Should prenuptial and postnuptial agreements be treated as binding contracts in all jurisdictions?

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Family Law Scholarship

Natalia Wielgosinska
Law Firm of Attorney-at-Law Natalia Wielgosinska, Poland
nataliawie@onet.pl

The binding power of prenuptial and postnuptial agreements[1] under separate jurisdictions is a particularly relevant issue, as people have become more globally mobile and family ties extend across jurisdictions. Future spouses/spouses have numerous reasons to enter into prenuptial or postnuptial agreements. Sometimes they decide on an agreement because they want to be financially secure in case of divorce. Recently however, business matters have also increasingly been taken into account when preparing agreements. The fact that a spouse runs a business (for example is a sole proprietor, a partner, or a member of the company’s management), is now the most common motivating factor for introducing a separate property regime. Business people often decide to establish a distribution of property in order to exclude their spouses’ liability for debts incurred as a part of that business. This contributes to the growing number of agreements,[2] as does the increase in international relationships so that the international aspect of agreements is gaining prominence. Consequently, the number of legal disputes based on the binding power of agreements in various jurisdictions is likely to rise.

This article explores whether prenuptial and postnuptial agreements should be treated as binding contracts in all jurisdictions by examining agreements in specific jurisdictions. It also identifies what to consider when deciding whether or not to treat the concrete agreement as binding under a particular jurisdiction.

Is the marriage legally contracted and recognised?

First, a judge conducting a lawsuit, dealing with an agreement signed under any foreign legal system should check whether a marriage between parties to the agreement has been legally contracted and is recognised by the competent jurisdiction. The agreement is non-binding unless the marriage is valid and recognised. Legal effects can be derived from prenuptial or postnuptial agreements only if the parties to such agreements are spouses. This rule applies to a premarital agreement which precedes marriage. Such a contract has no legal effect until the marriage has taken place. If the parties do not marry, it would be a null and void. Therefore, before judging whether an agreement is binding in a particular jurisdiction, a judge must affirm that a marriage is recognised as legally valid in this legal system.

Which legal system applies to the marital property regime?

The judge must check which legal system applies to a marital property regime of spouses in order to use this system at further stages during the trial. In the European Union, this is regulated by Council Regulation (EU) 2016/1103 of 24 June 2016, which implements enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes.[3] The spouses or future spouses may agree to designate, or to change the law applicable to their matrimonial property regime. This is provided that it is the law of the state where: the spouses or future spouses, or one of them, is habitually resident at the time the agreement is concluded; or the law of a state of nationality of either spouse or future spouse at the time the agreement is concluded. The Council Regulation also regulates what occurs in the absence of a choice-of-law agreement. Generally, the main difference between legal systems which future spouses/spouses can choose and legal systems applicable when they did not make a choice, is that future spouses/spouses can choose from jurisdictions referring to one of them, whereas jurisdiction imposed in the absence of choice always refers to a factor which is common to both of them.[4] Compatible regulations can be found in internal legal systems binding in EU Member States, for example in the International Private Law in Poland.[5] Before the idea of allowing future spouses/spouses to choose the law governing marital property agreements was adopted in the EU, it had been used in the United States in the 1983 Uniform Premarital Agreement Act.[6]

Involvement of a third party in the lawsuit

If there is a third party involved in the lawsuit, the courts analyse whether applicable law can be applied against this party. For instance, according to the Council Regulation (EU) 2016/1103, law applicable to the matrimonial property regime between the spouses may not be invoked by a spouse against a third party in a dispute between the third party and either or both of the spouses unless the third party knew or, in the exercise of due diligence, should have known of that law.[7] The Council Regulation also involves legal presumption when the third party is deemed to possess the knowledge of the law applicable to the matrimonial property regime between the spouses. It also indicates law governing the matrimonial property regime in case that the applicable law cannot be invoked by a spouse against a third party. Parallel regulations can be found in Poland’s International Private Law.[8] When the third party does not know and is not deemed to possess the knowledge of the law applicable to the matrimonial property regime between the spouses, it may be assumed that the third party does not know about the agreement. In such a case, it is obvious at this stage of trial that the agreement cannot be reliable against this party. For that reason, the issue of law governing the marital property regime in such cases is not further developed in this article.

