, another key takeaway is how the court continually pointed out how the wife ignored her attorney’s advice, which undermined her arguments every step of the way.  It is a lesson she unfortunately learned the hard way.

*On the other hand, if a party goes with a non-attorney (such as a paralegal or template service), they could be asking for trouble, as in those cases, courts could be more prone to overturn those prenuptial agreements. 

At Novak & Novak, you will have a licensed attorney walk you through the entire process and ensure that your prenuptial agreement is not only properly prepared but also properly executed as well. When your assets are on the line, do not leave it to chance.  Only use an experienced licensed attorney to handle your prenuptial agreement. We have devoted our practice to prenuptial and postnuptial agreements.  The first step is to call us at 1-800-600-2840, and we will give you a free one-on-one consultation with one of our expert prenuptial attorneys.