Enforceability of Postnuptial Agreements in Arizona
This guide examines enforceability of Postnuptial agreements and conditions attached to such agreements, including standard of review, quantum and burden of proof, as well as applicability to disclaimer deeds and operating agreements.
IntroductionFor years, common law notion of "marital unity" made contracts invalid between husband and wife. Even after the US courts began to reject marital unity as a legal theory, postnuptial agreements were rejected as being seen to encourage divorce. J. Thomas Oldham, "Divorce, Separation, and the Distribution of Property" (1987). It was only in the 1970s that postnuptial agreements were met with wide acceptance in the United States. The motivating factors considered to be behind this acceptance were the increase in divorce during the 1970s, along with the implementation of so-called "no fault" divorces, granting divorces for any reason. Upon the wave of legislative and statutory changes, postnuptial agreements began to find acceptance in American jurisprudence. Rondal B. Stadler, "Prenutpial and Postnuptial Contract Law in the United States," (2008). www.rbs2.com/dcontract.pdf Arizona has no statutory provision governing postnuptial agreements. Unlike prenuptial agreements, which are statutory creatures in Arizona, postnuptial agreements are discussed solely in Arizona case law. Through a series of cases, and as early as 1924, Arizona courts have treated postnuptial agreements as valid so long as there is no evidence of fraud or undue influence: It is doubtless true that husband and wife cannot make an agreement waiving or limiting this right of support before the initiation, or during the continuance, of the matrimonial community. Nothing, however, is commoner under our modern practice than such contracts when a separation is imminent or after it has occurred, and if they are not obtained by fraud or undue influence." Roden v. Roden, 29 Ariz. 398, 405 (1926). It took a few years until Arizona Supreme Court defined challenges to postnuptial agreement when separation and divorce was not contemplated. Arizona Supreme Court set the standard of review for enforceability of postnuptial agreements the validity of postnuptial agreement even when divorce or separation is not contemplated and when such agreement is challenged by a spouse in In Re Harber's Estate. The court held postnuptial agreements generally valid even when such agreements are not executed in contemplation of separation or divorce: "[T]his rule should include the built-in safeguards that the agreement must be free from any taint of fraud, coercion or undue influence; that the wife acted with full knowledge of the property involved and her rights therein, and that the settlement was fair and equitable." the court further held: Where a post-nuptial property settlement is attacked by the wife on the ground of fraud, coercion or undue influence, the burden is upon the husband to show not only that the transaction was free from any taint of fraud, coercion or undue influence on his part, but that the wife acted with full knowledge of the property involved and her rights therein, and that the settlement was fair and equitable. 360 P.2d at 1001.
Applicability of In Re Harber to "Disclaimer Deeds"In Ahern, Arizona court of Appeals determined whether a disclaimer deed signed by a party amounts to a postnuptial agreement and whether Harber burden of prove by clear and convincing evidence rested on the party challenging its fairness and absence of coercion. The court denied applying Harber clear and convincing standard to the case and instead placed the burden of proof on the wife. The court's rationale was that a disclaimer deed was distinguished from a postnuptial agreement by nature: "[A] postnuptial agreement is "an agreement between spouses" addressing the division of assets in the event of a separation, divorce or death . . . A disclaimer deed, on the other hand, is entered into during the marriage and operates to rebut the presumption of community property" Ahern v. Levitt (Ariz. App., 2015). The court found that Harber does not govern the burden of proof issue because the case involved a disclaimer deed, not a postnuptial agreement.
Applicability of In Re Harber to "Operation Agreements"In Austin v. Austin, Arizona Court of Appeals affirmed trial court finding that the operating agreements placed "severe and permanent" limitations on Wife's property rights and resulted in a significant transfer of authority to husband, such that it affected Wife's property rights similarly or greater than a postnuptial agreement. The court held: "[S]ubstantial evidence supports the trial court's finding that the net effect of the operating agreements was to place permanent and significant limitations on . . . [husband] property rights, arguably including the transformation of separate property to community property. Despite the sophistication of the legal instruments employed, the impact of the operating agreements was no less severe than a more traditional postnuptial property division agreement." Austin v. Austin (Ariz. App., 2015)