Allard: What Exactly is Michigan’s Public Policy?

No one really seems to know these days what Michigan’s public policy is when it comes to prenuptial agreements or for that matter, postnuptial agreements.

We are told that if a married couple enters into a postnuptial agreement while living together and with divorce not imminent, their agreement is against Michigan’s public policy and thus unenforceable, all because such an agreement might encourage the married couple’s future divorce. Similarly, Michigan’s Court of Appeals recent Allard decision [Michigan Court of Appeals, #308194. January 31, 2017], tells us that the parties cannot enter into an enforceable prenuptial agreement in which they waive their right to spousal support in the event of a future divorce, because the Michigan legislature vested divorce courts with the discretion to award spousal support, and consequently it would be against Michigan public policy to permit parties to a premarital contract to take that discretion away from a divorce judge. According to the Allard decision the public policy allegedly expressed in Michigan’s divorce statutes gives the discretion to a divorce judge to award separate property that the spouses at one time agreed to retain in their prenuptial agreement will nonetheless be subject to transfer to the other spouse in a future divorce proceeding. The Allard Court’s focus on existing statutes to find an alleged public policy to invalidate agreements between spouses is, at best, the product of a selective analysis of only some statutes in order to achieve a desired outcome, while conveniently ignoring other state statutes that clearly contemplate and respect the spouses’ freedom of contract.

Consider MCL 557.28 which succulently provides that: “A contract relating to property made between persons in contemplation of marriage shall remain in full force after the marriage takes place.” Or, what about MCL 700.2205 which contemplates that spouses can waive intestate succession rights, rights to elect against a deceased spouse’s estate, rights to a homestead allowance and an exempt property award from a deceased spouse’s estate, or their right to ask a probate judge to award a discretionary family allowance from the deceased spouse’s estate “either before or after the marriage by a written contract?” Whatever public policy might be inferred from these statutes was blissfully ignored in Allard. In essence, some rights can be waived by spouses, while others cannot, all dependent upon whatever public policy the Court attributes to the legislature when it enacted a statute. Arguably public policy can be gleaned from any statute that the Legislature chooses to enact. The challenge, then, is to discern which statute carries more public policy weight than other statutes.

We have long thought that we had a good handle on Michigan’s public policy with regard to prenuptial agreements when the Court of Appeals published its decision in Rinvelt v Rinvelt, 190 Mich App 372, 483; 475 NW 2d 478 (1991) and, in effect, changed the course of Michigan’s public policy at that time:

“Prenuptial Agreements provide people with the opportunity to ensure predictability, plan their future with more security, and, most importantly, decide their own destiny. Moreover, allowing couples to think through the financial aspects of their marriage beforehand can only foster strength and permanency in that relationship. In this day and age, judicial recognition of Prenuptial Agreements most likely encourages rather than discourages marriage. In sum, both the realities of our society and policy reasons favor judicial recognition of Prenuptial Agreements. [W]e see no logical or compelling reason why public policy should not allow two mature adults to handle their own financial affairs. Therefore, we join those courts that have recognized that Prenuptial Agreements legally procured and ostensibly fair in result are valid and can be enforced. The reasoning that once found them contrary to public policy has no place in today’s matrimonial law.”

We now find in Allard 25 years later, because there exist statutes that grant a divorce judge the discretion to invade one spouse’s separate property that those authorizing statutes create a more imperative public policy than the freedom of contract public policy announced in Rinvelt. In its ten-page Allard published decision, the Court did not even find it necessary to mention or distinguish Rinvelt’s statement of Michigan’s public policy that encourages ‘two mature adults to handle their own financial affairs.’ Instead, Allard merely phrased the issue as: ‘whether parties can agree to waive their own statutory rights when it [their agreement] openly defies the Legislature’s statutorily expressed intent,’ finding that those statutory rights cannot be waived and in the process completely ignoring Rinvelt’s public policy freedom of contract philosophy.

