Posts Tagged ‘prenuptial agreement’

Lawyer’s Move From Representing Widow to Estate is Problematic

OCTOBER 31, 2011 VOLUME 18 NUMBER 37
Floyd Spence, a Republican Congressman from South Carolina, was a long-time survivor of a heart-lung transplant and a (separate) kidney transplant when he died in 2001, at the age of 73. He was survived by his second wife, Deborah Spence, and four adult sons from his first marriage (his first wife had died in 1978).

As Congressman Spence lay dying in a Mississippi hospital, Mrs. Spence realized that she might need legal counsel to sort out what she would receive from his estate and his congressional life insurance policy. She consulted Kenneth B. Wingate, a prominent lawyer in Columbia, South Carolina. They discussed the fact that she had signed a prenuptial agreement prior to marrying Congressman Spence, that he had initially named her as one of five beneficiaries (along with her stepsons) on his $500,000 life insurance policy, and that she believed he had changed the beneficiary designation to name her alone.

Mr. Wingate advised Mrs. Spence that she should consider entering into an agreement with her stepsons about how the estate would be divided upon Congressman Spence’s death, since there were uncertainties arising from his two different wills, the beneficiary designation and her possible rights under South Carolina law. She agreed, and a settlement of any possible dispute was quickly negotiated and signed. Congressman Spence died, as it happened, the day after the settlement was finalized. The settlement provided for a trust, to be funded with one-third of Congressman Spence’s probate assets and paying its income to her for the rest of her life.

About two weeks later, Mr. Wingate visited Mrs. Spence and informed her that he had been retained to represent the Estate of her late husband. He did not tell her that there might be a conflict of interest in that representation, and he did not ask her to acknowledge any conflict or sign a waiver. In fact, he told her that she would no longer need separate counsel, since the possible conflicts had all been resolved.

Over the next few months Mrs. Spence began to think that she had made a bad bargain. She became convinced that she would have received more from either her husband’s last will or South Carolina’s laws providing for surviving spouses. At a family meeting with her four stepsons and Mr. Wingate, however, her former attorney suggested that she should forgo her right to receive the entire life insurance policy in order to make the boys “whole again.” She did not want to agree, arguing that they should not alter her late husband’s wishes.

After the family meeting Mrs. Spence called Mr. Wingate and asked him to put his hat back on as her attorney and counsel her about the life insurance proceeds. He declined but, according to her, he did not tell her that she ought to seek new counsel or take any steps to protect her interest in the life insurance.

About a year after the Congressman’s death, Mrs. Spence filed a lawsuit seeking to set aside the agreement Mr. Wingate had negotiated for her. He promptly withdrew from representation of the Estate. Eventually the court set aside the agreement.

Mrs. Spence then sued Mr. Wingate, arguing (among other things) that he had breached his fiduciary duty to her as a former client by taking on a new client with an adversarial position. Particularly she argued that Mr. Wingate breached his duties to her in connection with the life insurance policy.

The trial judge dismissed that part of her complaint. Since the estate did not have any interest in or right to the insurance proceeds, the judge decided, Mr. Wingate could not breach any duty to her with regard to the policy. The South Carolina Court of Appeals, however, disagreed. The possibility of a breach of fiduciary duty would depend on the evidence at trial, ruled the appellate judges. The case should be returned to the trial court for further proceedings to determine whether there was in fact a breach of duty.

The South Carolina Supreme Court has now rendered its opinion on Mr. Wingate’s duties to Mrs. Spence. The state’s high court agreed with the Court of Appeals that more facts are needed, but made clear that the existence (or non-existence) of a fiduciary duty is a question of law for the trial judge to decide. In other words, the dispute was returned to the trial court for further hearings, and with an instruction to the trial judge to make a finding about whether Mr. Wingate owed a fiduciary duty to Mrs. Spence with regard to the insurance proceeds. If the judge decides that a duty has been shown, then a jury can determine whether Mr. Wingate breached that duty. Spence v. Wingate, October 17, 2011.

The decision of the Supreme Court was not unanimous, incidentally. Two of the five justices would have found that no fiduciary duty existed with regard to the insurance policy, and would therefore have upheld the partial summary judgment originally granted by the trial judge.

