When Can the Terms of a Prenuptial Agreement Be Deemed Unconscionable?

When future spouses execute a prenuptial agreement, they intend to create a valid document that will dictate the division of property and other financial matters should they divorce. Other aspects of an agreement can dictate the surviving spouse’s entitlement upon the death of the other spouse. Provisions of their agreement, however, may be deemed unconscionable under New Jersey law depending upon the date the agreement was initially executed by the parties.

When Can the Terms of a Prenuptial Agreement Be Deemed Unconscionable?

Before June 27, 2013, New Jersey’s Premarital Agreement Statute required the court to evaluate the unconscionability of a pre-nuptial agreement based on several factors, including whether the agreement was unconscionable on two different points in time, when it was executed and when the parties sought enforcement.

A provision in the old statute, N.J.S.A. 37:2-32(c), defined an unconscionable pre-nuptial agreement as an agreement, either due to a lack of property or unemployability: (1) Which would render a spouse without a means of reasonable support; (2) Which would make a spouse a public charge; or (3) Which would provide a standard of living far below that which was enjoyed before the marriage.

The amendments to the revised Premarital Agreement Statute, which impacts pre-nuptial agreements executed after June 27, 2013, deleted the above-referenced section in its entirety. As a result, the determination of unconscionability must consider the circumstances as they stand when the agreement is initially signed by the parties, not when the enforcement is later sought to be enforced.

This distinction was recently addressed in the unreported case of Kambitsis v. Kambitsis, No. A-0631-17T1 (App. Div. April 17, 2020), where the Appellate court in New Jersey addressed the unconscionability of a premarital agreement (PMA) executed in 2004. The disparity of income between the parties in Kambitsis might’ve been considered extremely disproportionate both at the time of execution and at the time of enforcement, but the Appellate court’s analysis, which resulted in an ultimate conclusion/finding of unconscionability, considered the unconscionability of the PMA at the time enforcement was sought.

By way of a limited factual background, six months before execution of the agreement, the parties’ Case Information Statements, as well as additional financial data, showed that plaintiff’s net worth was $52,197, while the defendant’s net worth exceeded $21 million. Ten years, later, when the parties sought enforcement of the PMA, 5 children had been born of the marriage, all of whom were under the age of nine, and the unemployed wife had acquired no assets during the marriage, while the defendant’s assets and wealth continued to increase exponentially.

The validity of the PMA was quickly disposed of as a non-issue due to the formalities under which it was executed and the acknowledgments it contained. Further, when the parties executed an amendment to the PMA agreement in 2007, they did so with the same formality and acknowledgments as the initial agreement during the calendar year, 2004.

While several issues were raised by the parties during the almost 6-year litigation, the significance of the Appellate decision rests on the determination of alimony. The PMA specified in detail that the parties waived all forms of alimony and that they had considered a list of foreseeable circumstances as well as addressed the impact of any unforeseen circumstances.

Two lower court judges considered the factors set forth in N.J.S.A. 37:2-32(c) and, in a series of orders, previously determined the waiver of alimony provision was not unconscionable. As such, the PMA was enforceable, and the defendant had no alimony obligation to the plaintiff.

Those issues were addressed in the Final Dual Judgment of Divorce entered in August 2017 by a different judge. The order required the defendant to pay the plaintiff child support of $8186 per month, contribute up to $675,000 toward the purchase of a home for the plaintiff, contribute up to $40,000 toward the purchase of a vehicle for the plaintiff, and pay plaintiff’s $225,000 counsel fees.

The defendant appealed, claiming the order effectively awarded alimony to the plaintiff because it ordered so much financial relief to the wife, and the plaintiff filed a cross-appeal opposing the defendant’s argument and raising other issues.

The Appellate court reviewed the 2016 Order and the 2017 Order, noting that both judges upheld the waiver of alimony provision. The prior lower court judges attempted to craft ways in which to avoid an unconscionable result because, at the time of enforcement, the plaintiff required more financial support than she was entitled to receive under the PMA, and she would be left with a standard of living below what she enjoyed before the marriage and without a reasonable means for support.

According to the Appellate court, the “rescue” attempts by the lower court failed to “rectify the drastic, unconscionable financial imbalance between the parties at the time they executed the PMA, and which only increased during the marriage,” and did not overcome its inherently unconscionable nature.

The Appellate court determined that the PMA was unconscionable when the defendant sought to enforce the waiver of alimony because the terms of the PMA did not correlate with the plaintiff’s ever-increasing economic dependence. The portions of the order that upheld the alimony waiver were reversed and remanded so that the lower court could vacate or modify the terms of the final judgment to achieve an equitable resolution of all financial matters.

This ruling, which found the alimony provision unconscionable at the time of enforcement, effectively invalidated the PMA in its entirety by opening up an analysis not only of alimony, but of all financial factors impacting the parties.

Had the PMA at issue been executed after June 27, 2013, the decision may have been different because from that point forward the determination of unconscionability is now limited to the circumstances as they existed when the agreement was signed.

If you and your spouse executed a pre-nuptial agreement before June 27, 2013, and you have concerns about its enforceability or unconscionability today, please call our experienced law firm. We will give you the guidance you need to determine whether you should consider revising your Pre-Nuptial Agreement in accordance with the revised Premarital Agreement Statute.

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