Allard V Allard: A Precautionary Message About Prenups
Synopsis: Allard v Allard, 318 Mich App 583 (2017) confirmed that parties to a prenuptial agreement may not deprive a Michigan court of its statutory power and duty to create equitable property settlements. While Allard does not expand a court's statutory or equitable powers, it does announce a previously unarticulated legal threshold and no Michigan lawyer should draft or review a prenuptial agreement for any purpose without a thorough understanding of the decision.
In 2016 the Michigan Supreme Court added a new foundational block to the state's legal structure for the preparation and enforcement of antenuptial agreements. The Court's May 25, 2016 Order (Allard v Allard, 499 Mich 932 (2016)) created a new standard and guidance for the Court of Appeals on remand to end nearly four years of contentious post-judgment litigation over the interpretation and enforceability of an antenuptial agreement the parties had signed on September 9, 1993, two days before their wedding on September 11, 1993. The Court of Appeals issued its opinion on January 31, 2017 following the remand from the Supreme Court. (Allard v Allard, 318 Mich 583 (2017)).
The trial court enforced the antenuptial agreement over the wife’s objections based on duress (timing), unconscionability, and her lack of independent legal counsel. It also rejected her request under MCL 522.23(1) and MCL 522.401 to invade her husband's separate estate; and the trial court found the application of the common law equitable distribution factors (Sparks v Sparks, 440 Mich 141, 159-62 (1992)) would have undermined the parties' rights to freedom of contract.
Prior to the Allard litigation, Michigan lawyers drafting antenuptial agreements (prenups) focused on these fundamental legal principles to guide their clients:
- Did both parties have enough time to evaluate and consult with independent legal counsel about the potentially life-changing impact of the proposed agreement;
- Were the parties' financial and personal disclosures in the prenup process sufficient to inform each other about the potential costs and benefits that were being considered and allocated in the agreement;
- Was the agreement so imbalanced in favor of one party that it might be deemed "unconscionable" by a court when it was entered; and
- Have the facts and parties' circumstances changed since the agreement was executed so as to make its enforcement unfair and unreasonable? Rinvelt v Rinvelt, 190 Mich App 372 (1991).
Trial courts were instructed to evaluate the fairness of prenups under the circumstances of its creation and when its enforcement was being contested.
Lawyers also typically counseled their clients that "reasonably foreseeable" changes in their future circumstances would not provide grounds to invalidate an otherwise enforceable agreement. Reed v Reed, 265 Mich App 131 (2005).
Prior to Allard, the Rinvelt decision was the most recent sea-change in Michigan prenup law. Rinvelt removed all doubt that properly drafted antenuptial agreements were enforceable under Michigan law in a divorce action. The Reed case extended and clarified Rinvelt by ruling that married persons who entered into well-drafted prenups should be allowed to expect they would be treated as "captains of their own financial ships" who could "decide their own destiny." The Reed court evaluated a prenup the parties had executed twenty-five years earlier and rejected a challenge to its enforceability because the changes to their circumstances – especially the accumulation of assets and evolution of their incomes -- were not unforeseeable.
While trial courts possess broad discretion in the interpretation and enforcement of prenups, the prevailing Michigan appellate case law prior to Allard allowed draftspersons to advise clients that "reasonably foreseeable" changes would be broadly interpreted generally to sustain the principle that adults should be left alone to enter into contracts and expect they would be enforced.
Allard did not change any of the legal principles enunciated in the Rinvelt-Reed line of cases. It was based on a narrow but fundamental rule: parties cannot even by a mutually agreeable, properly drafted prenuptial agreement deprive a Michigan court of its authority – and duty – under applicable statutes to provide for equitable distribution of property in a divorce action.
The ex-wife in Allard relied on two Michigan statutes – MCL 552.23(1) and MCL 552.401 – in her defense against the challenge to the prenup. Those statutes give the trial courts jurisdiction to invade a spouse's separate property to achieve equity if the other shows either need for or contribution to assets. The COA rejected the argument that those statutes created discernable rights for one party against the other's separate property. That is a distinction with a difference, because the ex-wife argued that the prenup gave her an independent contractual right to petition the court for invasion of her ex-husband's separate property. The Supreme Court and the Court of Appeals rejected her argument.
Accordingly, counsel must inform clients seeking enforceable prenups that the trial court now has another fundamental basis for invalidating the agreements. Under Allard, a Michigan court always has the inherent jurisdiction -- and will likely exercise it – to invalidate a prenup if it concludes the agreement would violate public policy by attempting to circumvent the court's statutory power to create an equitable property settlement.
Some lawyers believe the Allard decision was driven by the court's pursuit of a specific result rather than the application of a legal principle it had not previously identified. Those beliefs arose because the facts in Allard were harsh. Enforcement of the prenup would have left the ex-wife with roughly 10% and the ex-husband approximately 90% of the property the parties owned and accumulated during a 16-year marriage. The Court effectively preempted those subjective perceptions, however, by basing its decision on sound legal analysis of the applicable statutes.
The Allard appellate decisions were not related to the wife's challenges to the prenup based on the timing of its execution (2 days before the wedding), the quality of the disclosures, or even whether the agreement was unconscionable. Those issues were litigated in Allard but not determinative of the outcome.
Some lawyers have also dreaded broadside and wholesale Allard assaults on prenups going forward. Allard, after all, confirmed the court's jurisdiction to invade a party's separate estate to create an equitable property settlement notwithstanding a properly drafted and executed prenup. And, what might seem "equitable" to one judge might be offensive to one of his or her bench mates. Thus far, our appellate courts have not reported any such results. Indeed, one COA panel carefully admonished that Allard "did not hold that a court, under the guise of equity, can redefine the terms of a prenuptial agreement to make the agreement more equitable." Silverman v Silverman, 2018 WL 3788265 (COA case # 336905 unpublished decision August 9, 2018).
The difference between invalidating a prenup and invading separate property to achieve the same result might seem pretextual but the legal distinction is clearly defined for us in Allard. If it is applied with precision, it could determine success or failure in divorce litigation over property subject to a prenup in a Michigan trial or appellate court.
To preserve the sanctity of the parties' right to contract and enhance the enforceability of prenups, lawyers drafting them should now include specific provisions so courts interpreting them will know they considered the Allard decision. Those provisions should include:
"The parties do not intend by this agreement to assert or waive any right to invade each other's separate estates under MCL 522.23(1) or MCL 522.401 in contravention of a Michigan court's inherent authority to create an equitable property settlement. To the extent the parties to this agreement are asserting or waiving a right to invade the other's separate property, they intend to do so to the fullest limits allowed by law. While they intend every provision in this agreement be enforceable as written, they do not intend to bind a court's equitable jurisdiction or authority granted by those statutes.
"The parties intend that the term "property" in this agreement be interpreted as defined in Allard v Allard, 318 Mich App 583, 594-95 (2017).
"If a court or tribunal deems any portion of this agreement unenforceable as an attempt to bind the court's power to create an equitable property settlement, the parties promise each other they will not request or accept any property the court might award under MCL 552.23(1) or MCL 552.401.
"The parties agree that if either seeks to modify or invalidate any part of this agreement that party will ask the court to make the modification in the most limited manner possible to create a result that is consistent with their intent and wishes as defined in this document."
To date, no reported Michigan appellate decision has applied the Allard rule to invalidate a prenup; but lawyers and parties who do not anticipate that might happen, whether litigating or negotiating, do so at their peril.