Can a Spousal Support Waiver or Changed Financial Circumstances Existing at the Time a Prenuptial Agreement Is Challenged, Provide the Basis for a Claim of Unfairness or Unconscionability

Notes and comments by Elliot D. Samuelson, Editor

A recent decision, Cron v. Cron, that appeared in the New York Law Journal on Friday October 17, 2003, p.18, col.3, initially decided by a Special Referee and affirmed by Justice Gische in the Supreme Court, New York County, should command more than casual review. It contains a most interesting discussion of what factual predicates, following the Court of Appeals decision in Matter of Greiff, 92 NY2d 341 (1998) will be sufficient to declare that the relationship between contracting parties to a prenuptial agreement manifest probable unfair advantage, therefore forming the basis to shift the evidentiary burden to the party seeking to uphold the agreement to prove a lack of fraud, deception or undue influence. Before considering the facts in Cron, one must consider that Judge Bellacosa, writing for a unanimous court, was careful to articulate the rules that should be applied by the trial court when determining this conundrum. Two suggestions appear to be most informative. The first was a remark that where a fiduciary relationship existed, or there appeared to be a reliance based upon "... weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, ... it is incumbent upon the stronger party to show affirmatively that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood." He later remarked concerning the proof necessary to reach the threshold question, that it was simply necessary to establish a "particularized inequality." And later in the decision, he remarked that this particularized inequality must necessarily include an "exceptional scrutiny." ^[1] Whether Justice Gische abided by these mandates when rendering her decision, will be exceptionally scrutinized in this column.

Before examining the facts that were considered by the court, it is interesting to note that it quickly determined that a provision with respect to child support, which capped at $80,000 (including discretionary expenses) the income by which the percentage formula could be applied, was not binding on the court since, as the Referee had found, it was neither valid nor enforceable. The court correctly observed that it was entirely proper to strike down one portion of the prenuptial agreement and sustain others, citing Christian vs. Christian, 42 NY2d 63 (1977), although it later failed to consider the clause in determining "unconscionability."

This decision was also notable for its review of when a claim of bias could be considered by the trier of facts, when used to urge that a new hearing should be had in an action to set aside a prenuptial agreement. There were several arguments put forth by counsel and included:

1. The Referee made unfavorable findings which were the product of bias.
2. A witness at the trial, the attorney who drew the agreement, was once a law secretary, as was the hearing officer herself during the same time period.
3. That unfavorable comments were made against the defendant throughout the hearing.
4. The Referee refused to permit defendant's attorney the right to timely cross-examine the attorney he called who represented the defendant in the negotiation and execution of the prenuptial agreement until far later in the trial.
5. The Referee refused to permit the defendant to call certain rebuttal witnesses.
6. The Referee made a comment that a twelve year-old memory is not reliable with respect to a witness that the defendant sought to call.

The court dismissed each argument advanced and concluded that none of them could possibly be viewed as bias, reflecting that the Referee's comment of the unreliability of a twelve year-old memory was nothing more than an obvious conclusion that the passage of time affects the credibility of one's testimony; that such conclusion was applied in an even manner and apparently acceptable; and that the failure to permit timely rebuttal testimony was harmless error since whatever witnesses might be called, would merely have bolstered defendant's testimony and be cumulative, because the defendant and her mother had both testified similarly on her direct case. In reaching this conclusion the court apparently relied on Irrizary v. Velez, 95 AD2d 713 (1983) for the proposition that the trier of facts has the discretion to limit cumulative testimony.

In explaining why it was proper to preclude defendant's attorney from timely cross-examining the witness he called on the grounds of hostility, the court ruled that he was able to do so later in the hearing after the record developed facts to infer that the witness was hostile. The court also commented that because the Referee and the attorney witness were once contemporary Law Secretaries, this merely evidenced a "passing familiarity" "...and is of no import unless it interferes with the jurists ability to remain impartial." Finally the court concluded that the facts urged which constituted bias were "benign" and therefore not actionable; and that there is no evidence that the witnesses sought to be called in rebuttal, would have given testimony that would change the ultimate result.

