Michigan Prenuptial Agreements: Allard Turns the World Upside Down

While we do not regularly deal with prenuptial agreements at GLT, we know that many of our clients  are in second and third marriages who have entered into a prenuptial agreement with the intent to protect their premarital separate property assets in the event of death (where the surviving spouse often waives his/her elective or intestate rights under the probate code and statutory probate allowances from the deceased spouse’s estate) and in a possible future divorce where their premarital separate property assets are contractually protected in a future divorce proceeding. The 1991 Rinvelt decision held that prenuptial agreements were not against Michigan public policy; the Court of Appeal reasoned that individuals who contemplate marriage are encouraged to order their financial affairs in prenuptial agreements prior to their marriage. In a major turn of events (dare I say the law) the Michigan Court of Appeals on January 31 published a decision, i.e. binding precedent on all Michigan trial courts, that held that the parties to a prenuptial agreement can no longer contractually agree to protect the separate property that each brings to the marriage from the equitable division powers of a divorce judge. Allard v Allard, No. 308194 (January 31, 2017).

The key quote in the Court of Appeals decision follows:

“Moreover, to the extent that parties attempt, by contract, to bind the equitable authority granted to a circuit court under MCL 552.23(1) and MCL 552.401, any such agreement is necessarily void as against both statute and the public policy codified by our Legislature. Put differently, the parties to a divorce cannot, through antenuptial [prenuptial] agreement, compel a court of equity to order a property settlement agreement that is inequitable. Although parties have a fundamental right to contract as they see fit, they have no right to do so in direct contravention of this state’s laws and public policy.”

Thus, despite the terms of a prenuptial agreement, a divorce judge can invade the separate property of one spouse and award it to the other spouse in a divorce,  if the judge believes that it is fair and reasonable to do so, despite the terms of a prenuptial agreement that provides that each spouse will not make any claims against the other’s separate property if they are later embroiled in a divorce.

The Court in Allard distinguishes rights that the parties can waive, e.g. the right to ask for attorney’s fees; the right to ask for a spousal support award, from statutes that arguably confer rights on the trial court. Thus, if a statute confers equitable distribution powers on a trial judge, i.e. akin to giving a right to the trial judge, the parties cannot by contract waive that right or power given by the Legislature to the judge.

I won’t go into the tortured statutory analysis the Court of Appeals followed to reach its conclusion, but to the extent the Court seemed to hang its hat on what it termed ‘public policy codified by our Legislature’ referring to the two statutes identified in the quote, the Court conveniently side-stepped the apparent public policy manifested by the same Legislature when it adopted MCL 557.28, which states very clearly:

MCL 557.28: A contract relating to property made between persons in contemplation of marriage shall remain in full force after the marriage takes place.

Thus, there are three competing statutes at issue. One statute {MCL 557.28}  relates to a contract with regard to property made between individuals in contemplation of their marriage; it says the parties (spouses) prior to their marriage can contractually protect the assets that each brings to their marriage. Two other statutes {MCL 552.401 and MCL 552.23(1)} permit a divorce judge to invade the separate property assets of the other spouse if the divorce judge considers that invasion to be ‘just and reasonable, after considering the ability of either party to pay, the character and situation of the parties, and all other circumstances.’ Contracts are intended to provide certainty to the parties. Equitable distribution powers wielded by an unknown judge, including the right to invade, is anything but certain.

The two invasion statutes were found to trump the freedom of contract statute on basis that ‘the freedom of contract does not permit contracting parties to impose obligations upon and waive the rights of third parties in the absence of legally cognizable authority to do so.’ To reach this conclusion the Court of Appeals had to find a ‘third party’ whose interests needed to be protected through the divorce judge’s equitable powers;  MCL 552.23(1),  one of the two invasion statutes,  includes the phrase “if the estate and effects awarded to either party is insufficient for the suitable support and maintenance of either party  and any children of the marriage who are committed to the care and custody of either party…”Thus, the Court was able to find a third party, children of the marriage who needs to be protected by the judge’s equitable power, in order to empower the divorce judge to invade one spouse’s separate property assets despite the provisions of the child’s parents’ prenuptial agreement.

While I might be tempted to take the position that if the parties to the prenuptial agreement have no children, then their prenuptial agreement will protect each parties’ separate property assets in a subsequent divorce, that same statute applies whether or not there are children of the marriage, so I would expect the same statute will permit a divorce judge to ignore the provisions of the parties’ prenuptial agreement and exercise the court’s equitable powers, including the right to invade one spouse’s separate property which was intended to be protected by the prenuptial agreement, children or not.

Maybe Allard is one of those ‘bad facts make bad law’ kind of cases. Under the Allards’ prenuptial agreement, had its terms been enforced as written, Mr. Allard would have received $900,000 in assets and Mrs. Allard would have received $95,000 in assets after their 16 years of marriage. But disparity in wealth is usually one of the primary reasons why at least one party feels the need to ask for a prenuptial agreement from the other- to protect what they already own and to insulate that premarital property from the unknown and whimsical equitable powers of a divorce judge.

Finally, it is not clear what impact, if any, the Allard decision will have on a prenuptial agreement’s terms if one of the spouse’s dies. The Michigan statute that gives the parties the right to waive elective shares, intestate succession shares, homestead allowances, dower, exemption property, or family allowance was never mentioned by the Court in the Allard decision. That statute includes, in part:

“ MCL 700.2205 The rights of the surviving spouse…. may be waived, wholly or partially, before or after marriage, by a written contract, agreement, or waiver signed by the party waiving after fair disclosure.”

My guess is that all of these rights given under EPIC to a surviving spouse can still be legally waived by individuals in their prenuptial agreement, since the Court in Allard seemed to stress that when a statute confers rights on individuals (not a right conferred on a court) those individuals can waive those rights, at any time.

I wonder if lawyers who have drafted prenuptial agreements for clients since 1991 need to contact their clients and advise them that the ‘what’s mine is mine, what’s yours is yours’ provision is no longer viable, and presumable against Michigan public policy to the extent that it attempts to divest a divorce judge from the equitable invasion powers the two statutes confer on a divorce judge. My hope is that the Supreme Court will take a look at the Allard decision since it seems to fly in the face of both the freedom of contract statute, MCL 557.28, which presumably carries its own expression of the Legislature’s public policy conveniently ignored by the Allard Court, and the reasoning of the 1991 Rinvelt decision that expressly encourage individuals to ‘order their financial affairs’ including their property rights, in a prenuptial agreement. If feels almost as if the Court’s decision in Allard abruptly overturned about 25 years of settled law expressed in Rinvelt.

Perhaps the confusion caused by Allard will now prompt Michigan’s Legislature to take a long and hard look at adopting the Uniform Premarital and Marital Agreement Act that 26 other have states found to be clear and helpful to their courts.