Prenuptial Agreements Must be Entered Into Knowledgeably to be Valid

An antenuptial agreement (informally called a “prenup”) is binding on each party if both parties signed it “freely, knowledgeably and in good faith and without exertion of duress or undue influence upon either spouse ” Tenn. Code Ann. § 36-3-501. Whether an agreement is valid can be an issue in the probate as well as divorce context.
In a recent Tennessee case, In re: Estate of Hillis, 2016 WL 761236 (Tenn. Ct. App. February 25, 2016), the court of appeals held that because the husband did not sign the agreement “knowledgably” the agreement could not be enforced after the wife died. After his wife died, the husband challenged the validity of their prenuptial agreement and a later quitclaim deed from the wife to her son from an earlier marriage. Mrs. Hillis presented her husband with the prenuptial agreement one day before their wedding. In the agreement each party purportedly waived “all claims of inheritance, descent and distribution in the other’s estate. The agreement did not, however, include financial or asset disclosures.
Later, the wife executed a will that left the husband a car and a life estate in her real property, and some personal property in the parties’ home. The rest of her assets were left to her son. A few months later, she executed a quitclaim deed by which she transferred a life estate in her real property to herself and her husband, with the remainder to her son. After her will was admitted to probate, the widowed husband filed a petition for an elective share and a separate civil action to invalidate the quitclaim deed as a fraudulent conveyance.
The trial court found that the prenuptial agreement was invalid, in part, because there was no disclosure of wife’s assets. On appeal, the decedent’s son contended that the trial court erred by invalidating the antenuptial agreement. The court of appeals affirmed.
There are two ways to show that the agreement was signed knowledgably. First, the proponent of the agreement can show that the spouse seeking to avoid the agreement was provided with a full and fair disclosure of the nature, extent and value of the other spouse’s holdings. Second, in the absence of sufficient disclosure, the agreement can be enforced if a proponent shows that disclosure was unnecessary because the other spouse had independent knowledge of the full nature, extent, and value of the proponent spouse’s holdings.
In the Hillis case, there was no dispute that the husband did not receive any disclosure of wife’s holdings when he signed the agreement. The court of appeals said that the agreement could only be binding if such disclosures were unnecessary because he had sufficient independent knowledge of her holdings. The court said that whether one spouse had sufficient knowledge of the other’s finances depends on the facts and circumstances of each case, but factors to be considered include respective sophistication and experience in business affairs, the duration of the relationship prior to the date of the agreement, the time of the signing of the agreement in relation to the time of the wedding, and whether the parties were represented by independent counsel.

Although participation of independent counsel representing each party is not always required, it gives the best assurance that “the legal prerequisites will be met and that the antenuptial agreement will be found enforceable in the future.”
The Court found that both the circumstances surrounding the execution of the agreement and husband’s general knowledge of Mrs. Hillis’s assets supported the finding that the agreement was not entered knowledgably. The undisputed evidence at trial was that Husband first saw this agreement the day before the wedding and that he did not have advice of separate counsel. The court found that the wife’s attorney who wrote the agreement was “certainly not independent in this situation.”
The husband testified that he was aware that Mrs. Hillis had greater earning capacity than he did, but there was no evidence that he knew the extent or value of her business interest, bank accounts, and investments, which were significant, when he signed the agreement. Accordingly, there was no basis to conclude that husband had knowledge of the “full nature, extent, and value” of his wife’s holdings.
Extra time and extra care will go a long way to improve the chance a prenuptial agreement will be valid.