Premarital Agreements

36 Chapter 2
Fiduciary
a person who owes another a duty
of good faith, trust, loyalty, and
candor
Procedural fairness
fairness in the negotiation and
execution of an agreement
Substantive fairness
fairness in the specific terms of
an agreement
Consideration
a bargained-for exchange or
mutual promise underlying the
formation of a contract
often impose additional requirements and a higher standard of care on the parties,
whom the courts view as having a fiduciary duty to one another, a special duty of
fairness in dealing.
Although states vary with respect to specific requirements for validity, generally
a premarital agreement must satisfy the following three requirements:
1. the basic requirements applicable to all contracts
2. the requirement of procedural fairness, meaning fairness in the negotiation
and execution of the agreement
3. the requirement of substantive fairness, which means fairness in the actual
terms of the agreement
The Basic Requirements Applicable to All Contracts
1. There must be an offer and acceptance (generally evidenced by the parties’
signatures on the agreement).
2. The parties must have the capacity to contract in terms of age and mental
competence (although a failure to understand the legal effect of the terms
of the agreement will not necessarily render it invalid).
3. The subject matter of the contract must not be illegal (i.e., the parties
cannot agree to commit an illegal act).
4. The contract must be supported by consideration, a bargained-for
exchange of something of value (usually the mutual promise to marry
in the case of premarital agreements, although courts may look for
additional consideration when one party appears to gain everything
and give up nothing).
The Requirement of Procedural Fairness
The focus of procedural fairness is on fairness during the negotiation and
execution of the agreement. In assessing procedural fairness, the courts usually
will look at the surrounding circumstances to answer such questions as the
following:
Was each party represented by independent counsel?
Was there adequate disclosure by each of the parties of the nature and value
of their assets and liabilities?
Was there sufficient time to discuss, negotiate, and reflect on the agreement
prior to execution?
Was there any fraud, duress, or undue influence in the negotiation or
execution of the agreement?
Was each party represented by independent counsel? Even though the par
ties
are generally not antagonistic as they look forward to their forthcoming marriage,
they do have adverse” interests. Each of them is being asked to waive or vary
certain rights to which they would otherwise be entitled upon divorce, separation,
or death. For example, a husband residing in a community property state such as
California, Arizona, Texas, or Idaho has a right to 50% of his spouses earnings
from the date of marriage. If a man is going to enter a premarital agreement in one
of those states, he needs to understand how his rights and responsibilities under
state law may be altered by that agreement. He should have a reasonable opportu-
nity to consult with independent counsel of his own choosing. This is an especially
important consideration when the parties are of unequal bargaining power, such
as when one party is much more highly educated and financially sophisticated
than the other. (See Paralegal Application 2.1.)
M02_WILS3688_01_SE_C02.QXD 8/7/08 4:18 PM Page 36
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