By: Andrew Burrows
On January 31,
2017, the Michigan Court of Appeals issued an opinion in Allard v. Allard (Allard III) that seemed to have a dramatic impact
on the status of prenuptial and postnuptial agreements under Michigan law.
Despite the initial outcry, the actual impact of this decision on such agreements
is fairly negligible, with prenuptial agreements remaining an important tool
for couples contemplating marriage.
Above all,
Michigan contract law protects the principle of freedom to contract by recognizing
all contracts entered into upon the mutual agreement of the parties. As such,
many legal provisions that provide specific rules or expectations can be
modified, waived, or supplanted by contractual agreements. That being said, it
is also well recognized that freedom of contract does not permit contracting
parties to impose obligations or waive the rights of third parties without their
permission to do so.
In its most
simple form, Allard affirmed the
power of a divorce court to invade the separate property of one spouse if the
martial estate is insufficient to provide for the suitable support and
maintenance of the spouse seeking additional support. This accounts for the needs of any children
in their care despite the presence of a contractual agreement to the contrary. In
exercising this equitable power, the court is also limited, as it may only be exercised
over property for which the spouse seeking additional support contributed to
the acquisition, improvement or accumulation. Necessarily, this would likely
include all property accumulated during the course of the marriage.
As such, where
prenuptial agreements are concerned, this does not change the effectiveness of
these agreements where property accumulated prior to marriage is concerned, nor
does it affect provisions controlling any inheritance by a spouse. In addition,
unless there is an equitable reason for the court to invade the individual
property of a spouse, the terms of a prenuptial agreement will remain binding.
As the Court of
Appeals stated in Allard III, however,
a divorce proceeding is an equitable one that allows the court the freedom to
afford whatever relief is necessary to accomplish its own directives. In the decision,
the Court emphasized these equitable principles and pointed out that the
couple’s children are third parties whose rights are impacted without their
consent via a prenuptial agreement.
The broad impact
of the decision is that the bounds of contractual freedom for creating a prenuptial
agreement have been diminished, at least
to the extent to which these agreements may be utilized to maintain economic
inequity between spouses upon divorce. Practically speaking, most couples signing
prenuptial agreements are doing so to protect property accumulated prior to
marriage, and inherited during marriage, not to ensure that they will retain a
disproportionate portion of property accumulated during the marriage.
In summary, here are the key highlights:
- Prenuptial agreements continue to be critical to protect the separate property of each spouse accumulated prior to marriage, as well as any property or assets inherited during marriage by a spouse.
- A divorce court will only employ equitable principles to redistribute property – despite such property having been deemed as separate by a prenuptial agreement – when necessary to resolve an inequity of property between the spouses that makes support of one of the spouses impossible without such redistribution.
- Continued and future support of minor children is an extremely important factor in the court’s decision to judicially redistribute separate marital property.
If you are
looking to have a prenuptial agreement drafted, please contact your attorney to
address your individual concerns.
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