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April
2006
Postnuptial Agreement Enforcement Decided
By Chris Burti, Vice President and Legal Counsel, Statewide
T
itle, Inc.
One
concern for real property attorneys has been effectively eliminated. For some
time there has been a question as to the enforceability of postnuptial free
trader agreements.
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he statutes seem to expressly authorize their use and eliminate the requirement
for consideration without quite saying so or specifically mentioning them.
The older cases dealing with antenuptial agreements did not favor them and often
found them unenforceable on public policy grounds or for lack of consideration.
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his lead to legislation specifically authorizing prenuptial contracts.
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herefore, we were left with statutes specifically protecting separation and
prenuptial agreements and with a substantial body of case law clearly indicating
a willingness to scrutinize marital contracts closely and invalidate those found
wanting.
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he absence of a specific authorizing statute or an on-point appellate decision
specifically sanctioning postnuptial agreements left many practitioners
concerned about their efficacy.
Judge
Greene’s dissenting opinion in Williams
v. Williams, 120 N.C. App. 707, (1995) has provided encouragement, but no
assurance to those who maintain that the statutes mean what they say and may be
relied upon as evidencing that postnuptial property agreements do not violate
public policy. “
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he North Carolina General Assembly first evidenced a change in public policy as
to marital agreements in 1981 with the adoption of N.C. Gen. Stat. § 50-20(d).
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his statute permits parties "[b]efore, during or after marriage" to
agree to the distribution of the marital property at the time of their
separation.
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hus, an agreement entered pursuant to this statute is valid even though the
parties continue to live together after its execution. Buffington v. Buffington, 69 N.C. App. 483, 317 S.E.2d 97 (1984). In
1987 the General Assembly again indicated its choice of public policy when it
adopted the Uniform Premarital Agreement Act (UPAA). N.C.G.S. ch. 52B (1987).
Prior to the adoption of the UPAA, the public policy forbad some premarital
agreements on the grounds that they encouraged divorce. I Suzanne Reynolds, Lee's
North Carolina
Family Law § 1.13(B) (5th ed. 1993). Under the UPAA, parties who
anticipate marriage are permitted to contract with regard to support and
property rights that may arise upon divorce. N.C.G.S. § 52B-4(a) (1987).
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hus with regard to property settlement agreements and premarital agreements, the
General Assembly has decided that such agreements do not incite divorce nor
separation but instead promote marital stability by defining the expectations
and responsibilities of the parties.”
Dawbarn,
v. Dawbarn,
COA05-364 filed on February 7, 2006 in the North Carolina Court Of Appeals
squarely and affirmatively addresses the question.
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he Court begins by declaring that public policy “‘is not offended by
permitting . . . spouses to execute a complete settlement of all spousal
interests in each other's real and personal property and yet live together.’ In re Estate of
T
ucci , 94 N.C. App. 428, 438, 380 S.E.2d 782, 788 (1989).”
In this case, the plaintiff argued that the postnuptial agreement should
not be enforced because it provided an economic incentive to his wife to leave
the marriage and was repugnant to public policy.
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he postnuptial agreement at issue transferred
the property to the wife upon the signing of the agreement.
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he parties’ future separation had no effect on the terms of the agreement.
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he Court held that the agreement did not provide any incentive to end the
marriage and was therefor not void as against public policy.
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he facts cited in the opinion can be
summarized as follows.
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he parties were married in 1985 and in 1993, the defendant confronted the
plaintiff about his involvement in an extramarital affair. Subsequently, the
plaintiff drafted a note, at the defendant's request, stating his intent to
convey the three jointly owned houses and their contents, to the defendant.
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he plaintiff suggested having the agreement formalized by his attorney and the
defendant had already hired an attorney to represent her and preferred that they
formalize the agreement there. After reviewing the Agreement and the deeds at
issue, the plaintiff signed the Agreement, deeds, and a memorandum of agreement.
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he Agreement provided:
“
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he parties hereto do contract and agree as follows:
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hat since the marriage of the Parties, the property as is hereinafter
specifically enumerated has been acquired or owned by either the Party of the
First Part/Husband or the Party of the Second Part/Wife or both.”
