Premarital Economic Partnerships and the Division of the Marital Estate in Hawaii Divorces

• Publication year: 2018

Premarital Economic Partnerships and the Division of the Marital Estate in Hawaii Divorces

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by Thomas E. Crowley III & Stephanie A. Rezents

In 2014, in Collins v. Wassell, the Hawaii Supreme Court held: in divorce actions, the parties' premarital contributions may be considered by the family court in dividing the marital estate when the parties entered into a premarital economic partnership and cohabited prior to the marriage.¹ This article is intended to assist attorneys and their clients regarding the impact of premarital economic partnerships on property division in Hawaii divorces.²

The expansion of marital partnerships to include economic partnerships which exist "well before a legal marriage commences"³ may come as a surprise to laymen and lawyers alike. At first glance, the concept of premarital economic partnerships may be misinterpreted as akin to "common-law marriages," which are not recognized in Hawaii. A person who is not legally married does not qualify for the positive legal consequences of marriage.⁴ In Hawaii, cohabitation, no matter for how long, does not by itself prove the existence of an express agreement for post-cohabitation rehabilitative support (e.g., "palimony") or an equitable division of separate property acquired or improved during cohabitation.⁵

A premarital economic partnership ("PEP"), however, is unlike a common-law marriage. In order for a PEP to exist, the parties have to have (1) cohabitated; (2) intended there be a premarital economic partnership; (3) devoted their energies and financial resources for one another; and (4) subsequently marry. Unless the parties' subsequently marry, there is no PEP.⁶

Whether a PEP has been formed depends on the intentions of the parties. Absent an express agreement,⁷ in evaluating whether the parties intended to form a PEP, the family court must consider the totality of circumstances, including both the economic and non-economic contributions of the parties.⁸ Relevant considerations to establish such an intent include joint acts of a financial nature, the duration of the cohabitation, whether - and the extent to which finances were commingled, economic and noneconomic contributions to the household for the couple's mutual benefit, and how the couple treated finances before and after the marriage.⁹ In short, when it comes to proving the intent to form a PEP, in the absence of an express agreement, the focus is on whether the parties' actions are consistent with such intent.

While Collins was a case of first impression for of an express agreement, the focus is on whether the parties' actions are consistent with such intent. While Collins was a case of first impression for the Hawaii Supreme Court, a long line of Hawaii Intermediate Court of Appeals ("ICA") cases, commencing in 1983, had already concluded that premarital contributions may be relevant in dividing the marital estate in a divorce if the couple formed a PEP prior to marriage.¹⁰ Moreover, a majority of states allow the court to consider contributions made before the marriage as a division factor.¹¹ In 2016, in Hamilton v. Hamilton, the Hawaii Supreme Court again affirmed a PEP is formed when, prior to their subsequent marriage, two people cohabit and apply their financial resources as well as their individual energies to and for the benefit of each other's person, assets, and liabilities.¹²

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The four essential elements for a PEP

As stated above, in order for a PEP to exist, the parties have to have (1) cohabitated; (2) intended there be a premarital economic partnership; (3) devoted their energies and financial resources for one another; and (4) subsequently marry. Assuming the other essential elements for a PEP are established (cohabitation, the intent to form a PEP, and subsequent marriage), the critical focus for whether a PEP exists is whether the overall level of sharing by the cohabiting partners demonstrates they are devoting their energies and financial resources for one another.¹³

1. Cohabitation in and of itself does not establish a PEP

The number of unmarried couples cohabiting with one another continues to increase, and is now a multigenerational phenomenon.¹⁴ Between 2009 and 2010, there was a 13 percent increase, from 6.7 million to 7.5 million, of opposite sex unmarried couples living together.¹⁵ Cohabitation, however, in and of itself, does not establish a PEP.

