Friday, May 19, 2006
Case Law Development: No Presumption of Undue Influence in Post Marital Agreements Absent Proof of Unfair Advantage
Wife file for divorce. The couple then decided to try to reconcile and, as part of their resolution, they drafted a post nuptial agreement to settle their financial affairs. Four years later when Wife again filed for divorce, she challenged the validity of the agreement that she contends is nothing more than a "pre-packaged divorce."
The California Court of Appeals affirmed the trial court's order finding the agreement valid and enforceable. Relying in part on precedent drawn from the trustee-beneficiary context, Wife argued that the agreement should have been presumed the product of undue influence because husbands and wives are in a fiduciary capacity toward one another. The court rejected this approach. It found the better analogy to be toward the fiduciary relationship of partners.
"the precedents construing statutory requirements applicable to transactions between trustees and their beneficiaries are not controlling in interspousal transactions. Interspousal transactions are expressly governed by Family Code section 721, which prohibits a spouse from taking "any unfair advantage of the other," and treats the fiduciary duties of spouses like those of business partners. The distinction between the two types of fiduciary relationship - trustee-beneficiary on the one hand, and spouses or business partners on the other - is entirely reasonable, because in the latter fiduciary duties run in both directions. Indeed, just as it would be patently irrational to presume undue influence in a contract between business partners, it would likewise be unreasonable to presume undue influence in a contract between spouses, unless one of the spouses has obtained an unfair advantage. For these reasons, we conclude that a contract between spouses that "advantages one spouse"..., and therefore raises a presumption the transaction was induced by undue influence, is a transaction in which one spouse obtains an unfair advantage over the other."
The court likewise rejected Wifes arguments that the agreement was based on fraud because husband did not provide wife with written information about the mergers in progress during the negotiation of the post-marital agreement. The court concluded that wife was aware of the negotiations and failed to investigate their significance or effect and thus was bound by the terms of the marital agreement.
In re Marriage of Burkle, 2006 Cal. App. LEXIS 732 (May 18, 2006)
Opinion on the web (last visited May 19, 2006 bgf)