A Deal Is A Deal…Unless the Court Says It Isn’t

March 17, 2009 | Roger McEowen

 

When it comes to probate matters, the law is clear on a couple of points – (1) a spouse cannot be disinherited; and (2) a child can be disinherited.  While one spouse can execute a will that leaves the other spouse nothing, the surviving spouse has a statutory right to receive a portion of the deceased spouse’s estate.  But, it is possible for both spouses to contractually agree to limit or eliminate a surviving spouse’s inheritance.  That’s certainly the case if such a contract is entered into prior to marriage.  In that case, the contract is known as a prenuptial (premarital) agreement.  But, is such an agreement that is entered into after the marriage (known as a postnuptial agreement) valid?  That was the question facing the court in this case.

A postnuptial agreement is simply a written contract between spouses that is executed after marriage to settle the couple’s affairs and assets upon death, or in the event of a separation or divorce.  It must be in writing to be effective, must fully disclose the assets and financial information of the parties, and is typically notarized or acknowledged.  Since the 1970s, postnuptial agreements have been widely accepted in the U.S.  They generally are of three types, including the type involved in this case – an agreement that provides for the division of marital property when the first of the spouse’s dies.  Usually, the agreement specifies that the surviving spouse waives any rights the survivor may have to property they would have inherited under the deceased spouse’s will or state intestacy statute.   

In this case, the couple married in 1989, each having been married before and each having adult children from those prior marriages.  In 2006, after the husband’s health began to decline, the couple executed a postnuptial agreement which divided their property equally.  They simply wanted their respective property to pass to their own children, with no rights of either spouse in the property of the other.  Shortly after execution of the postnuptial agreement, the husband executed a will leaving all of his property equally to his children after payment of expenses.  He died 15 days later.  But, contrary to the postnuptial agreement, the surviving spouse claimed her statutory share of his estate and requested an additional amount for spousal support (Iowa Code §§633.236 and 633.374).  The trial court ruled against the surviving spouse, upholding the postnuptial agreement.  The court noted that it was “clearly the intent of the parties to divide their assets and go their separate ways.”  In other words, a deal is a deal.  However, the surviving spouse appealed.

On appeal, the Iowa Court of Appeals reversed (opinion by Vogel).  The court pointed out that the Iowa forced share statute (Iowa Code §633.264) did not provide for the waiver of the surviving spouse’s forced share by a postnuptial agreement, and cited a 1912 Iowa case where the Iowa Supreme Court said a postnuptial agreement did not apply to the surviving wife’s dower interest.  Then the court tried to bolster its argument that the postnuptial agreement was not valid by citing a more recent Iowa case in which the court held that a surviving spouse could not be disinherited by a revocable trust of the pre-deceased spouse.  But, that’s a disingenuous argument.  In that case, the revocable trust was a testamentary instrument executed only by one spouse as the grantor  So, just like one spouse can’t execute a will that disinherits the other spouse (because of the application of the statutory forced share provision), one spouse can’t execute a revocable trust that does the same thing.  That’s totally different than a postnuptial agreement which is a contract entered into by both spouses with full disclosure of assets and financial information.  Indeed, in states that recognize the validity of postnuptial agreements, the courts have also ruled that a spouse cannot be disinherited via a revocable trust

The court also never mentioned that Iowa law (§597.18) specifies that “[C]ontracts may be made by a married person and liabilities incurred, and the same enforced by or against the person, to the same extent and in the same manner as if the person were unmarried.”  So, if a prenuptial agreement is valid in Iowa (which it is), the same is true of a postnuptial agreement.  In invalidating the postnuptial agreement, the court even had the audacity to state, “…our statutory law cannot be so easily side-stepped.”  Apparently, that statement doesn’t apply to the court – it simply ignored Iowa law in reaching its decision.  Hopefully, the Iowa Supreme Court will clean up the mess.  In the meantime, for those couples that have already remarried and want to (for example) keep separate farming businesses in their own family lines, the court’s decision will require them to get divorced, enter into a prenuptial agreement, and then get remarried again.

Nationwide, about half of the states recognize the validity of postnuptial contracts – AL (statute and court opinion); AK (statute and court opinion); AZ (court opinions); AR (court opinion); CA (statute); CO (statutory and court opinion); CT (statutory and court opinion); DE (court opinion); FL (statute); GA (court opinion); ID (statutory law); IL (statutory law); IN (statutory and court opinion); KS (court opinion); KY (statutory law); LA (statutory law); MD (court opinion); MA (statutory law); MI (statutory and court opinion); MS (statutory and court opinion); MO (court opinion); MT (statute); NE (court opinion); NV (statutory and court opinion); and NY (statute).

Ultimately, the court, while it invalidated the postnuptial agreement, remanded the case on the spousal support issue – directing the trial court to consider the surviving spouse’s financial condition and the condition of the estate.  In re Estate of Shaffer, No. 8-934/08-0653, 2009 Iowa App. LEXIS 184 (Iowa Ct. App. Mar. 11, 2009)