Is there a broader lesson in this story? Let us guess that Mr. Wingate today wishes he had declined to take on representation of the Spence estate, and stayed available to counsel Mrs. Spence as to her rights and her agreement. He may ultimately be vindicated, but that will be a less desirable outcome than never having been accused of breaching his duty in the first instance.

Marital Agreements and Death of One Spouse

OCTOBER 17, 2011 VOLUME 18 NUMBER 36
John and Marsha, contemplating marriage, want to enter into an agreement spelling out what will happen to their separate and community property if they later divorce, or when one of them dies. Or perhaps John and Marsha have been married for years, but are contemplating separation and maybe divorce — perhaps they want to divide their property interests now, just in case. Or maybe John and Marsha are perfectly happy in their marriage, but they both want to make sure that after one dies the survivor won’t change the ultimate recipients of their combined estate. Can John and Marsha agree to change the nature of their respective property rights and interests?

Yes, of course, they can. Most people are familiar with the concept of a premarital agreement (sometimes called a prenuptial agreement). Less familiar, but still fairly common, is the postnuptial agreement, entered into between spouses even after they have married. Even less common are contracts not to make a new will — John and Marsha can enter into an agreement that neither will change their will without both agreeing, and thereby try to prevent changes after one of them dies.

It is important to note that each of those types of agreements must be prepared in conformance with state law — and the requirements are different for each type of agreement and in each state. That can make it very confusing to figure out how to make an effective agreement. Depending on family circumstances, relative wealth of the spouses and other factors, it might well be worth exploring an agreement. One important rule that governs at least prenuptial and postnuptial agreements: the spouses should each have separate legal counsel (that is, each should have their own lawyer).

So what happens if a couple has signed an agreement and one spouse dies? Assuming the agreement is valid and enforceable, the deceased spouse’s heirs or estate should be able to get appropriate orders effecting the terms of the agreement. What happens if the couple’s situation changes? In most cases, nothing prevents them from changing the terms of their agreement.

Here’s a common scenario: John and Marsha sign an agreement about how they will treat their property (in this case it is not going to matter whether they sign before or after their marriage). The agreement provides that neither is entitled to receive anything from the other’s estate.

After the agreement is signed, John decides to leave a substantial sum of money (or a life insurance policy, or an IRA — it doesn’t matter which kind of asset) to Marsha anyway, and he changes his will, or makes her beneficiary. If John dies, can his other heirs — the children of his first marriage, perhaps — set aside the bequest to Marsha?

Assuming the documents are properly signed, and John was competent and not subjected to undue influence, the agreement probably will not prevent Marsha from inheriting. The agreement probably did not say any will provision or beneficiary designation would be invalid — it more likely just provided that John did not have to do anything to benefit Marsha, but probably does not prevent him from leaving her anything.

That’s not the situation in a recent Florida case, however. Jeffery and Andrea Steffens’ postnuptial agreement gives some insight into how tricky it can sometimes be to figure out what the agreement means.

In 2002 Jeffrey Steffens signed his will. He left most of his estate to his wife Andrea. Five years later, though, the marriage was shaky and Jeffrey and Andrea were considering separation or even divorce. They signed their postnuptial agreement in 2007, providing that each waived any right to receive any property from the other’s estate. Two years later, when Jeffrey died, the couple was still married.

Andrea filed Jeffrey’s 2002 will and asked the probate court to appoint her as personal representative. Jeffrey’s first wife, acting on behalf of his (and her) minor children, objected, and argued that Andrea had waived the right to receive under Jeffrey’s 2002 will.

The postnuptial agreement expressly authorized either spouse to leave the other more than money by will or beneficiary designation, but it also had each spouse waiving any right to claim property from the other’s estate. Since the will had been signed before the postnuptial agreement, and since Jeffrey did not sign a new will leaving anything to Andrea after signing the agreement, the probate court agreed with Jeffrey’s first wife.

The Florida Court of  Appeals upheld the probate court ruling. Consequently, Andrea received nothing from Jeffrey’s estate, and instead it went to the children of his first marriage. Steffens v. Evans, October 5, 2011.

Was that what Jeffrey Steffens wanted, or would have wanted? It may not be clear. Andrea sought court permission to produce evidence about what Jeffrey actually intended, but the probate judge (and the appellate court) denied her the opportunity, ruling that the agreement was unambiguous.

