Chapter 1 AGREEMENTS IN GENERAL: PRINCIPLES OF CONTRACT DOCTRINE

• Jurisdiction: New York

Chapter One

Agreements in General: Principles of Contract Doctrine

I. Understanding Advantages of Negotiated Agreements; Public Policy Favors Agreement Over Litigation

A. Premarital Planning Helps Alleviate Disputes Throughout Marriage

As a matter of law, marriage is an economic partnership¹ whose financial interests may be severed by trial or agreement. Public policy has long favored agreements between marital parties as a means of avoiding or terminating litigation, which, historically, typically found form in separation agreements.² "Given the role of the parties' autonomy in mediation [negotiations], the more court intervention lurks, the more tension exists between a legal result and an autonomously negotiated one."³

Although a prenuptial agreement is not a romantic Hallmark card crooning adulation and absolute confidence that the spouse-to-be will be as honorable in practice at the time of the divorce as he or she professes to be at the threshold of the altar, such agreements, nevertheless, remain indispensable, offering significant advantages and protection.

Affianced parties and spouses stand in a fiduciary relationship.⁴ A prenuptial agreement compels the parties to focus on economic aspects and to plan for their financial futures. First, it provides for a low-cost, early, easily disentangled exit strategy; second, even when limited only to defining separate property, premarital agreements resolve issues that will inevitably surface in the event of a divorce; and third, they may play a significant role in estate planning for both parties, particularly if there are children of prior marriages or other relatives for whom a party wants to provide without putting the person in conflict with a spouse later on in life. Parties may select which issues they wish to resolve anticipatorily.

Courts are not precluded from probing the nature and extent of the proponent's disclosure, the circumstances surrounding the execution of the agreement, and the opportunities for the other party to obtain independent legal advice. Counsel for the wealthier party should impress upon the client the advantages of broad disclosure.

B. Postmarital Planning

Postmarital planning enables greater estate planning and permits parties to rationally plan for separation or divorce. Postnuptial agreements clearly offer the same advantages and protection as prenuptial agreements. Postnuptial agreements that contemplate a continued marriage of the parties permit them to adjust their rights in marital and separate property, particularly from an estate planning perspective, or to otherwise transmute separate to marital or marital to separate property. Postnuptial agreements made in contemplation of separation or eventual divorce allow the parties to craft a financial exit strategy, such as a complete plan not only for estate issues but also for the distribution of marital assets and liabilities, support and custody of children, spousal maintenance, payment of taxes, and other issues. Where parties intend to divorce, postnuptial separation agreements can, in certain circumstances, offer the additional advantage of providing a basis for an uncomplicated dissolution of the marital bonds.

C. Documenting Counsel's File Concerning Client's Understanding of Agreement; Laws to Be Considered in the Drafting of Marital Agreements

Throughout the representation of the client, contemporaneous notes to the file to reflect the discussions with the client and opposing counsel should be carefully maintained. Some attorneys videotape the execution of the agreement and go through an allocution process akin to those in the courts when agreements are dictated into the record.

If the client is highly emotional and under psychiatric or psychological care, secure a letter from the treating mental health professional asserting either the client's capacity to comprehend the settlement processes and to reach competent decisions and judgments, or stating that the mental health professional or some other individual has reviewed the agreement with the client during which time the client expressed his or her understanding and acceptance of its terms. Counsel may be best advised to forgo representation of such a potential client because it can only spell grief down the road when the client challenges the agreement and accuses the attorney of professional wrongdoing, such as inadequate representation—the fee earned is never worth it.