If we are left for an elusive search for public policy from statutes enacted in Michigan, consider the most recent public policy pronouncement from the Legislature reflected in Michigan’s 2016 Qualified Dispositions in Trust Act, which dramatically curtails a divorce judge’s consideration of premarital or separate property assets held in, or transferred to, a qualified dispositions trust. That part of Michigan’s asset protection trust legislation directs:

“Section 5(4)(b): If a trust beneficiary who has an interest in a qualified disposition or in property that is subject to a qualified disposition is a party to an action for annulment of a marriage, divorce, or separate maintenance, all of the following apply:

(b) If the trust beneficiary is the transferor of the qualified disposition, the trust beneficiary’s interest in the qualified disposition or in property that is the subject of the qualified disposition is not considered marital property, is not considered, directly or indirectly, part of the trust beneficiary’s real or personal estate, and shall not be awarded to the trust beneficiary’s spouse in a judgment for annulment of a marriage, divorce, or separate maintenance if either of the following apply: (i) the trust beneficiary transferred the property that is the subject of the qualified disposition more than 30 days before the trust beneficiary’s marriage that is the subject of the action; or (ii) the parties to the marriage agree that this subdivision applies to the qualified disposition. 2016 PA 330; MCL 700.1040 et seq.” (emphasis added.)

Practically speaking, Allard says that the couple about to be married cannot protect their separate property in a prenuptial agreement from the divorce judge’s statutory discretion to equitably invade their separate property, yet the Qualified Dispositions in Trust Act explicitly tells the divorce judge hands off if that trust was created and funded by a spouse at least 30 days before the marriage, or the spouses agree that the Qualified Dispositions in Trust applies to one spouse’s trust. Along the same lines the parties to a prenuptial or postnuptial agreement can also agree to binding arbitration with regard to the validity of their agreement, in effect completely removing from a divorce judge his or her equitable powers to ignore or override the terms of the agreement. MCL 600.5071(g) The public policy manifest in either of these two statutes was also ignored in the Allard decision.

It is hard to reconcile the reasoning given in the Allard decision which elevates the implicit public policy in long-standing divorce statutes that give the judge discretion to invade the parties’ separate property when a marital estate is divided, over Rinvelt’s expressed public policy which respects, if not openly encourages, individuals who intend to enter into a marriage to plan their own financial affairs. It is difficult to accept Allard’s emphasis that focuses on statutes that confer discretion on a divorce judge in view of the implicit legislative policy that lies behind the Qualified Dispositions in Trust Act, which essentially ties the divorce judge’s hands, despite existing statutes that confer discretion on the divorce court when dividing the marital estate, or Michigan’s statute that permits the parties to completely circumvent the divorce judge’s discretion by contractually agreeing to binding arbitration.

In short, the current law on the validity of prenuptial agreements and post-nuptial agreements in Michigan is an absolute mess. Postnuptial agreements are void if the spouses continue to live together, based on a public policy that was expressed 140 years ago when Rutherford B. Hayes was president. Prenuptial agreements cannot protect separate property because of longstanding Michigan statutes that give divorce judges discretion to invade that separate property. I guess Rinvelt’s expression of a fundamental change in Michigan’s public policy was, apparently, at best, premature.

Clients look to their advisors to provide certainty in their financial affairs. If Allard must be followed, then there is no certainty that any provisions placed in a prenuptial agreement will ever be enforced in the event of a divorce. It is even questionable if the terms of a prenuptial agreement will be enforced upon the death of one spouse if a probate judge can find some implied public policy in existing statutes designed to protect a surviving spouse on the death of their spouse. As for postnuptial agreements, if the condition to their validity is that the spouses must be living apart, or a divorce action is imminent, hardly any postnuptial agreement signed by spouses to identify and protect their separate property interests will be worth the paper on which the agreement is written.

Invalidating contracts negotiated between spouses on the basis of an implied public policy that a court divines from existing statutes creates unfortunate uncertainty when spouses, or intended spouses, want to provide certainty in their financial affairs, whether at the time of the death of one, or their subsequent divorce. There are enough Michigan statutes that any judge can find whatever implied public policy that is desired if they search hard enough. Maybe it is time that Michigan adopts a statute that promises to enforce a prenuptial agreement or postnuptial agreement without having to resort to mystical public policy.