“
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hat it is the contract and agreement of the Parties that from and after the date
of this document, the property enumerated below will be the sole and separate
property of the Party of the Second Part/Wife, free and clear of any right,
title, claim, or interest of the Party of the First Part/Husband whatsoever,
including but not limited to, claims pursuant to N.C.G.S. § 50-20 et seq. and
the said Party of the First Part/Husband does hereby bargain, sell, convey and
quitclaim unto Party of the Second Part/Wife all of his right, title and
interest therein.”
Pursuant
to the Agreement the defendant transferred the three homes purchased during the
marriage, all of the vehicles owned by the parties, and all of the furnishings
in the homes.
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he plaintiff also assumed responsibility for all future costs associated with
the homes, including, but not limited to, ad valorem taxes, repairs, and
“redecorating costs and the like.” At the execution of the Agreement, the
value of the property conveyed to the defendant was approximately $850,000.00.
Subsequently the plaintiff conveyed another parcel of property to Defendant to
complete the conveyance of the properties to her according to the Agreement.
After
this, the parties lived together as husband and wife for more than nine years
and did not treat the property as belonging solely to Defendant. In May 2003,
the plaintiff requested the defendant to take out a loan secured by one of the
properties and, defendant refused and the parties separated. In August 2003, the
plaintiff filed this action to set aside the Agreement “on the grounds of
undue influence, fraud, duress, breach of a fiduciary duty, lack of
consideration, and contravention of public policy.”
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he trial judge granted summary judgment in favor of the defendant on all claims.
On
appeal, the plaintiff contended that the trial court erred in granting summary
judgment on his claim that the Agreement was void as against public policy.
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he Court of Appeals disagreed.
Citing
North Carolina General Statute section 52-10(a) the Court notes:
“(a)
Contracts between husband and wife not inconsistent with public policy are
valid, and any persons of full age about to be married and married persons may,
with or without valuable consideration, release and quitclaim such rights which
they might respectively acquire or may have acquired by marriage in the property
of each other; and such releases may be pleaded in bar of any action or
proceeding for the recovery of the rights and estate so released.”
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he Court reviews public policy doctrine and
states that it “‘is not offended by permitting . . . spouses to execute a
complete settlement of all spousal interests in each other's real and personal
property and yet live together.’
T
ucci, 94 N.C. App. at 438, 380 S.E.2d
at 788. However, when an agreement provides an economic inducement to leave the
marriage, it is void as against public policy. Matthews
v. Matthews, 2 N.C. App. 143, 162
S.E.2d 697 (1968).”
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he plaintiff argued that the Court of Appeals'
decision in Matthews supported his
contention that the Agreement violates public policy.
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he Court distinguished Matthews, stating that the
contract at issue in that case “provided that the plaintiff had promised
‘that if I ever leave [the defendant], everything I have or will have will be
hers to have and hold for the benefit of our children and herself[.]’
Id.
We held that this contract was void
as against public policy because enforcing the agreement would ‘induce the
wife to goad the husband into separating from her in order that the agreement
could be put into effect[.]”
Id.
at 147, 162 S.E.2d at 699.”
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he court determined that there was no evidence
in the record suggesting that the Agreement provided any economic inducement to
end the marriage.
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he properties became the defendant's upon the execution of the documents and a
future separation would have no effect on the terms of the Agreement.
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he testimony of the plaintiff was that the Agreement encouraged him to stay in
the marriage as he felt that he “had no choice but to remain married to Linda
Kay Dawburn, even though our marriage has been less than happy for quite some
time in the recent past.”
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he Court concludes that where “‘it appears the execution of the Agreement
was intended to encourage the parties to reconcile and improve their marriage[,]’
public policy is not violated.
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ucci, 94 N.C. App. at 438, 380 S.E.2d
at 788 (emphasis in original). Because
there is no evidence in the record to suggest that the Agreement would give
either spouse an incentive to end the marriage, and, based on Plaintiff's
affidavit and Defendant's deposition testimony, the execution of the Agreement
encouraged the parties to reconcile and remain married, the Agreement does not
violate public policy.”
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he plaintiff’s next argument that the
Agreement was unconscionable, that it was executed under duress, and that it
should be rescinded was disposed of by the Court of Appeals in favor of the
defendant also.
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he Court held that the trial court correctly granted summary judgment in favor
of the defendant on the grounds that the three-year limitation set forth in
section 1-52(9) barred the plaintiff's assertions of duress.
