Should You Be Concerned With The Impact Of The Allard Decision On Prenuptial Agreements?

On January 31, 2017, the Michigan Court of Appeals issued an opinion in Allard v. Allard (Allard III) that seemed to have a dramatic impact on the status of prenuptial and postnuptial agreements under Michigan law. Despite the initial outcry, the actual impact of this decision on such agreements is fairly negligible, with prenuptial agreements remaining an important tool for couples contemplating marriage.
 
Above all, Michigan contract law protects the principle of freedom to contract by recognizing all contracts entered into upon the mutual agreement of the parties. As such, many legal provisions that provide specific rules or expectations can be modified, waived, or supplanted by contractual agreements. That being said, it is also well recognized that freedom of contract does not permit contracting parties to impose obligations or waive the rights of third parties without their permission to do so.
 
In its most simple form, Allard affirmed the power of a divorce court to invade the separate property of one spouse if the martial estate is insufficient to provide for the suitable support and maintenance of the spouse seeking additional support.  This accounts for the needs of any children in their care despite the presence of a contractual agreement to the contrary. In exercising this equitable power, the court is also limited, as it may only be exercised over property for which the spouse seeking additional support contributed to the acquisition, improvement or accumulation. Necessarily, this would likely include all property accumulated during the course of the marriage.
 
As such, where prenuptial agreements are concerned, this does not change the effectiveness of these agreements where property accumulated prior to marriage is concerned, nor does it affect provisions controlling any inheritance by a spouse. In addition, unless there is an equitable reason for the court to invade the individual property of a spouse, the terms of a prenuptial agreement will remain binding.
 
As the Court of Appeals stated in Allard III, however, a divorce proceeding is an equitable one that allows the court the freedom to afford whatever relief is necessary to accomplish its own directives. In the decision, the Court emphasized these equitable principles and pointed out that the couple’s children are third parties whose rights are impacted without their consent via a prenuptial agreement.
 
The broad impact of the decision is that the bounds of contractual freedom for creating a prenuptial agreement have been diminished, at least to the extent to which these agreements may be utilized to maintain economic inequity between spouses upon divorce. Practically speaking, most couples signing prenuptial agreements are doing so to protect property accumulated prior to marriage, and inherited during marriage, not to ensure that they will retain a disproportionate portion of property accumulated during the marriage.
 
In summary, here are the key highlights:
 
  • Prenuptial agreements continue to be critical to protect the separate property of each spouse accumulated prior to marriage, as well as any property or assets inherited during marriage by a spouse.
  •  A divorce court will only employ equitable principles to redistribute property – despite such property having been deemed as separate by a prenuptial agreement – when necessary to resolve an inequity of property between the spouses that makes support of one of the spouses impossible without such redistribution.
  • Continued and future support of minor children is an extremely important factor in the court’s decision to judicially redistribute separate marital property.

 

If you are looking to have a prenuptial agreement drafted, please contact your attorney to address your individual concerns.

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The Firm, deeply rooted in Livingston County, has its origins in 1994 when it was founded by Tim Williams.  After having practiced predominantly in tax law for many years with larger firms, Tim decided to start a new firm that centered around working with people rather than with only highly complex tax issues. The Firm is centered in working with entrepreneurs and individuals with a personal touch.  The goal of the Firm has always been to create a relationship-driven rapport with its clients to establish long-lasting, personal relationships.  From the time it was founded, the Firm has specialized in business law and estate planning and probate practice.  Many of the Firm’s clients rely upon its attorneys for business guidance as well as legal counselling. The Firm has always made it a priority to devote time to giving back to the Livingston County community and its residents by working with and giving to charitable and service organizations.  The firm plans to continue to grow its client base in Livingston County and the surrounding areas.

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