Most people have heard of a prenuptial agreement [“prenup”], a contract between persons who intend to marry which details exactly what will transpire relative to the parties’ assets, liabilities, earnings, and such upon divorce. But, what occurs if the parties did not enter into a prenup prior to their wedding? Is a mid-marriage agreement that resolves issues of equitable distribution and alimony in the event of a divorce, entered into by spouses who are not separated or contemplating divorce, enforceable in New Jersey?
In some states, mid-marriage agreements are void as against public policy. Under New Jersey law, while such agreements are not void per se, they are disfavored, primarily because the conditions under which such an agreement might come into existence are ripe for coercion, duress and/or overreaching by one spouse against the other.
In 1999, the Appellate Division in New Jersey set forth the above proposition in a case of first impression, Pacelli v Pacelli, 319 N.J. Super. 185 (App. Div. 1999) certif. den. 161 NJ 147 (1999). There, a successful businessman married an unemployed younger woman. The husband was forty-four (44) years old and the wife was twenty (20) years old; she had emigrated from Italy at age fourteen (14). The parties did not enter into a prenuptial agreement prior to their marriage. The parties had two (2) children in the early years of the marriage. The family lived in a substantial residence and enjoyed a high standard of living.
The husband’s success increased precipitously throughout the first ten (10) years of the parties’ marriage. Accordingly, the husband wished to define his obligations to his younger wife in the event of divorce. The couple was neither separated at the time nor contemplating divorce. The husband expressed his commitment to the marriage but nevertheless threatened the wife with divorce if she refused to sign his proposed mid-marriage agreement drawn up by his lawyer. The husband moved out of the marital home to demonstrate to the wife the seriousness of the matter.
The proposed mid-marriage agreement was presented by the husband to the wife as non-negotiable. The agreement directed that husband would pay to wife the sum of five hundred thousand dollars ($500,000.00) in full and complete satisfaction of wife’s rights to equitable distribution and alimony. The wife’s lawyer informed her that she would be entitled to significantly more than this sum if the parties divorced. Thus, the wife’s family law attorney counseled her against signing the document. Nonetheless, the wife signed the mid-marriage agreement because she wished to preserve the family and ensure that her children were not faced with a broken home. The parties remained married for nine (9) years after the parties entered into the agreement until husband filed a Complaint for Divorce. When the husband filed the Complaint, he possessed total assets valued at over $14 million and a net worth of over $11 million.
The New Jersey Appellate Court refused to enforce the mid-marriage agreement. The Court reasoned that the context in which the husband made his demand was inherently coercive and, also, that wife’s access to counsel was irrelevant because her decision as to whether or not to sign the agreement was not dictated by a consideration of her legal rights, but, rather, by her desire to preserve her family.
The mid-marriage agreement was distinguished from a reconciliation agreement. The Courts of New Jersey have enforced fair and equitable reconciliation agreements. For a reconciliation agreement to be enforced, the marital relationship must have deteriorated at least to the brink of indefinite separation or suit for divorce. Further, to be enforceable, the terms of a reconciliation agreement must be fair at the time the agreement was made and at the time enforcement of the agreement is sought.
In Pacelli, above, the parties had not contemplated divorce in any fashion. The husband’s interest was purely financial. Husband desired to limit his financial exposure in the event of divorce as a business measure. The marital crisis was artificially created by the husband to take advantage of his wife’s dedication to the marriage and family. Further, the agreement signed by Mrs. Pacelli was not fair and equitable when made or when sought to be enforced. When wife signed the agreement, its terms provided for her to receive the value of only 18% of the marital assets. When the Complaint for Divorce was filed, the wife’s share of the value of the assets had been reduced to 7%. The Court determined that the terms of the mid-marriage agreement were fundamentally unjust and unfair to the wife. For these reasons, the Court held the mid-marriage agreement to be unenforceable.
The Court opined that mid-marriage agreements present circumstances that are pregnant with the opportunity for one party to use the threat of dissolution to bargain themselves into positions of advantage. The Court continued: “We need not decide whether such agreements are so inherently and unduly coercive that they should not be enforced, though we conclude that at the very least they must be closely scrutinized and carefully evaluated.”
Pacelli is the only published opinion of the Courts of our State on this subject matter.
A noted NJ family law commentator has described the mid-marriage agreement as a “minefield.” New Jersey Family Law Practice, Skoloff and Cutler Vol III Sec 7.4(c)(2).
If you and your spouse decide that you wish to enter into a mid-marriage agreement, we recommend that you engage separate highly experienced family law attorneys to advise and guide each of you. With the help of your attorney, prepare, at the time of negotiation and signing, for the eventuality of divorce and the argument by your estranged spouse that the mid-marriage agreement is unenforceable upon the grounds that it was procured by fraud, overreaching, duress, or coercion and that its terms are unconscionable.
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