We now return to an exploration of whether the hearing which considered the legal sufficiency of the prenuptial agreement, comported with the prescription articulated by Judge Bellacosa in Matter of Greiff to first explore whether there was a particularized inequality. Before doing so however a brief examination of the facts of the case is warranted. The parties, prior to executing the prenuptial agreement, were each employed, the husband earned close to a $1 million a year as an executive, and the wife $35,000 as a secretary. She had $10,000 in assets and the husband approximately $3 million. At the time of the commencement of an action for divorce, the parties were married nine years, during which time the wife had been out of the work force, and bore two children. They lived in a 32-room house on 8 acres of property. The wife's financial position had not changed, but the husband had apparently increased his net worth to nearly $30 million.^[2] The agreement contained a clause by which the wife waived any claims to maintenance, and a provision to cap income against which child support could be calculated at $80,000. Another provision provided for a formula to compute a sum for equitable distribution, depending upon the husband's net worth at the time of divorce. Before the hearing commenced before the special Referee, the husband conceded that the provision for child support was neither valid nor enforceable.^[3] Another salient provision provided the wife and children with a life estate (but not ownership) in a residence to be purchased by the husband with a value not to exceed $200,000.

The court began its exploration, stating, "The spouse seeking to set aside an agreement has the burden of establishing fraud, duress, or other impediment, attributable to the other spouse ( e.g. the agreements proponent)," citing Greiff. Yet, Greiff required an initial determination of a particularized inequality, before a contestant could be held to retain the burden to demonstrate fraud or overreaching. Justice Gische then concluded that there was a failure of proof of fraud, duress, or any "strong arm" conduct on the part of the husband, without a discussion of the parties relative financial conditions; the fact that the wife had been out of the work force for nine years; whether the provision for child support limiting the calculation to only $80,000 of gross income, and the waiver of maintenance, was unfair or unconscionable (albeit that the parties agreed that the child support provision was unenforceable and required a de novo determination).

In so doing, it appears that the court ignored the mandate of the Court of Appeals to conduct "...a particularized and an exceptional scrutiny" before placing the burden on the contesting party to prove fraud, duress, or another impediment. As such, the husband was relieved of the burden to prove a lack of unfairness and unconscionability.

Consistent with such holding, the court went on to discuss why it felt that the wife had failed to meet her burden of demonstrating fraud, duress, or overreaching. It was unconvinced that the wife felt "overmastered" by her husband (despite their relative maturity, education,^[4] and hugely disparate earnings and assets). It thereafter discussed whether the agreement as a whole could be considered unconscionable (without consideration that the child support provision was stricken as unenforceable), and specifically found that in considering whether the agreement was tinged with unconscionability, it could only consider facts that obtained at the time of the execution of the agreement, and not subsequent events. However, the court did note that with respect to maintenance the provision must be conscionable at the time the judgment of divorce is rendered, but that no "version of events" met this statutory standard.(Despite the fact that at the time of trial the husband had assets of at least $30 million and was earning approximately $4 million.

The court then concluded that the bargain struck by plaintiff did not shock its conscience, and that it was fair and reasonable at the time of its making. The court was also impervious to the waiver of maintenance, finding that "Parties can always agree to waive maintenance", and such waivers are routinely enforced. There was no discussion that the plaintiff had been a stay at home mom throughout the marriage; had been out of the work force for nine years; and had lived an opulent lifestyle consistent with her husband's now 4.5 million dollar plus income, although the court did find that the mother was capable of self-support^[5]

The last point covered by the court dealt with the alleged error of the Referee to preclude evidence concerning the present financial circumstances of the parties as it touched upon the present inequity of the waiver of maintenance. It concluded that even if such evidence had been introduced, the defendant could not prevail in proving the agreement was unconscionable, since she failed to claim or prove that she was incapable of self-support, suggesting that unless she was in danger of becoming a public charge, her argument could not be upheld.

Nowhere in the statute or in the decision of the Court of Appeals in Greiff is there any requirement that a contesting spouse must be in danger of becoming a public charge, before the issue of the fairness and unconscionability can be considered. This holding seems to provide a new standard in litigation seeking to set aside prenuptial agreements. The Cron court explained as follows:

She cannot show that she will become a public charge. At most she can show that her standard of living will decrease upon the dissolution of the marriage. Her criticism of the agreement is in hindsight and though she may now regret the deal she made 11 years ago, it is not "unconscionable" simply because of the passage of time and because she did not work in the intervening years.

Justice Gische concluded her decision with the following declaration:

Even if the court accepts defendants position that the Referee should have allowed testimony about present financial circumstances, this is not an error that requires another, or further hearing on current finances.

Whether the case will be appealed to the Appellate Division remains to be seen, but if, it will be of great interest to follow to see whether the Greiff decision will be strictly followed or whether a lesser standard will be applied based upon the lower court's decision in Cron. Nonetheless, counsel should be ever vigilant in tracking all decisions rendered since Greiff in order to frame a proper complaint in an action to set aside a prenuptial agreement. Perhaps in drafting the complaint facts should be alleged to enable the court to conclude that there was a "particularized inequality" at the time of execution in order to shift the burden to the proponent.