Marital property agreement concerns remain

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The prospective divorce client comes to your office with a marital agreement in hand. Well, that should ensure a quick and relatively painless end to that marriage, right? Not so fast.

Recently in a series of articles in this column, I examined the Wisconsin Supreme Court’s decision in Steinmann v. Steinmann, No. 2005AP1588, in which a marital agreement played a major role in the outcome of the case.

The opinion raised an issue about the role of such agreements in the maintenance context — a question that the court has since resolved. But, the case also brings to mind some of the big-picture considerations for family lawyers and their clients for cases involving marital agreements.

Mea Culpa from the Court

A few weeks ago, I observed that Steinmann contained dicta that could be interpreted as meaning that a marital agreement affecting maintenance is entitled to the same presumption of validity as one affecting child support.

As pointed out at various seminars by Milwaukee attorney Patricia K. Ballman of Quarles & Brady LLP, Wisconsin statutes treat marital agreements affecting maintenance as only one of a number of factors that the court is to consider in a maintenance determination.

Wis. Stats. Sec. 767.56(8).

At my suggestion, the Wisconsin Bar Association Family Law Section wrote a letter to the justices suggesting that the paragraph be revisited. The court, to its credit, revised it to be consistent with Wisconsin statutes, stating that a maintenance provision in the agreement would have been a factor for the court to consider.

While this cures the confusion that could have otherwise resulted, the case highlights certain other concerns with Wisconsin’s treatment of marital agreements.

Three Potential Problems

For one, marital agreements frequently are designed to be applicable for both probate and divorce purposes. Yet, for probate purposes, property division is governed by Ch. 766, which applies community property principles. Divorce, on the other hand, is governed by Ch. 767, which applies equitable distribution principles.

While the differences between the two are minor, it is not uncommon to read a marital agreement drafted by an estate planning lawyer with the intent that is also to apply at divorce. If the agreement does not differentiate between community property and equitable distribution principles, its application in a divorce may be akin to trying to fit a round peg into a square hole. Estate planners who draft marital agreements should always consult a divorce lawyer if the agreement is intended to apply at divorce.

A second source of confusion arises from the difference in enforcement between post-nuptial and prenuptial agreements. Certain provisions of a marital agreement, such as waiver of rights under a retirement plan, can only be done after the marriage. If the agreement is signed relatively soon after the marriage, it is not a problem as Wisconsin, unlike some other states, does not differentiate between agreements signed before or after marriages.

The problem arises with agreements that are signed well into the marriage where the relationship is in jeopardy. For no logical reason, Wisconsin courts have held that the presumption of validity for agreements specifying property division at divorce applies to agreements made in contemplation of marriage, but not for agreements made in contemplation of divorce. Ayres v. Ayres, 230 Wis. 2d 431, 602 N.W.2d 132 (Ct. App. 1999), Van Boxtel v. Van Boxtel, 2001 WI 40, 242 Wis. 2d 474, 625 N.W. 2d 284. Yet, an agreement made when the parties are thinking of divorce, and they know their current circumstances and the effect of their agreement, is not entitled to such a presumption.

Someone please explain the logic of that?

This brings into play the third and main problem with these agreements, as exemplified by Steinmann. The agreements are rarely updated in the future.

As life goes on, what was fair at one point may not be later. Sometimes, as occurred with the Steinmanns, the handling of assets is not consistent with the agreement. Going back to lawyers, or even discussing changes in the agreement without lawyers, is not viewed as conducive to a healthy marital relationship. As a result, divorce lawyers frequently are left picking up the pieces — or, as in Steinmann, ignoring it completely.

In which case, why have an agreement in the first place?