D. Allocution of the Parties

If the court has not already expressed its intention to allocute the parties regarding their comprehension of the agreement, counsel should request an allocution. This is particularly critical and a sine qua non if a client accepts key provisions over counsel's advice: the problematic issue is identified and the record preserves the client's awareness of the risks and his insistence to accept the deal nonetheless, thereby defeating a subsequent attack against the agreement and counsel. Allocutions typically address the following concerns:

1. Comprehension of and compliance with the agreement and its legal and practical consequences, following a thorough explanation by counsel;

2. Compromises, notwithstanding, that the settlement is basically fair, reasonable, and acceptable;

3. Ample opportunity to discuss each provision with counsel;

4. Satisfaction with counsel's representation;

5. Additional questions regarding any lingering doubts or concerns at the time of the allocution, which serves to confirm the voluntary acceptance of the agreement;

6. Use of alcohol or drugs, recreational or pharmaceutical, which might have impacted on or influenced a party's judgment to enter into the agreement freely.

The court may be asked to review additional tailored questions that satisfy the individual concerns of the case, such as those set forth in DRL §§ 236B(3), 240, and DRL § 255, effective October 9, 2009.

Parties need to be made aware that the power of the court to strike provisions following the settlement process is extremely limited, and that challenges to agreements are rarely successful. Courts will not ordinarily question a settlement made by competent parties represented by independent counsel where there has been an absence of any wrongdoing in the execution of the agreement.

II. The State's Interest in the Marital Relationship, Governed By State Law, Not Federal Law

The state is deeply concerned with marriage and takes a supervisory role in matrimonial proceedings.⁵ The Court of Appeals, pointing to the state's deep interest in the preservation of marriage, declared that every agreement between husband and wife must be viewed in the light of this continuing interest of the state.⁶ It has been observed that marital agreements are almost always a compromise of competing interests.⁷ In 1936, in Fearon v. Treanor,⁸ the Court of Appeals explained the nature of the status conferred by marriage:

Marriage is more than a personal relation between a man and woman. It is a status founded on contract and established by law. It constitutes an institution involving the highest interests of society. It is regulated and controlled by law based upon principles of public policy affecting the welfare of the people of the state. ⁹

Marriage is an institution in which the public as a third party has a vital interest;¹⁰ from time immemorial the state has exercised the fullest control over the marriage relation, going so far as to observe that there are, in effect, three parties to every marriage: the man, the woman, and the state.¹¹ A matrimonial action involves important questions of public policy and the interests not just of the parties thereto but those of the state itself.¹²

Though the marriage relation is created by agreement or contract of the parties, the state, and not the parties, determines the scope of the obligtions arising from the marriage relation.¹³ The whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the states, and not to the laws of the United States—the jurisdiction of the courts of the United States over divorces and alimony always has been denied.¹⁴

In Gleason v. Gleason,¹⁵ the Court of Appeals emphasized that the Divorce Reform Act did not unconstitutionally impair contract rights because marriage is not a contract as it is contemplated in the U.S. Constitution, "which prohibits the impairment by the States of the obligation of contracts" (Article I, § 10):

[R]ights growing out of the [marriage] relationship may be modified or abolished by the Legislature without violating the provisions of the Federal or State Constitution which forbid the taking of life, liberty, or property without due process of law." . . . And, in the Dartmouth College case, Chief Justice Marshall, addressing himself to the subject, stated: "The provision of the constitution never has been understood to embrace other contracts, than those which respect property, or some object of value, and confer rights which may be asserted in a court of justice. It never has been understood to restrict the general right of the legislature to legislate on the subject of divorces. (Internal cites omitted.)

In Hanfgarn v. Mark,¹⁶ the Court of Appeals stated:

It has been expressly decided by the United States Supreme Court that marriage is not a contract within the meaning of the Federal Constitution which prohibits the states from impairing the obligation of contracts. (U.S. Const. art. 1, § 10; Maynard v. Hill, 125 U.S. 190).

Marriage has been frequently referred to as a contract in judicial opinions, by textwriters and in statutes. Nevertheless, it is not a common law contract as generally understood. It has some of the attributes of such a contract, but contains many elements foreign to a common law contract. It may be lawfully entered into by parties under twenty-one years of age. It cannot be dissolved by consent of the parties. After marriage, the State imposes duties and obligations

...