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Trial Court Wrongly Ignored Prenuptial Agreement When Dividing Marital Property

Posted on Thursday, September 6, 2018

A trial court erred in distributing a divorcing couple’s marital property because the parties’ prenuptial agreement was ignored in doing so, the Michigan Court of Appeals has ruled.

In Silverman v Silverman (Docket No. 336905, unpublished opinion), the Court of Appeals said the trial court could not “simply disregard the prenuptial agreement and resort to equitable considerations without any analysis as to why it was doing so.”

As a result, the Court of Appeals vacated those parts of the divorce judgment that related to the distribution of marital property and remanded the case with specific instructions to the trial court. The Court of Appeals also vacated the spousal support award because it was dependent on the correct distribution of marital property.

Second Marriage

The plaintiff and the defendant were married in 2003. They each had children from previous marriages but had no children together. They entered into a prenuptial agreement regarding the assets they had prior to the marriage, how assets would be considered separate and marital in the event of divorce and the manner of distribution of those assets.

Throughout the marriage, the defendant, an attorney, supported the couple. The plaintiff’s daughter also lived with them and was receiving Social Security benefits after her father’s death, which were placed in an account for her benefit. In 2011, the parties bought a home in Bloomfield Hills. In 2014, the defendant had an affair and, in 2015, he decided to leave the marriage. When the parties could not agree on how much the defendant should pay the plaintiff for support, the plaintiff filed for divorce. She sought an equitable distribution of the estate pursuant to the prenuptial agreement, as well as spousal support and attorney fees.

The defendant moved for partial summary disposition on the issue of his separate assets. He argued the prenuptial agreement provided that his investment, retirement and bank accounts were his separate property. The plaintiff claimed, however, that summary disposition should be granted in her favor because the prenuptial agreement did not contemplate that the defendant would invest a large portion of his earned income in those accounts and then call them separate assets. The trial court granted summary disposition to the defendant.

The case went to a bench trial. The defendant contended the trial court was required to divide the marital assets as equally as possible. The plaintiff maintained the trial court should determine that certain items (namely, photographs) were marital assets while other assets were separate (namely, a fund set up for her daughter), and that the trial court should distribute the marital assets equitably, in light of the circumstances.

The trial court entered a judgment of divorce, primarily adopting the plaintiff’s arguments. The trial court also ordered the defendant to pay $10,000 per month in spousal support and all of plaintiff’s attorney and expert witness fees.

The parties presented various arguments on appeal.

‘Allard’ Misconstrued

The plaintiff asserted on appeal that the trial court committed reversible error by granting the defendant’s motion for summary disposition because the trial court misinterpreted the prenuptial agreement.

“We disagree,” the Court of Appeals stated. “Plaintiff contends … that defendant’s earned income … was not a separate asset, and his investments of that money needed to be tracked through his various accounts to properly distribute them as part of the marital estate. Plaintiff is incorrect because the language of the prenuptial agreement was broad and specific regarding the extent of separate property.”

The plaintiff also argued the trial court should have used its equitable power to “look beyond the prenuptial agreement” and deem these assets as marital. “Plaintiff does not rely on the three separate potential reasons provided for voiding the prenuptial agreement in Reed [v Reed, 265 Mich App 131 (2005)],” the Court of Appeals noted. “Instead, plaintiff relies entirely on this Court’s recent opinion in Allard v Allard (On Remand), 318 Mich App 583 … (2017).”

According to the Court of Appeals, the plaintiff misconstrued the holding in Allard. “To wit, the panel in Allard … did not hold that a court, under the guise of equity, can redefine the terms of a prenuptial agreement to make the agreement more equitable. Instead, the Allard Court held that a trial court has the statutory power under MCL 552.23(1) and MCL 552.401 to invade separate assets to ensure an equitable distribution of property. … Thus, the trial court properly declined plaintiff’s request to redefine defendant’s separate property as marital property, because Allard provides no authority to do so.”

Prenup Can’t Be Disregarded

The defendant argued on appeal the trial court erred in distributing the marital estate because it ignored the parties’ prenuptial agreement.

“We agree,” the Court of Appeals said, noting the Michigan Supreme Court in Sparks v Sparks, 440 Mich 141 (1992), provided a list of factors to be considered in these kinds of cases: 1) duration of the marriage, 2) contributions of the parties to the marital estate, 3) age of the parties, 4) health of the parties, 5) life status of the parties, 6) necessities and circumstances of the parties, 7) earning abilities of the parties, 8) past relations and conduct of the parties and 9) general principles of equity.

The trial court erred in distributing the marital estate without referencing or relying on the prenuptial agreement, the Court of Appeals stated. “A court should never disregard a valid prenuptial agreement but should instead enforce its clear and unambiguous terms as written.”

The Court of Appeals pointed out the trial court, prior to the bench trial, had granted summary disposition for the defendant, finding the prenuptial agreement was “clearly and unambiguously worded and that the parties purposefully entered into it. …”  In particular, the prenuptial agreement provided that “[t]he parties specifically agree that the property settlement to be included in any judgment dissolving their marriage shall award all separate property to its owner with jointly owned property divided as equally as may be accomplished.”

According to the Court of Appeals, the trial court “provided a distribution of the marital estate that was not equal” and “relied solely on its findings of fact and their application to the Sparks factors to determine what it believed to be an equitable and just distribution of the estate.” In so doing, the trial court “committed error because it was not permitted to simply disregard the prenuptial agreement and resort to equitable considerations without any analysis as to why it was doing so.”

While there are limited instances where a trial court can set aside a prenuptial agreement, the trial court in this case made no findings of fact or conclusions of law regarding these possible reasons that would allow it to ignore the prenuptial agreement,” the Court of Appeals explained. “Consequently, the trial court entirely disregarded the prenuptial agreement and proceeded under the guise of equity in distributing the estate without first having concluded that the prenuptial agreement was void for one of the listed reasons. This was improper. … The prenuptial agreement had several relevant provisions that the trial court should have considered.”

Remand Instructions

In remanding the matter, the Court of Appeals gave specific instructions to the trial court so the prenuptial agreement’s “clear and unambiguous terms as written” are enforced.

“While the trial court pronounced its belief that its distribution was equitable, it did not, in any manner, find that splitting the marital property ‘as equally as may be accomplished’ under the terms of the prenuptial agreement was inequitable,” the Court of Appeals wrote. “It was required to do so under Allard if the trial court wished to look beyond the prenuptial agreement and make an equitable distribution of the estate.”

Regarding the award of spousal support, “[b]ecause an award of spousal support necessarily relies on the property distributed to the parties, which the trial court erred in doing, we also vacate the trial court’s spousal support award,” the Court of Appeals concluded.

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