United States: Disclosure Lives In The World Of Prenuptials: Or Does It?

To some readers, the title of this blog may seem yesterday's news. Drilled into our collective heads since Simeone v. Simeone (581 A.2d 162) was decided in 1990 is the mantra that "For any prenuptial to be valid there must be a fair disclosure."  The 2005 amendments to the Divorce Code brought some ambiguity to the matter.  The statute passed that became effective in January of that year contained a section related to prenuptial agreements (Sec. 3106).  It said that a party could "voluntarily and expressly waive, in writing, any right to disclosure...beyond the disclosure provided."  Then it added another clause essentially allowing the party defending an agreement to assert that the contesting party did have "adequate knowledge of the property or financial obligations" of the spouse defending the agreement.

One of the challenges when legislation is written by committee is finding clarity in the language. Section 3106 is a kind of classic example. First, it is written in the negative.  Then there is the dangling language about "beyond the disclosure provided" and "adequate knowledge."  Suppose the disclosure is incomplete or inaccurate?  Can that still be waived?  And when does knowledge of your future spouse's financial affairs rise to the level of adequate?

In recent years we have been approached to draft prenuptial agreements by clients who were not really interested in making a disclosure. Typically, these are folks who sincerely believe that if their future spouse knew just how wealthy they were, it might unleash spending problems or produce other sources of friction.  In each instance, we have resisted temptation because the statute talks about waiver but ends the sentence with reference to a "disclosure provided".  This can produce some testy interactions with clients who want to focus only on the waiver element of Section 3106(a)(2)(ii).

A recent Chester County ruling in Mandler v. Mandler, 64 Chester Co. L.R. 159 (2016) underscores our concern through its interpretation of the statute.  In April, 2005, groom presented bride with a prenuptial agreement that he had secured from a website called Lawdepot.com.  Bride took the agreement to a local attorney who suggested changes, one of which related to either the absence or paucity of the disclosure.  Roughly three weeks later the agreement was signed with some changes.  Its disclosure provision said that the parties waived any rights to further disclosure because they were satisfied with what had been disclosed.

A month after the prenup was presented and about 10 days after it was signed, the not so blessed union was formed. We should add that bride, now wife was employed by some of groom/husband's businesses both before and after the wedding date.

To describe husband's financial picture as Byzantine would be an understatement. Residential and investment real estate were coupled with medical management and consulting companies. Meanwhile, husband claimed to be unemployed during the two years prior to marriage.  Financial records did not square with filed tax returns and expenses were funded with a labyrinth of "inter company" loans more related to cash management than business lending.  Sitting atop this empire were unpaid federal and state tax debt of roughly $6,000,000.

Wife sued for divorce in 2013 and moved to set aside the agreement in June, 2014. Hearings consumed five days over the course of ten months.  As one might expect given the facts described thus far, husband appears to have had great difficulty explaining his own financial situation even after asserting that his spouse had adequate knowledge of the same facts to permit her waiver to be deemed valid.

The opinion of the Honorable David Bortner marches through the statute noting early on that there is no judicial or statutory precedent for "adequate knowledge" sufficient to overcome a disclosure that otherwise fails in completeness or accuracy. He then makes the point that as he reads the statute full disclosure must be waived prior to rather than contemporaneous with execution of the agreement.   His reading cannot be faulted although it opens a second door for statutory interpretation: viz., Is the waiver a separate transaction that must be documented and how much time must elapse before the execution for it to be valid.

But the primary focus of the opinion is on the words in Section 3106(a)(2)(ii); "beyond the disclosure provided." The Court notes that if disclosure could be entirely dispensed with the statute should have read "beyond the disclosure provided, if any".  The conclusion is that absent "a disclosure" a waiver cannot be upheld.

There being no actual disclosure attached to the Mandler agreement, the trial appears to have been consumed with proving bride's actual and adequate knowledge of husband's financial situation at the time of execution. This is more often than not a "fool's errand."  As the opinion notes, it is the burden of the person attacking the agreement to show by clear and convincing evidence that she did not have adequate knowledge. See Section 3106 (a)(2)(iii).  To accomplish that in a meaningful way would require her to undertake discovery of financial data created a decade earlier to gain the knowledge she is asserting she did not have then and to conclude her testimony by stating that she knew none of it then or what she knew was not adequate.  In this case, it wasn't difficult to meet her burden because it appears that husband could not, himself, convincingly describe what he owned "then."  Effectively, his argument was:  "Judge I'm not clear what I owned when she waived disclosure of my assets, but my Wife sure did."

One of the more interesting aspects of the opinion is its analysis of Lugg v. Lugg, a 2013 Superior Court reported decision. (64 A.3d 1109)  Mr. and Mrs. Lugg were negotiating a divorce agreement and Mrs. Lugg tended to wander away from her attorney's counsel and negotiate on her own.  Husband's father and brothers were lawyers so they happily did the drafting.  One day, Mr. Lugg and a secretary from dad's firm arrived at Wife's home with an agreement.  This does not appear to have been a surprise but after 90 minutes, voila, an agreement was executed.  The parties then started to process of signing car titles and deeds consistent with the document.  Mrs. Lugg later contested the agreement noting that no disclosure had been provided.  Meanwhile the agreement stated that disclosure was waived.  The trial court in Clinton County and the Superior Court affirmed the agreement.  The Superior Court opinion states " If there is no allegation that {a party} misrepresented his financial resources and ....{the other party} was aware that {no disclosure was made}, the Court cannot find ...fraud or misrepresentation.  The Superior Court states that it was deciding this under Section 3106.

The question of whether prenuptial and post nuptial agreement cases should be decided differently may still be an open one although all of the case law says they should be treated the same. But in this instance the Superior Court held that financial disclosure may be waived in its entirety because that is what the legislature intended under Section 3106.  Bear in mind, the legislature adopted Section 3106 and applied it to prenuptial agreements alone even though case law had long held prenuptial and post nuptial agreements to the same standard  See Holz v. Holz, 850 A.2d 751, 757 (Pa. Super. 2004).  So we have an interesting question.  The Superior Court says waiver may mean waiver of any disclosure.  Judge Bortner's holding appears to be stating that where a statute says "beyond the disclosure provided" those words must be given their plain meaning which is to say that a disclosure must be provided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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