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Court: Antenuptial contract signed under duress

Three days before Michelle and Robbie Kremer were to leave for the Cayman Islands for their destination wedding, Robbie presented Michelle with an antenuptial agreement an attorney had drawn up without Michelle’s knowledge. Two days later Michelle was able to meet with an attorney whom she did not know who explained it to her and she signed it. The next day, they left for the Cayman Islands to marry.

They stayed together until 2010, when Michelle petitioned for dissolution and moved to set aside the antenuptial agreement as unfair. The District Court agreed, the Court of Appeals agreed, and so did the Minnesota Supreme Court on May 30 in Kremer v Kremer.

The Supreme Court applied a four-part common-law test for procedural fairness set forth in 2007 in In re Estate of Kinney and found the agreement lacking in consideration and the product of duress. Justice David Lillehaug wrote the opinion, from which Justice G. Barry Anderson dissented. Justice Paul Thissen did not participate.

Antenuptial agreements present a confusing area of law, said Michelle’s attorney William Wetering but the case says that if the parties address the division of marital property in a way inconsistent with Minnesota statutes, they must bring the case under the Kinney common law factors. Those factors, including consideration and coercion need the intention of a judge to evaluate the fairness of the agreement. “The trial court has to hear that testimony,” he said.

Following the procedural steps of signing and witnessing properly, financial disclosure and legal advice does not “inoculate” the overreaching party, in this case the husband, Wetering said.

Practitioners who have written or will write antenuptials should be concerned, said Robbie’s attorney, Kay Nord Hunt.  Establishing the elements of coercion and intimidation could be very difficult in some situations, she said.

Furthermore, the court is saying to look to the consideration at the time of the agreement but in light of the circumstances since the parties married. “The court says that because the farm increased in value, there’s no consideration,” she said.

Hunt also agreed with the dissent that the case makes the statute irrelevant, because few antenuptial agreements are about nonmarital property. “There’s little point to an agreement that distributes nonmarital agreement. The whole idea is to deal with marital property,” she said.

Proportionate division

The couple lived on a farm in Fulda prior to and after their marriage, where Robbie owned and operated a farming enterprise. The antenuptial agreement provided that each party would retain his or her property free and clear of any claim by the other, and that any assets acquired during the marriage would be divided in proportion to the monetary contribution provided by each. The value of the farming operation increased significantly during the marriage but Michelle earned little income.

The District Court invalidated the agreement based on Minn. Stat. sec. 519.11, finding that Michelle did not have an adequate opportunity to meet with counsel and Robbie used the wedding deadline to pressure her.

The Court of Appeals affirmed on different grounds. It said that since the agreement purported to distribute marital property it must be evaluated under the common law test in Kinney, and that it was procedurally unfair.

Marital property division

The court began with an analysis of Minn. Stat. sec. 519.11 (see sidebar), which applies to agreements executed after Aug. 1, 1979. The statute sets up a standard for procedural fairness that applies only to nonmarital property, Lillehaug wrote.  Such an agreement is valid if it is accompanied by complete financial disclosure and access to independent counsel.

The statute goes on to provide that agreements that encompass marital property are enforceable under the statute if they would be enforceable without it, that is,  if they would be enforceable under the common law, the court continued.

“Thus, as to antenuptial agreements executed on or after August 1, 1979, the plain language of Minn. Stat. § 519.11, subd. 1, offers a procedural fairness “safe harbor” for provisions purporting to distribute nonmarital property. That is, once the statute’s two basic conditions are met, provisions of agreements addressing nonmarital property are automatically valid. If the safe harbor does not apply, the common law does,” the court said.

Common-law test

Since the Kremer agreement addressed the division of marital property and was therefore governed by common law, the next question was which common-law test applies. The court has developed two tests, one in McKee Johnson v. Johnson in 1989 and one in Kinney in 2007. In McKee-Johnson, it determined that the relevant factors under the common law were substantially identical to those in subdivision 1 of section 519.11—full and fair financial disclosure and access to independent counsel.

