Peter and Petra are getting married. Peter has considerable assets, including several homes, vacation homes, and checking and savings accounts. He also owns a string of rental properties from which he receives income. He deposits the rental income into an account which is not under his name, but rather the name of a trust he created. Petra, conversely, does not have much by way of assets, except for a modest savings account.
Peter and Petra have agreed to draft and sign a prenuptial agreement. Their respective attorneys have informed them that they would need to fully disclose their assets to the other party. In other words, they would need to inform each other about anything and everything of value they own. Peter has asked his attorney whether he needs to tell Petra about the rental income. After all, it is held in trust. What if Peter chose not to disclose it?
Prenuptial agreements, generally:
An antenuptial agreement, also called a prenuptial agreement, is a written contract between two people who are about to be married. It serves to set out the terms regarding the division of property in the event of a divorce, along with any provisions for alimony.
Generally, in order for a prenuptial agreement to be considered valid and enforceable in Massachusetts, the agreement must meet the following elements:
- it must be in writing;
- signed by the parties;
- signed voluntarily and under no signs of duress or fraud;
- made after full disclosure of the parties’ assets;
- the agreement must be fair and reasonable, and enforcement must not be against countervailing equities;
- the parties must have adequate opportunity to consult with independent counsel;
- the parties must understand and clearly indicate the rights which they are contracting away; and
- the parties must not relieve themselves of their legal obligations during the marriage through the agreement.
Full disclosure of assets:
In the above scenario between Peter and Petra, the element of full disclosure is at issue. To ensure that the process of signing the antenuptial agreement is fair and equitable to both parties, the court requires a full financial disclosure of the parties’ assets. In essence, the parties will be viewed to have a confidential relationship which brings with it the duty to disclose, mutually attributed to each party.
Lack of full disclosure may result in the parties’ agreement being invalidated. In some cases, lack of disclosure amounts to a form of fraud. This is particularly the case when there is a demonstrable inequity between the parties’ assets. Looking at the above example, this is the case, as Peter clearly possesses more assets than Petra.
In one case, the Massachusetts appeals court invalidated a prenuptial agreement after finding a lack of full disclosure on the husband’s part. Schechter v. Schechter, 88 Mass. App. Ct. 239 (2015). In that case, the husband kept the wife in the dark regarding his financial assets. He also claimed during the divorce proceedings that his primary asset, his real estate company, was a partnership. He claimed that his parents owned a one-half interest in the company. Moreover, the husband then attempted to make a fifty-percent, retroactive distribution of the real estate company’s assets to his parents during the divorce proceedings.
Financial disclosure schedules:
In order to avoid any potential questions down the line, full disclosure should take place in writing. Each party should, for best practices, draft a financial disclosure schedule, which will be attached to the prenuptial agreement as an addendum. This schedule should clearly delineate and disclose all of the party’s assets to the other party. It should include:
- a listing of the party’s assets, along with the value of each asset;
- any outstanding liabilities of the party;
- the sources and amounts of the party’s income;
- any interests in businesses, partnerships, etc.; and
- any expectations of inheritances or other potential assets.
Moreover, the agreement should include a section which makes it clear that both parties have read each other’s financial disclosure schedules, understand it, have acknowledged reading it, and have had the opportunity to consult with an attorney regarding it.
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