Trial Court Failed To Consider Divorcing Parties’ Valid Prenup Before Dividing Their Property
The trial court in this divorce case erroneously disregarded the parties’ valid and enforceable prenuptial agreement before dividing their marital property due to perceived inequities, the Michigan Court of Appeals has ruled.
The plaintiff-wife and the defendant-husband in Moore v Moore (Docket No. 366999) had executed a prenuptial agreement (PNA) before they were married. The PNA outlined their debts and assets, what constituted marital property and what constituted separate property. In particular, the agreement provided that in the event of divorce:
the marital home and earnings deposited into a joint account would be considered marital property.
retirement funds, pensions and real and personal property not acquired with joint funds would be considered separate property.
neither party would receive spousal support.
all property deemed marital property would be divided equally.
The plaintiff-wife worked outside the home early in the marriage, but later became a stay-at-home mom, leaving her retirement account basically stagnant. Meanwhile, the defendant-husband continued to work outside the home and, as such, his retirement accounts increased. In addition, the defendant purchased a parcel of land with his own funds.
When the parties divorced in 2023, the Wayne County Circuit Court rejected the plaintiff’s argument that the PNA should be voided. However, the trial court also found the PNA’s terms were inequitable. Therefore, the trial court divided the parties’ property – but did so without first contemplating what was marital property versus separate property under the PNA. In addition, the trial court ordered the defendant to pay $3,000 in monthly support despite the waiver of spousal support in the PNA.
The defendant appealed the trial court’s decision, arguing the support order would create a financial hardship for him. He also claimed the trial court erroneously ignored the parties’ valid PNA when dividing their property.
The Court of Appeals agreed with the defendant. “We hold the trial court erred as a matter of law by disregarding the PNA after determining it was a valid and enforceable agreement. We vacate both the property award and spousal-support award and remand for further proceedings.”
Judge Allie Greenleaf Maldonado, Judge Thomas C. Cameron and Judge Adrienne N. Young were on the Court of Appeals panel that issued the unpublished opinion.
Agreement Ignored
On appeal, the Court of Appeals ruled the trial court should not have disregarded the PNA when dividing the parties’ property, especially because it had already said the PNA was valid and enforceable.
In reaching this conclusion, the Court of Appeals rejected the plaintiff’s argument that the PNA should be voided based on several factors outlined in Reed v Reed, 265 Mich App 131 (2005). “The trial court began the proceedings correctly, considering plaintiff-wife’s arguments and determining plaintiff-wife failed to meet her burden of proof that the PNA was void,” the appeals court explained. “Defendant-husband now argues the trial court erred as a matter of law because following its decision that the PNA was not void under Reed, the trial court disregarded the PNA when dividing the parties’ property and debts. We agree with defendant-husband in this regard.”
According to the Court of Appeals, after determining the PNA was valid and enforceable, the trial court “needed to enforce its terms – dividing property into marital and separate property based on their definitions in the PNA, before resorting to equitable considerations. It did not do so, instead resorting to equitable considerations right away and dividing property into marital and separate property based on its own judgment. … This was an abuse of discretion.”
In particular, the Court of Appeals pointed out the trial court classified the following as marital property without considering the PNA: 1) the Beaver Island property the defendant had purchased; 2) the defendant’s thrift savings plan; 3) the portion of the defendant’s individual retirement account (IRA) that accrued during the marriage; 4) the defendant’s Federal Employee Retirement System (FERS) pension; and 5) the defendant’s military retirement pay.
“The trial court ignored the PNA’s language with respect to defendant’s retirement accounts,” the Court of Appeals said. “In contrast, the trial court awarded plaintiff-wife her entire 401(k). The trial court did so because it deemed plaintiff’s 401(k) to be separate property – not because this result was in compliance with the plain language of the PNA. Indeed, the parties married in April 2000, and plaintiff-wife left her employment in May 2001, but a portion of the 401(k) accrued during the marriage. And with regard to the Beaver Island property, the trial court found it was marital property despite it being defendant-husband’s separate property under the PNA.”
Equitable Division Of Property
The Court of Appeals continued by emphasizing it was not ruling that a trial court cannot find a PNA’s property distribution inequitable. “A trial court can,” the appeals court stated.
“However,” the Court of Appeals cautioned, “in reaching an equitable division, the trial court must first determine what property is considered marital property and what property is considered separate property. … Here, the PNA the trial court found to be valid did just that. Once the trial court decided what was marital and what was separate property according to the PNA, only then could the trial court consider matters of equity.”
The Court of Appeals explained that MCL 552.23(1) permits a trial court to “invade the parties’ separate property to balance the equities in rendering a divorce judgment.” The statute says: “Upon entry of a judgment of divorce or separate maintenance, if the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party and any children of the marriage who are committed to the care and custody of either party, the court may also award to either party the part of the real and personal estate of either party and spousal support out of the real and personal estate, to be paid to either party in gross or otherwise as the court considers just and reasonable, after considering the ability of either party to pay and the character and situation of the parties, and all the other circumstances of the case.”
In addition, the Court of Appeals cited MCL 552.401. That statute says: “The circuit court of this state may include in any decree of divorce or of separate maintenance entered in the circuit court appropriate provisions awarding to a party all or a portion of the property, either real or personal, owned by his or her spouse, as appears to the court to be equitable under all the circumstances of the case, if it appears from the evidence in the case that the party contributed to the acquisition, improvement, or accumulation of the property. The decree, upon becoming final, shall have the same force and effect as a quitclaim deed of the real estate, if any, or a bill of sale of the personal property, if any, given by the party’s spouse to the party.”
The foregoing procedure “balances ‘the fundamental right to contract’ freely while allowing a trial court discretion ‘to afford whatever relief is necessary’ to ensure neither party is impoverished by the divorce judgment, which would be contrary to the public policy of this state,” the Court of Appeals said. “The trial court’s failure to enforce the PNA as written impacted the trial court’s overall decision concerning equitable division of the parties’ property. … We vacate and remand the property award for the trial court to adhere to the procedure outlined in our caselaw where prenuptial agreements are at issue.”
Regarding the trial court’s spousal support award, the Court of Appeals noted that under Allard v Allard (On Remand), 318 Mich App 583 (2017), a “trial court’s equitable authority to ensure neither party is impoverished by a property settlement overrides the parties’ ability to contract around spousal support.” Moreover, “[o]nce the trial court has devised a property settlement …, it may, on remand, determine whether a spousal support award is equitable and award one ….”
Accordingly, the Court of Appeals vacated both the property and spousal support awards and remanded the case for further proceedings. “The trial court may hold additional hearings and receive additional exhibits and testimony as, in its discretion, it deems necessary.”