But in Kinney, the court set forth a four-factor common law test: (1) whether there was fair and full disclosure of the parties’ assets; (2) whether the agreement was supported by adequate consideration; (3) whether both parties had knowledge of the material particulars of the agreement and how those provisions impacted the parties’ rights in the absence of the agreement; and (4) whether the agreement was procured by an abuse of fiduciary relations, undue influence, or duress.

Under Kinney, the opportunity to consult with independent counsel remains a relevant factor, but is not determinative of whether an agreement is procedurally fair.

Kinney is the correct test, the court said. “McKee-Johnson is overruled to the extent that it determined that the common-law and statutory procedural tests were ‘substantially identical.’ They are not,” Lillehaug wrote.

Consideration and coercion

The next step was to determine whether the agreement between the parties was procedurally fair, which the court said it was not.

“[W]e first determine which provisions, if any, purport to distribute nonmarital property. If the Agreement contains such provisions, we apply the statutory standard—two conditions—to determine whether those provisions are in the ‘safe harbor.’ We then apply the Kinney factors to the remainder of the Agreement. If there are no such provisions, or if the provisions are not in the safe harbor, we apply the Kinney factors to the entire Agreement,” the court said.

This agreement referred only to “property,” without distinguishing between marital and nonmarital and therefore the court declined to apply the statutory safe harbor and applied the Kinney factors to the entire contract. The factors of adequate consideration and duress weighed heavily in Michelle’s favor, the court said.

“Because antenuptial agreements typically involve parties in a confidential relationship, capable of exploitation, we inquire into whether consideration supporting antenuptial agreements is ‘adequate,’ the court explained. An antenuptial agreement must sufficiently provide for the financially disadvantaged spouse, Lillehaug wrote.  The court observed that Michelle contributed to the farm operation, maintained the household and cared for the couple’s child—and concluded that the consideration for the agreement was not anywhere near adequate.

The duress factor also weighed heavily in Michelle’s favor, the court continued.  Robbie intentionally created a situation where Michelle was coerced into signing the agreement by the limited amount of time she had and his threats to call off the wedding, the court said.

The remaining Kinney factors could not outweigh the lack of consideration and duress, the court concluded.

Dissent: Statute left with little purpose

Anderson said that the court read McKee-Johnson too broadly, ignored the plain language of the statute, and should have remanded rather than apply the Kinney factors.

“In sum, section 519.11, subdivision 1, provides a universal safe harbor for all antenuptial agreements because the plain language of the statute, clearly and unambiguously, so states. Courts must look to the common law only when an agreement that includes provisions that purport to distribute marital property fails to conform to the procedural fairness requirements of section 519.11, subdivision 1,” Anderson argued.

“Not only does the court’s decision effectively amend the statute, but also it undermines the reason it was adopted in the first place. There is little point to an antenuptial agreement that distributes nonmarital property because nonmarital property is subject to distribution at dissolution only in exceptional cases. See Minn. Stat. § 518.58, subd. 2. The court’s decision leaves section 519.11, subdivision 1, with little purpose.”

 

Minn. Stat. sec. 519.11, subd. 1

 

A man and woman of legal age may enter into an antenuptial contract or settlement prior to solemnization of marriage which shall be valid and enforceable if (a) there is a full and fair disclosure of the earnings and property of each party, and (b) the parties have had an opportunity to consult with legal counsel of their own choice. An antenuptial contract or settlement made in conformity with this section may determine what rights each party has in the nonmarital property, defined in section 518.003, subdivision 3b, upon dissolution of marriage, legal separation or after its termination by death and may bar each other of all rights in the respective estates not so secured to them by their agreement. This section shall not be construed to make invalid or unenforceable any antenuptial agreement or settlement made and executed in conformity with this section because the agreement or settlement covers or includes marital property, if the agreement or settlement would be valid and enforceable without regard to this section.

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