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his decision can be summarized for title
purposes by stating that post-nuptial agreements are not intrinsically void as
against public policy. Further that a properly executed agreement of record can
be relied upon in the absence of knowledge of any defect in its execution. And
lastly, that a non-collusive purchaser for value takes good title.
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his is so because even though the agreement and any conveyances may be voidable
as between the parties, absent actual knowledge of the facts giving rise to
violability, a purchaser for value takes good title in reliance upon a recorded
instrument that is otherwise valid on its face.
When
dealing with a party to such an instrument a closing attorney would be prudent
to inquire as to whether there were any controversies or claims by the other
party. When representing a purchaser from such a party, prudence would suggest
an inquiry of the purchaser as to knowledge of any such claims. Beyond this, it
would seem that we should be entitled to rely upon the record in subsequent
transactions in the absence of any knowledge that would suggest further inquiry.
Reliance on such matters should be reported to the title insurer if applicable
and any resulting requirements for further inquiry should be scrupulously
observed.
Commercial
T
itle Insurance
By,
Ginnie Whittington
, Commercial and Escrow Manager, Statewide
T
itle, Inc.
All
properties and all clients are not the same and, clearly, all title companies
are not the same. Commercial title insurance may be considered by some as
dealing with many of the same issues as residential title insurance, but more
often it involves more involved details typical of a commercial real estate
transaction.
From
the large commercial transactions, to the closings for the small business owner
or investors purchasing property, to the intricacies of IRS Section 1031
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ax deferred exchanges, a company’s experience, expertise, technology and
available policy coverage can make the crucial difference when the details are
complex and the timing is critical.
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he Commercial and Escrow Department of
Statewide
T
itle, Inc. serves our customers out of our corporate headquarters in
Salisbury
,
North Carolina
with support from our six regional offices across the State. Each office
provides unexcelled service for every client and every transaction, regardless
of size, complexity, or the geographic location of the insured properties.
Our
Commercial and Escrow Department offers expert handling of every transaction,
including the most complex multiple property, multiple location transactions.
Our senior commercial underwriters provide individualized personal service for
every client based upon over 100 years of combined experience in the field. We
have two full-time, in-house attorneys with substantial transactional
experience, in practice representing clients and in the title industry guiding
transactions to successful culmination.
No
transaction is beyond our scope. Multiple parcel, multi-million dollar complex
transactions are our specialty. Our team of in-house counsel and commercial
underwriters provides us the proficiency that you can depend on as a resource
whenever you are handling your most important transactions. We are immediately
available to provide you with highly qualified legal expertise before, during
and after the closing of your client’s most expensive investments.
Statewide
T
itle is one of the title industry’s leaders and a true innovator in the
delivery of title services over the Internet utilizing web-based technology. As
a result, information on all transactions is readily available in any of our
office locations.
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herefore, you are assured of being able to continue to work with the office of
your choice regardless of the location of the property.
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his high degree of competence and
technological leadership assures a creative, skillful and a customer-oriented
approach to facilitating the transaction.
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he result of this approach is timely closings and reduced transaction costs.
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hese enhanced transaction efficiencies, the unparalleled communications network,
and reduced response time provides you with the ability to close faster and move
on to the next transaction.
Stewart
T
itle, Lawyers
T
itle and Chicago
T
itle underwrite all of our title insurance policies. Statewide
T
itle, Inc. is an independently owned
North Carolina
agency that is an authorized issuing agent for these three national
underwriters.
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he Company has been writing title insurance policies in
North Carolina
since 1984.
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he corporate office is in
Salisbury
, and there are offices located across the state “from Manteo to Murphy” in
order to better serve its customers.
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hrough its subsidiary, SISCOä
(Statewide Information Services Company), Statewide
T
itle was the first company in
North Carolina
to provide true web-based title services. SISCOä can
also provide file imaging/scanning services to its customers. Another subsidiary
is Statewide
T
itle Exchange Corp. (S
T
ECä)
which can serve as a qualified intermediary in 1031 tax-deferred exchanges. S
T
ECä
can also serve as an accommodation titleholder in Reverse
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ax-Deferred Exchanges. Our Escrow services provide seamless integration for
funding issues.
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