California Court Upholds Community Property Waiver in Otherwise Invalid Prenup - In re the Marriage of Nancy and Jeffrey Facter
In 1990, a Harvard Law school graduate and securities lawyer Jeffrey Facter met his future wife Nancy who had been married before. In 1994, Jeffrey gave Nancy a draft of a prenuptial agreement ("prenup") he drafted that listed Jeffrey's separate property and earnings and detailed among other things that no property acquired during the marriage would be community property. The prenup also limited Jeffrey's post-marital financial obligation and child support obligation. He had no experience in family law when he drafted it.
He advised her to seek the advice of counsel, but told her no changes would be made. He assumed that Nancy would tell him of anything out-of-order in the prenup. During a thirty-minute meeting, the attorney Nancy consulted told her that the child support provision was unenforceable and advised her that the prenup didn't waive spousal support nor contain attorneys' fees, and that funds put into joint accounts would be considered joint funds. Jeffrey and Nancy married each other with the agreement that Nancy would be a traditional stay-at-home mom and Jeffrey would support the family.
The parties separated in 2010. Divorce proceedings commenced. In 2011, Jeffrey's response to Nancy's divorce petition requested that she confirm the property rights listed in the prenup. Nancy responded by filing a motion for temporary support and fees, which stated that Jeffrey told her he didn't have to pay spousal support. Her attorney stated that though the prenup wasn't before the court, it contained no waiver of spousal support and its child support provisions were unenforceable.
At trial, Jeffrey conceded the prenup was unenforceable as to the child support provision and stated that he would not seek to enforce any spousal support waiver. However, he insisted that what he earned during the marriage was intended to be separate property, not joint earnings, under the prenup. The trial court declared the spousal support waiver to be unconscionable and found it was inseverable from the rest of the agreement. He ruled the prenup invalid.
Jeffrey appealed. He argued that the trial court erred should have simply severed any illegal terms and preserved the remaining agreement.
The California Court of Appeal first addressed the issue of whether the spousal support waiver was unconscionable. Because the couple were not even close to equal in terms of earnings potential during the marriage or after it, and did not have equal bargaining power during the drafting of the contract, the appellate court agreed with the trial court that the spousal support waiver was unconscionable.
However, the appellate court found that the agreement as a whole wasn't unenforceable. Nancy had voluntarily entered into the agreement with knowledge of Jeffrey's assets. It reasoned that the prenup was executed to serve three goals: (1) to waive community property rights, (2) to limit Nancy's right to spousal support in the event of divorce, and (3) to limit Jeffrey's child support obligations in the event of divorce. While the latter two were not valid provisions, the community property rights were waived. Accordingly, the appellate court held that the trial court abused its discretion in failing to sever the valid from the invalid provisions, under the perception that the agreement "one-sided" and "unfair." In its opinion the appellate court noted, "In the context of prenuptial agreements, fairness, for better or worse, is not the touchstone. Instead, the focus is on disclosure of assets."
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