The formal requirements of the contract

Once the court is certain which law is applicable to a particular agreement, the next step is to find legal provisions in this law that regulate the formal requirements of the contract. The legal system which applies to the agreement might have a great impact on the formal requirements which have to be fulfilled. In US states which have adopted the Uniform Premarital Agreement Act, for example Texas,[9] California[10] or Virginia,[11] it is generally enough to sign an agreement in writing.[12] In states which implemented the Uniform Premarital and Marital Agreement Act,[13] for instance Colorado,[14] it shall be recorded.[15] On the other hand, in most EU jurisdictions, a notarial act is required. Furthermore, in some countries agreements are registered in a public register in order to be binding against creditors. For instance in Germany, agreements are registered in the Property Rights Register,[16] in Spain in the Civil Register.[17] In Poland, a notarial act is required according to the Family and Guardianship Code,[18] but there is no public register prepared especially to notify agreements. Information about agreements is registered in the Register of Enterprises of the National Court Register,[19] when one of the spouses is a partner in a company. And information on whether a sole proprietor has a marital community of property is registered in CEIDG, which can be translated as the ‘Central Register and Information on Economic Activity’.[20] Therefore, as long as one of the spouses does not run a business, the agreement is not registered.

There is a significant difference between cases used between spouses (in case of divorce) and cases between a spouse and their creditor (when a spouse is a debtor). The aforementioned differences connected with the form of agreement and its registration might have a great impact on the creditor’s position. If a contract is registered, a creditor can easily check that his debtor has signed it. If there is no possibility to register an agreement, spouse (the debtor), shall inform the creditor about the agreement. Indeed, in case of a lawsuit a debtor, who wants to rely on the agreement against a creditor, shall have evidence that the creditor knew or, in the exercise of due diligence, should have known about the agreement. In Poland, internal legal provisions are included in the Family and Guardianship Code. In conformity with the Code, a spouse may rely upon a marriage contract against another person when its conclusion and type were known to this person.[21] If spouses conclude or change their agreement after incurring debt by one of them, such action cannot have a negative influence on the creditor’s situation.[22]

If an agreement fulfils the formal requirements of the applicable law and legal system in the state of competent jurisdiction implies stricter formal regulation, the fact that this agreement does not match the stricter regulation cannot automatically lead to the conclusion that it is non-binding under the foreign jurisdiction. However, the form of an agreement may strengthen its probative power. Unequivocally, if an agreement is drawn up in the form of a notarial deed it is harder to question its validity (for example claiming duress or counterfeit signature) than when it is drawn up in ordinary written form.What is more, it is certain when it was signed which may be crucial evidence for example when the creditor claims that the agreement was concluded after one of the spouses had incurred a debt.

The content of the agreement

Various legal systems have distinct regulations governing what can be set in an agreement. The condition under which the agreement is enforceable in various jurisdictions is that its content meets the requirements stipulated by the applicable law. For instance, under Polish law future spouses or spouses cannot exclude spousal support, so that a clause that eliminates it included an agreement to which Polish law is applicable would be binding neither in Polish nor foreign jurisdiction.

When the agreement of particular content is allowed by applicable law, it next has to be interpreted. To interpret the agreement properly with respect to the will of parties at the time of conclusion, it is crucial to know which matrimonial property regime would occur in lack of agreement and to compare it with provisions of the agreement. The matrimonial property regime which applies in the absence of a prenuptial or postnuptial agreement might differ under various jurisdictions. For example, in Polish law, the Family and Guardianship Code determines that in cases of absence of agreement, the statutory joint property regime arises. In accordance with article 31 of the Code, on entering in to marriage, a joint property regime occurs between the spouses, covering property acquired during the marriage by both spouses or by one of them. Under this regime, three properties are distinguished: joint property and separate properties of each spouse.

Similar regulations can be found in the Netherlands,[23] France,[24] Italy[25] and Russia.[26] By contrast, under the Austrian legal system, the separate property regime arises in the absence of different arrangement.[27]Consequently, each spouse has their separate property, and there is no common property. Under the German legal system, spouses live in separate property with compensation for possessions gained unless they agree otherwise by agreement. The respective property of the spouses does not become their common property. This also applies to assets that a spouse acquires after the conclusion of a marriage. However, the gain that the spouses achieve during a marriage is off set when the community of gains ends. The gain is the amount by which a spouse's final assets exceed their initial assets.[28] In Switzerland, the regime of participation in achievement[29]ipso jure is similar to Germany’s. The difference is that in the Swiss law there are four estates: each spouse has separate property and achieved property, whereas under German law, there are only two separate properties (as achieved properties are not distinguished during the marriage). As it can be inferred from the above, it is necessary to understand how the parties wanted to change the statutory solutions.

Is the agreement binding?

Another substantial issue is whether an agreement shall be recognised as binding even though in its particular content it could not have been concluded in the state where it is enforced. The general rule is that when the agreement is binding under the law applicable at the time of signing, it shall be binding under foreign jurisdiction even if the agreement of such content could not have been entered into under that foreign jurisdiction. As has been mentioned above, in the Polish legal system parties to prenuptial or postnuptial agreement cannot eliminate spousal support. However, there are legal systems that allow spouses or future spouses to do this, for example laws of US states which participate in the Uniform Premarital Agreement Act,[30] such as Texas[31] and Virginia.[32] If the clause that eliminates spousal support was included in an agreement signed under a law that allows such a clause, the clause shall also be binding under Polish jurisdiction. Respecting the freedom of contract the Polish court should recognise the clause as valid because the legal system applicable to the agreement at the time of signing allowed parties to introduce such a clause. Consequently, the court shall dismiss a claim for spousal support with the justification that the spouse waived the claim by signing the agreement.