Assume for a moment that Jeffrey was hopeful about his relationship with Andrea, and wanted his 2002 will to be effective. What might he have done? One easy step would have been to simply “republish” his will — perhaps by signing a new copy of the exact same document, or even by signing a statement that he intended the will to remain effective. It would have been important that he have two witnesses sign at the same time. Just telling Andrea — or even a third person (even, for that matter, his first wife) — what he wanted would not have been sufficient.

Agreement Between Spouses Voided Ten Years After Signing

OCTOBER 13, 2003 VOLUME 11, NUMBER 15

Reported court cases involving prenuptial agreements sometimes seem to be confused and contradictory. State laws governing such agreements vary somewhat, but the outcome of a challenge is almost always dependent on the peculiar facts in each case.

Consider the prenuptial agreement signed by John and Erin Hollett on the morning of their 1990 wedding. They had dated for six years and had discussed prenuptial agreements in concept—in fact they had at least one heated argument about the idea two years before they got married. They had not, however, discussed whether or not they would sign one—until two days before the wedding date.

John Hollett was thirty years older than his new wife. He was a successful real estate developer in New Hampshire, and worth about six million dollars. She, on the other hand, was worth about five thousand dollars, had dropped out of high school and had worked as a bartender and cashier.

Mr. Hollett’s lawyers knew state law would require that Mrs. Hollett have independent legal advice before signing any agreement. They contacted Brian Shaughnessy, who had been a lawyer for just one year at that point, and asked if he would be willing to represent the soon-to-be Mrs. Hollett. They promised to pay his legal fees, and he called and invited her to his office.

The day before the scheduled wedding, with 200 guests invited, Mr. Shaughnessy met with his client for the first and only time. Although he was not very experienced, Mr. Shaughnessy could see that the proposed agreement was not very favorable to his client and that the financial disclosure from Mr. Hollett was sketchy. His efforts resulted in an agreement that guaranteed Mrs. Hollett up to one-sixth of her husband’s estate upon divorce or his death, and the agreement was signed on the morning of the wedding.

The couple lived together for over a decade, until Mr. Hollett’s death in 2001. Mrs. Hollett then moved to have the agreement declared invalid, arguing that she had signed it under duress. The New Hampshire Supreme Court agreed, ruling that the sharp disparity in bargaining positions, the rushed nature of the agreement and the behavior of Mr. Hollett in secreting his intentions made the agreement unenforceable. Estate of Hollett, September 26, 2003.

The Hollett case is strikingly similar to another case described in Elder Law Issues just two years ago—but with a different outcome. In the earlier case, involving Frances and Eugene Ingmand, the Iowa courts upheld an agreement sprung on Mrs. Ingmand three days before the wedding. The difference is in the facts, and probably in the disparity between the Holletts’ business experience. Prenuptial agreements are enforceable, but only if the rules are carefully followed.

Antenuptial Agreement May Not Avoid Claim Against Estate

MARCH 11, 2002 VOLUME 9, NUMBER 37

Before David and Debra Pysell got married they signed an antenuptial agreement. When David Pysell died several years later without having written a will, Debra Pysell claimed a share of his estate. The executor of his estate objected, citing the antenuptial agreement, and the question ultimately had to be decided by the Virginia Supreme Court.

Antenuptial (or prenuptial) agreements can set out the property rights between two people before they get married. A typical antenuptial agreement might provide, for example, that the property each spouse brings into the marriage will remain his or her own. The Pysells made such an agreement, and even went so far as to agree that any income received by either of them would remain the property of the spouse receiving it.

When Mr. Pysell died without a will, his wife would ordinarily have been entitled to receive a share of his estate—in Virginia, this share is referred to as the “elective share.” She would also be entitled to additional sums as “family” and “exempt property” allowances.

There were two problems with Mrs. Pysell’s claim to a share of her husband’s property, according to the executor of the estate. First, the Pysells had been living apart since (as the executor characterized it) Mrs. Pysell had abandoned her husband some time before his death. Second, in the antenuptial agreement Mrs. Pysell waived any claim she might have to her prospective husband’s property.

Although the antenuptial agreement appeared to deal with all of the couple’s rights, however, Mrs. Pysell pointed out that it spoke only in the present tense. In other words, she argued that she had given up only whatever interest she might have in her husband’s property during his life, and not the claim she had against his estate when he predeceased her.

