Wednesday, February 24, 2010

Indiana Prenuptial Agreements - Setting them Aside for Fraud or Unconscionability

Let us go back to 1996 and Rider v. Rider, 669 NE 2d 160 for a description of unconscionability:

In this case, there is no evidence of fraud, duress, misrepresentation, or unconscionability at the time the contract was made. Leslie brought most of the property to the marriage; Charles brought few personal assets and a modest income from more than 35 years of work at the Delco Remy factory. Both were looking to protect their assets for themselves and for their heirs. Thus, the couple entered into an antenuptial agreement which would provide this protection. Even though at the time of marriage one spouse was close to retirement age and the other spouse had recently undergone several surgeries, the agreement was silent regarding support in the event that one spouse would become disabled. Given these circumstances, if such support had been important to either of the parties, surely it would have been included in the agreement. Rather, the agreement specifically stated that if the parties separated, neither would be entitled to support.

As discussed above, the trial court found that Leslie has assets worth between $65,000 and $85,000. However, due to her illness and her inability to work, she is not capable of supporting herself. Thus, the trial court found that the agreement is "not binding" with regard to maintenance, and awarded Leslie $225/mo. The Court of Appeals agreed, finding that "[a]n antenuptial provision limiting or eliminating spousal maintenance is unconscionable and will not be enforced when it would deprive a spouse of reasonable support that he or she is otherwise unable to secure." Rider, 648 N.E.2d at 665.

However, both the trial court and the Court of Appeals failed to consider the relative financial positions of the spouses. Unconscionability involves a gross disparity. See Justus, 581 N.E.2d at 1272. Thus, while an antenuptial agreement which would force one spouse onto public assistance may be unconscionable, we believe that a finding of unconscionability requires a comparison of the situations of the two parties. At the time of divorce, Leslie's assets were worth at least $65,000, and she received $645/mo. child support from a prior spouse. Charles had personal assets which were worth only several thousand dollars and a pension which paid a gross $1,247/mo. Enforcement of the antenuptial agreement would leave one spouse with virtually all of the real and personal property, while leaving the other spouse with a modest income stream. This is what the parties brought into their short marriage, and this is what they sought to protect. The alternative, as ordered by the trial court, would provide Leslie with almost all of the property and a significant percentage of the income stream. Given Charles' limited financial position, we do not find enforcement of the parties' own agreement to be unconscionable.

We agree with the trial judge that Leslie should continue to pursue her claims for disability and social security. While we sympathize with her, and we understand that enforcement of this contract eventually may force her to sell her home, we cannot find enforcement of this antenuptial agreement to be unconscionable. Finally, we note that this case does not involve a situation where, following divorce, one spouse is left with considerable assets while the other spouse is left virtually penniless, with no means of support. 165 Rather, in this case, one party is left with a modest income stream, while the other party is left with a modest amount of real and personal property.

And to 1997 and the Indiana Court of Appeals' decision in Pardieck v. Pardieck, 676 NE 2d 359:

Finally, we address the trial court's creation of a "good faith" exception to the enforcement of an otherwise valid antenuptial agreement. The court concluded that it could set aside the agreement "where one of the parties did not act in good faith throughout the course of the marriage, using the antenuptial agreement in an unconscionable fashion to shield what would normally be marital assets." Record at 127.

Even accepting the trial court's finding that Gregg acted in bad faith during the marriage, we decline to create a new exception to the enforcement of an otherwise valid antenuptial agreement.[2] Indiana law does not require that a general duty of good faith and reasonableness be implied in every contract. See First Federal Savings Bank v. Key Markets, 559 N.E.2d 600, 604 (Ind.1990) (not court's province to require party acting pursuant to unambiguous contract to be "reasonable," "fair," or show "good faith cooperation"). To the contrary, when a court finds a contract to be clear in its terms and the intentions of the parties apparent, the court will require the parties to perform consistently with the bargain they made. Id.[3]

Here, the contract terms are clear and unambiguous. The assets Gregg listed in Exhibit A, including the Parkland, Inc. stock, are his separate property and are not subject to division. As stated earlier, this necessarily includes the assets accumulated by Onyx Paving, Inc. Julie does not have access to the wealth accumulated by her husband under Parkland, Inc. While that result may now seem harsh after 11 years of marriage, Julie freely entered into the antenuptial agreement, and the agreement was not unconscionable at the time of dissolution. As a general rule, the law allows persons of full age and competent understanding the utmost liberty to contract, and their contracts, when entered into freely and voluntarily, are enforced by the courts. Pigman v. Ameritech Publishing Inc., 641 N.E.2d 1026, 1029 (Ind. Ct.App.1994). Thus, we conclude that the trial court erred when it refused to enforce the antenuptial agreement according to its terms.

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