Iowa Court Affirms Farmland Owner’s Premarital Agreement is Enforceable

On January 12, 2022, the Iowa Court of Appeals affirmed that a premarital agreement prevented the surviving spouse from taking the statutory elective share against the deceased spouse’s estate. Although the premarital agreement did not specifically list the deceased spouse’s century farm as an asset, it still provided the surviving spouse “fair and reasonable disclosure” of his financial conditions. Therefore, the Court of Appeals affirmed.

Background

Both widowed, Clarence and Sherry signed a prenuptial agreement before marrying in 2011. The agreement prevented either spouse from taking the elective share against the estate of the other spouse. After eight years of marriage, Clarence passed away. Sherry attempted to take an elective share against his will, but the estate resisted asserting that the agreement barred her claim. The district court agreed finding the agreement unenforceable. Sherry appealed.

Premarital Agreements: Unconscionability

A premarital agreement is unenforceable if it was unconscionable when executed or the challenging party was not provided a fair and reasonable disclosure of the other spouse’s financial condition. Iowa Code § 596.8(1). On appeal, Sherry first claimed that the agreement was procedurally and substantively unconscionable.

To determine if an agreement is procedurally unconscionable, the courts will analyze the process in which the parties entered into the agreement. Here, Sherry claims to have been rushed into signing the agreement without reading it. However, evidence showed that Sherry and Clarence discussed the prenuptial agreement for several months and signed the agreement a month before the wedding. While neither party was sophisticated in legal and financial matters, Sherry worked with her own attorney before signing the agreement. Additionally, while the agreement necessarily contained some legal terminology, the court noted it was not highly technical or confusing. Thus, the agreement was not procedurally unconscionable.

The court next considered whether the agreement was substantively unconscionable. The court explained that “it is essentially a given that a premarital agreement will be ‘financially one-sided in order to protect the assets of one prospective spouse.’” An agreement will not be substantively unconscionable, however, if the provisions of the contract are mutual or the division of property is consistent with the financial conditions of the parties at the time of execution. Here, the court found that the agreement divided the property consistent with each parties’ financial conditions at the time of execution and gave mutual obligations to both Clarence and Sherry. The property division established by the agreement accurately reflected the financial conditions of the parties when signed. The court did note that one provision only required Clarence to provide long-term care insurance for Sherry as long as they were married. However, this was a benefit to Sherry. Accordingly, the court found no substantive unconscionability.

Premarital Agreements: Inadequate Disclosure

Sherry next argued that the agreement did not provide “fair and reasonable disclosure” because there was no mention of a 70.5-acre farm Clarence owned. In the premarital agreement, Clarence disclosed that he owned $1,500,000 worth of shares of a farm LLC. Sherry claims that because the farmland was not specifically listed with the farm assets, it was not disclosed.

At Clarence’s death, this century farm was valued at $615,000. Altogether, the farm and farm assets were valued at $1,880,000. The court noted that, under Sherry’s argument, even without appreciation Clarence’s farm assets would have been worth $2,115,000 in 2011. Conversely, Clarence’s son testified that the increase from the $1,500,000 was due to appreciation in land value. Without evidence to account for the alleged $235,000 decrease in value over eight years, the court found the son’s explanation that the farm was included in the $1,500,000 more persuasive. Therefore, Sherry had fair and reasonable disclosure.  

Additionally, the court found that Sherry was on “inquiry notice.” Inquiry notice is notice “that a plaintiff would have possessed after due investigation.” 58 Am. Jur.2d Notice § 4 (Nov. 2021 update). During cross-examination, Sherry admitted that she knew that the farm had been in the family for many years. While she did not know the exact amount of acres or its location, the court found this sufficient to put Sherry on inquiry notice. Therefore, Sherry did not prove that she “did not have, or reasonably could not have had, an adequate knowledge of the property.” Iowa Code § 596.8(1)(c).

Breach of Contract

Sherry also argued that Clarence or the estate breached the agreement by failing to guarantee the long-term-care insurance policy purchased on her behalf; therefore, the entire premarital agreement was not enforceable. Clarence made arrangements for the farm LLC to keep the policy in force and it currently remains in effect. However, the court found that even if the estate breached this single provision, it would not render the entire agreement unenforceable.

Notice of Spousal Election

Lastly, Sherry claimed that the estate waived its right to rely on the agreement by sending her notice of her statutory right to file an election against Clarence’s will. The representative of an estate must send written notice to a surviving spouse of their right to file an elective share. Iowa Code § 633.237(1). A waiver is “the voluntary or intentional relinquishment of a known right.” Scheetz v. IMT Ins. Co., 324 N.W.2d 302, 304 (Iowa 1982).

The court rejected Sherry’s argument finding that she did not offer evidence that the estate was aware of the agreement. Additionally, § 633.237 requires the representative to send the notice to the surviving spouse regardless of whether he believes the spouse has the right to an elective share.