The probate court agreed with Mr. Pysell’s executor and denied Mrs. Pysell’s claims. She appealed to the state Supreme Court, and that court reversed the probate court ruling and ordered distribution of a share of the estate to Mrs. Pysell.

The Pysells’ antenuptial agreement did not contain any express language regarding the right of each spouse to inherit from the other. If Mrs. Pysell had clearly signed away her right to make a claim against her husband’s estate, there would have been no question that her later claim would have been dismissed. The state Supreme Court, however, agreed with Mrs. Pysell that the provision in which she waived any claim “whatsoever” in her husband’s property only meant any claim she might have during his life.

Two of the seven justices on the Court dissented, arguing that the language of the antenuptial agreement was clear. In their view Mrs. Pysell had, as the executor urged, given up “any claim, whatsoever, in the property of” Mr. Pysell. They were outvoted on the Court, however, and Mrs. Pysell received a share of her late husband’s estate. Pysell v. Keck, March 1, 2002.

Prenuptial Agreement Is Valid Despite Wife’s Failure To Read

OCTOBER 1, 2001 VOLUME 9, NUMBER 14

Prenuptial agreements, though not particularly romantic, are often important to couples about to be married. Particularly in second marriage situations, a prenuptial agreement can reduce anxiety between the new spouses as well as among family members of each spouse. There are some clear rules that must be followed to make such agreements effective, however.

In Arizona, for instance, a prenuptial agreement (sometimes also called a premarital agreement) will be enforced in a later dissolution proceeding or upon the death of one spouse, but only if each prospective spouse gives financial information to the other. An agreement must not be unconscionable, and both parties must have signed voluntarily. Other state rules, though they differ in particulars, will usually be similar.

Frances and Eugene Ingmand were actually residents of Iowa, but they were staying at Mr. Ingmand’s winter home in Sun City, Arizona, when they decided they would get married. On March 11, 1986, three days before their marriage, Mr. Ingmand told his wife-to-be that they needed to go get a marriage license, and got her into his car. Instead, he drove to his attorney’s office, where she was presented with a prenuptial agreement and told that she would not be getting married unless she signed.

Mr. Ingmand’s lawyer explained to Frances that he represented only her prospective husband, and that she was free to take the agreement to someone else to review. She was uncomfortable and embarrassed, but she declined to either read the document carefully or take it for independent review. She signed in the lawyer’s office that day, and the couple was married on schedule.

When Mr. Ingmand died in Iowa a decade later, his widow filed a claim in probate court for her share of his estate. His heirs, pointing to the prenuptial agreement, denied her claim; the probate court sided with the estate and against Mrs. Ingmand, and she appealed.

The Iowa Court of Appeals upheld the probate court’s determination. While Mr. Ingmand’s “actions may be fairly characterized as surprise pressure tactics,” ruled the Court, “they did not negate the knowing and voluntary nature of the execution.” Mrs. Ingmand had an opportunity to review the document, or could have delayed signing until she had taken a copy home or to her own lawyer. In the Matter of the Estate of Ingmand, July 31, 2001.

Although Mr. and Mrs. Ingmand’s prenuptial agreement was executed in Arizona, it was reviewed under Iowa law because that was their residence and the place of Mr. Ingmand’s death. If the review had taken place in Arizona courts, however, it most likely would have led to the same result. Iowa and Arizona laws governing prenuptial agreements are very similar.

Widow Is Impoverished, But Prenuptial Agreement Stands

FEBRUARY 5, 2001 VOLUME 8, NUMBER 32

Emanuel Lutz was 60 when he met and began dating Lavilla Oswald, a 53-year-old divorcee. The North Dakota couple moved in together in 1986 and shortly began discussing getting married.

Mr. Lutz had two children from his first marriage, and he wanted to make sure his estate would pass to those children upon his death. He talked to his attorney about giving the future Mrs. Lutz the right to live in the duplex he owned, but nothing else, if he were to marry her.

Over an eight month period Mr. Lutz met several times with his attorney, sometimes with Ms. Oswald along. Drafts were prepared, though Mr. Lutz’ attorney deleted a provision giving the Lutz children the power to force Ms. Oswald out of the duplex; he reasoned that such a provision would be unacceptable to Ms. Oswald and the attorney she hired to review the prenuptial agreement.