Justice Pollack, in his dissent in Collins, noted: "sharing of some economic expenses and household responsibilities is a basic part of nearly any cohabitating relationship."¹⁶ Justice Pollack quoted the family court's "apt" observation:

Parties who are emotionally involved with one another and who are cohabiting must inevitably comingle their energies and finances to some extent - the exigencies of normal life and collective activity could scarcely allow it to be otherwise. Therefore, some measure of such commingling is to be expected in every instance of cohabitation, and does not by its mere existence rise to the level necessary to establish a Helbush "economic partnership."¹⁷

Mere cohabitation alone does not establish a PEP.¹⁸ Except where the parties' comingling of their energies and finances rises to the level of an economic partnership, cohabitation does not establish the start of a PEP.¹⁹

2. The intent to form a PEP

An essential element for a PEP is whether the cohabitants intended to apply their financial resources as well as their individual energies to and for the benefit of each other's person, assets, and liabilities.²⁰ When it comes to proving the intent to form a PEP, absent an express agreement, actions speak louder than words.

For example, when cohabitating couples get engaged to be married, such an action may constitute substantial evidence of their intent to form a PEP.²¹ In Collins, the parties underwent a "wedding ceremony" and began living together in 2000, but did not get legally married until 2005. The "putative marriage ceremony" in 2000 appears to be, at a minimum, the functional equivalent of a de facto engagement to marry. Justice Simeon Acoba, in his concurring opinion in Collins, characterized the 2000 wedding ceremony and the 2005 legal date of marriage as "plainly the temporal bookends" of the parties' premarital economic partnership:

The circumstances of this case seem straightforward and not to require complex analysis - that for financial reasons the parties simply postponed the formal legal ties of marriage until the children of [Collins] had completed their college education. The wedding ceremony on June 18, 2000, whose effect was suspended and the formalization of the parties' marriage on January 19, 2005 were plainly the temporal bookends of what would seem to be an emotional and economic attachment between Collins and [Wassell] that continued into their marriage in 2005.²²

Getting engaged to be married does not necessarily mean the cohabitating couple has then formed a PEP. As Justice Pollack noted in his dissenting opinion in Collins, "couples may apply their financial resources and energies for the benefit of each other but decisively not intend to form an economic partnership."²³

The proof of intent to form a PEP depends on the totality of the parties' circumstances. Even being legally married to someone else does not, in and of itself, preclude the formation of a PEP with a party's cohabitating partner. In Chen v. Hoeflinger, Hoeflinger and his prior wife entered into a divorce property settlement effective in January 1993, six months after the Family Court found Hoeflinger and Chen established a premarital economic partnership commencing in July 1992. The ICA upheld the family court, stating HRS § 580-47 does not provide for the division of property for mere cohabitation; and therefore a party could not be subject to simultaneous divisions of marital property from different partners under the statute. The ICA further held it does not contravene a just and equitable division of property to consider the parties' premarital cohabitation, even though one of the parties might have been legally married to someone else at that time. The ICA concluded there was nothing in the record to suggest that any of the property at issue was also subject to the property settlement with his prior wife.²⁴

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In Jacoby v. Jacoby, Bennett and Nicoleta began to cohabit and had formed a PEP in June 1992, even though Bennett was still married to Mary Ann at the time.²⁵ Bennett and Mary Ann separated four months before Bennett and Nicoleta began to cohabit, and finalized their divorce in April 1993. The ICA stated the fact that Bennett was still married to Mary Ann was "certainly a relevant nonfinancial aspect of Bennett and Nicoleta's premarital relationship, and under different circumstances, might support a finding and conclusion that a PEP was not formed." The ICA determined, however, the fact that Bennett's divorce was not finalized until April 1993 did not preclude a finding of a PEP with Nicoleta. The ICA noted Bennett financially supported Nicoleta for the majority of their cohabitation before marriage, and Nicoleta worked about three days a week at Bennett's periodontal clinic from June 1992 until the June 1993 date of marriage without receiving any compensation. Nicoleta testified they had joint bank accounts starting in 1992. The ICA stated that during the period of their premarital cohabitation, Bennett and Nicoleta cohabited and applied "their financial resources as well as their individual energies and efforts to and for the benefit of each other's person, assets, and liabilities." The ICA concluded the Family Court's finding of a PEP was supported by substantial evidence and therefore was not clearly erroneous.²⁶

Chen and Jacoby illustrate that even being married to another might not defeat a finding of intent to form a PEP if the cohabitants apply their financial resources as well as their individual energies and efforts to and for the benefit of...