Steele v. McDonnell Steele, ___ N.J. Super. ___ (App. Div. 2021). Judge Enright’s decision for the Appellate Division in this case today involved an appeal of the Family Part’s enforcement of a martial agreement (“MA”) between the plaintiff husband and the defendant wife. Judge Enright rightly laid out the facts in great detail. But the bottom line was that though plaintiff contemplated the MA before the parties were married, and even had a draft MA prepared, along with financial information connected to that draft, plaintiff did not ask defendant to enter into an MA until after the parties got engaged, and the MA was not signed until later, at a time when plaintiff was pregnant with the couple’s child.
Unlike in some cases, though, plaintiff did not threaten not to marry defendant if the MA were not signed. But on the other hand, the financial disclosures that plaintiff eventually made in connection with the signature of the MA were not complete or accurate, as they did not disclose certain assets, worth millions of dollars, that plaintiff had. In light of all the facts, the question became what type of agreement the MA was.
That was important because, as Judge Enright described, there are three types of marital agreements, and each type is treated differently by the law. The first type, a pre-marital agreement, is ordinarily enforceable if “fair and just. [Citations]. The public policy supporting enforcement of a pre-nuptial, as opposed to a post-nuptial, agreement is that one party remains free to walk away before the marriage takes place.”
The second type of marital agreement, mid-marital agreements, are not viewed favorably. Such agreements “are generally unenforceable as they are ‘inherently coercive.’ A mid-marriage agreement is ‘entered into before the marriage [has] lost all of its vitality and when at least one of the parties, without reservation, want[s] the marriage to survive.’ Such agreements are carefully reviewed because they are ‘pregnant with the opportunity for one party to use the threat of dissolution to bargain themselves into positions of advantage.'” Judge Enright quoted Pacelli v. Pacelli, 319 N.J. Super. 185 (App. Div. 1999), a leading case on mid-marital agreements, for those principles.
The third type of agreement is a property settlement agreement. “Property settlement agreements generally are enforceable, so long as they are ‘fair and equitable,’ as they assume the parties stand in adversarial positions and negotiate in their own self-interest. Property settlement agreements are prepared in contemplation of divorce, when relations have already deteriorated. Discovery is available, parties usually deal at arms length and the proceeding -almost by definition is adversarial” (citations omitted).
On summary judgment, the Family Part found that the MA here was a pre-marital agreement and fully enforceable by plaintiff against defendant. Employing de novo review, the Appellate Division today reversed that ruling.
Judge Enright noted that, at oral argument, plaintiff’s counsel conceded that the MA was not a pre-marital agreement. The relevant statute, N.J.S.A. 37:2-32, defines a pre-marital agreement as “an agreement between prospective spouses … made in contemplation of marriage … and to be effective upon marriage” (emphases by Judge Enright). That was indisputably not so here.
Nor was the MA “in the nature of” a pre-marital agreement. It was not negotiated or executed in the circumstances customarily attendant to such agreements, but instead after the marriage and while defendant was pregnant. The parties could have negotiated and signed an agreement before their engagement or defendant’s pregnancy, but they did not.
Judge Enright easily found that the MA “does not qualify as a property settlement agreement. Plainly, it was not executed in contemplation of a divorce (the parties had been married for over twenty years before plaintiff filed for divorce), whereby each party’s economic rights would be fixed upon the entry of a divorce judgment.”
But the MA was not exactly the classic type of mid-marriage agreement embodied by Pacelli. There, after the parties had been married for ten years and had two children, the husband demanded that the wife sign a marital agreement or he would divorce her. He even “moved out of the marital bedroom and into an apartment above their garage.” Because the wife wanted to save the marriage and avoid having the children grow up in a broken family, she signed the agreement in Pacelli.
In contrast, “here, neither party was threatened with divorce or separation to prompt the execution of a marital agreement. Instead, both parties were happily married when they negotiated and signed their agreement.” But the Appellate Division found that the MA was “in the nature of a mid-marriage agreement and deserves heightened scrutiny.”
“[J]ust as in the Pacelli case, there was a marriage and a family to preserve. Moreover, though the purported pressure placed on defendant differs from the tactics employed by the husband in Pacelli, plaintiff’s insistence on having defendant execute the MA months after the marriage, so soon after the birth of the parties’ daughter and while she was unemployed, appears to be ‘inherently coercive.’ At that point, defendant was not free to just walk away.”
Applying contract interpretation principles to the MA, and using de novo review, Judge Enright held that summary judgment enforcing the MA was improper. The panel’s “review of the MA and the circumstances surrounding its execution suggest the MA may have been unfair, if not unconscionable, when it was executed, and when plaintiff moved to enforce it.” There were three areas of concern: “the adequacy of plaintiff’s financial disclosures before the parties signed the MA; the circumstances surrounding the MA’s negotiation and execution; and the adequacy of the settlement itself.”
The issue as to plaintiff’s financial disclosures related to his omission of certain assets and the use of different methods to value his businesses, which “as the trial court found, resulted in ‘millions of dollars that he avoided disclosing.'” The “inherently coercive” surrounding the negotiation of the MA were already discussed.
“Regarding the adequacy of the settlement itself, we observe the MA did not acknowledge the existence of, or provide for the support of, the parties’ nfant child, let alone health or life insurance coverage or other support-related obligations for her benefit. Further, the MA required a waiver of defendant’s apparently extremely valuable elective share. Additionally, although defendant stopped working two months before the MA was executed, in anticipation of raising the parties’ newborn daughter, the MA made no provision for defendant to receive equitable distribution unless the parties remained married for more than five years. Also, defendant is sixty-two years old and has reported minimal earnings after being absent from the job market from 1992 to 2013. The record is devoid of any indication she can enjoy any semblance of the marital lifestyle, notwithstanding the taxable and non-taxable distributions due her under the MA.”
For all those reasons, the Appellate Division reversed the ruling of the Family Part that had enforced the MA and remanded for full consideration of the fairness of the MA. But there was still the issue of defendant’s claim for attorneys’ fees. Such awards are discretionary with the trial level judge. The Appellate Division found that the Family Part did not make sufficient findings on that issue.
Finally, the panel directed that a different judge hear the matter on remand. That was because the judge who heard the matter in the Family Part had “already conscientiously expressed his opinion about the fairness of the MA.”