Ms. Oswald never did get around to seeking her own legal counsel, however. On February 1, 1988, Mr. Lutz and Ms. Oswald met in the attorney’s office and signed the prenuptial agreement as it had been prepared by Mr. Lutz’ attorney. The couple was married on Valentine’s Day, less than two weeks later.

After six years of marriage Mr. Lutz was diagnosed with colon cancer in 1994. He died—at home, enrolled in a hospice program—in November of that year.

Mrs. Lutz made three claims against her late husband’s $400,000 estate. She argued that she should receive almost $40,000 to compensate her for the extraordinary care she had to provide to her husband during his last year of medical problems. She argued that the prenuptial agreement was invalid, both because she did not have separate counsel and because Mr. Lutz had privately assured her that she would receive a larger share of his estate. She also claimed that the prenuptial agreement was unconscionable, because it would leave her destitute and dependent on government assistance.

The North Dakota Supreme Court dismissed each of Mrs. Lutz’ claims, ruling that:

A family member is ordinarily not entitled to payment for nursing care provided, unless there is a prior agreement or the services are extraordinary. The care Mrs. Lutz provided, while extensive, was not extraordinary.
Mrs. Lutz had been advised that she should have sought her own independent legal advice, and could not complain of any unfairness simply because her husband’s attorney prepared the prenuptial agreement.
Because the right to reside in the duplex was worth almost $100,000, Mrs. Lutz was receiving nearly one-quarter of the estate. The result was not unconscionable. The fact that Mrs. Lutz would have to live on her Social Security income and might later need public assistance with her own nursing care was not sufficient reason to require her husband’s estate to pay her $250/month, as she had requested.

Mr. Lutz’ prenuptial agreement was upheld, and accomplished exactly what he had intended. Estate of Lutz, December 29, 2000.

Premarital Agreement Protects Husband From Wife’s Creditor

FEBRUARY 14, 2000 VOLUME 7, NUMBER 33

Premarital agreements are increasingly common, particularly in second marriages and between older couples. Do agreements between couples really work? A recent Arizona case provides good evidence that premarital agreements really can protect both husband and wife.

Christopher and Shelley Schlaefer were married in 1994. They had already signed an agreement before the wedding. Like most premarital agreements, the Schlaefers’ provided that neither would have any claim against the other’s separate property, and that neither would be liable for the other’s debts.

While they were married, Shelley Schlaefer became ill and was treated at Paradise Valley Hospital in the Phoenix area. Christopher Schlaefer did not sign his wife’s admission documents, and never agreed to pay her hospital bill.

Sometime later, the Schlaefers divorced. After the divorce was final, Paradise Valley Hospital sought to collect the hospital bill from Mr. Schlaefer.

Arizona, of course, is a community property state. That usually means that each spouse receives an ownership interest in the other spouse’s earnings, and that each spouse is liable for the other spouse’s debts in most situations. Mr. Schlaefer, however, pointed to the prenuptial agreement and insisted that he was not responsible for his wife’s hospital debt.

Paradise Valley Hospital acknowledged that the Schlaefers could agree between themselves about how to divide their debts. But, the hospital argued, they could not bind their creditors to abide by their agreement. To allow the Schlaefers (or any couple) to change the general rules governing community property would be unconscionable, argued the hospital.

The Arizona trial court agreed, and ordered Mr. Schlaefer to pay not only his wife’s hospital bill but also the attorneys’ fees incurred by Paradise Valley Hospital in collecting the debt. Mr. Schlaefer appealed.

The Arizona Court of Appeals reversed the trial judge’s decision. The appellate court pointed out that the premarital agreement changed the nature of the couple’s debts—they no longer were presumed to be community debts but had been “transmuted” into separate debts. Furthermore, the award of attorneys’ fees was reversed, and Paradise Valley Hospital was directed to pay Mr. Schlaefer’s attorney’s fees for the appeal. Schlaefer v. Financial Management, January 27, 2000.

Do prenuptial agreements work in Arizona? Yes, they do—not only to protect spouses from one another in the event of subsequent divorce but also to protect both husband and wife from creditor’s claims against the other spouse.

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