There are exceptions to the rule that generally, foreign courts should respect the agreement valid under applicable law. In the EU legal system, the exception is included in article 31 of the Council Regulation (EU) 2016/1103.[33] Following this regulation, the application of a provision of the law of any state specified by the Regulation may be refused only if such application is manifestly incompatible with the public policy of the forum. In the Polish legal system, there is congruent regulation – Article 7 of the International Private Law Act. According to this provision, foreign law shall not apply if its application would have effects contrary to the basic principles of the legal order of the Republic of Poland. Therefore, when enforcement of the agreement would have an effect contrary to the basic principles of the legal order, the foreign regulations that allowed the signing of the agreement shall not be applied. Consequently, the agreement is non-binding under Polish jurisdiction.

When judging the effect that enforcing the agreement would have, the agreement should be treated in its entirety. It is important to realise that it is not enough to check each clause but also the effect of enforcing all the clauses together. Usually, it is hard to find a particular clause which, for example, violates principles of social coexistence, but if clauses of the agreement stipulate division of property in an unreasonably disproportionate way, it is clear that the principles are violated. When exceptions are used it must be certain that they occur, because exceptiones non sunt extendendae.[34]

Judgments by foreign courts

In some lawsuits, the court does not deal with the agreement itself but with a verdict issued by a foreign court based on the agreement. In Poland, when it comes to respecting foreign verdicts, Article 1145 of the Code of Civil Procedure applies. The judgments of courts of foreign countries issued in civil matters are subject to recognition under the law, unless there are obstacles referred to in article 1146. One of these obstacles is that recognition would be contrary to the basic principles of the Republic of Poland’s legal order.

Conclusion

To sum up,before answering the question as to whether to treat a particular prenuptial or postnuptial agreement as binding in a particular jurisdiction, several factors must be scrutinised. These factors are best considered in step-by-step sequence as described in this article.

Bibliography

I. Legal acts:

Poland

• ustawa z dnia 25 lutego 1964 r. Kodeks rodzinny i opiekunczy (t.j. Dz.U. z 2019 r., poz.2086) – the Family and Guardianship Code

• ustawa z dnia 17 listopada 1964 r. Kodeks postepowania cywilnego (t.j. Dz.U. z 2019 r., poz. 1460 ze zm.) – the Civil Procedure Code

• ustawa z dnia 20 sierpnia 1997 r. o Krajowym Rejestrze Sadowym (t.j. Dz.U. z 2019 r., poz. 1500 ze zm.) – the National Court Register Act

• ustawa z dnia 4 lutego 2011 r. Prawo prywatne miedzynarodowe (t.j. Dz.U. z 2015 r., poz. 1792) – the International Private Law

• ustawa z dnia 6 marca 2018 r. o Centralnej Ewidencji i Informacji o Dzialalnosci Gospodarczej i Punkcie Informacji dla Przedsiebiorcy (t.j. Dz.U. 2019 r., poz. 1291 ze zm.) – the Central Register and Information on Economic Activity Act

European Union

• the Council Regulation (EU) 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes

Austria

• Allgemeines Bürgerliches Gesetzbuch – the General Civil Code

France

• Code Civil – the Civil Code

Germany

• Bürgerliches Gesetzbuch – the Civil Code

Italy

• Codice Civile – the Civil Code

The Netherlands

• Burgerlijk Wetboek – the Civil Code

Russia

•  The Civil Code of the Russian Federation

Spain

• Código Civil – the Civil Code

Switzerland

• Zivilgesetzbuch – the Civil Code

United States

Uniformed

• the Uniform Premarital Agreement Act

• the Uniform Premarital and Marital Agreement Act

Statewide

• the California Family Code

• the Code of Virginia

• the Colorado Revised Statutes

• the Texas Family Code

II Statistics:

Poland

• Informator Statystyczny Ministerstwa Sprawiedliwosci (akty notarialne w latach 1998- 2012) – Statistical Guide of the Ministry of Justice (notarial acts in 1998-2012)

• Informator Statystyczny Ministerstwa Sprawiedliwosci (akty notarialne w latach 2013- 2018 i w pierwszym pólroczu 2019 r.) – Statistical Guides of the Ministry of Justice (notarial acts in 2013-2018 and the first half of 2019)

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