Wednesday, December 24, 2008

French Prenuptial Agreement Adopting "Separation of Estates” Regime Constituted Waiver of Equitable Distribution.

Court of Appeals Holds French Prenuptial Agreement Opting out of “Community Property” Scheme in Favor of a “Separation of Estates” Regime Constituted Waiver of Equitable Distribution. Error to Preclude Recovery of Counsel Fees to Oppose Affirmative Defense Predicated on Prenuptial Agreement.

In Van Kipnis v Van Kipnis, --- N.Y.3d ----, 2008 WL 5244630 (N.Y.) the Court of Appeals held that the parties' foreign prenuptial agreement precluded the equitable distribution of certain property under New York law, affirming the courts below. Plaintiff wife and defendant husband were married in France in 1965. At the time of the parties' marriage, the wife was a Canadian citizen from Quebec studying at the Sorbonne and husband was a citizen of the United States, having recently completed college. Prior to the marriage ceremony, wife had a "Contrat de Mariage" drafted under the French Civil Code and arranged for legal counsel to explain the terms of the prenuptial agreement in English to husband. The agreement was executed by the parties on September 30, 1965. Under the provisions of the Contrat de Mariage, the parties opted out of the community property scheme (the governing custom in France) in favor of a separation of estates regime. In relevant part, the agreement provided: "The future spouses declare that they are adopting the marital property system of separation of estates, as established by the French Civil Code. "Consequently, each spouse shall retain ownership and possession of the chattels and real property that he/she may own at this time or may come to own subsequently by any means whatsoever. "They shall not be liable for each other's debts established before or during the marriage or encumbering the inheritances and gifts that they receive. "The wife shall have all the rights and powers over her assets accorded by law to women married under the separate-estates system without any restriction." After the wedding, the parties moved to New York where they resided during their38-year marriage. The Husband was employed in finance while wife worked as a professor at Cooper Union and later as a cultural counselor for the Quebec government. The Wife was also the primary caretaker of the parties' two children, now emancipated. Throughout their marriage, the parties maintained separate accounts and assets, with the exception of the joint ownership of their two homes--a $625,000 house in Massachusetts and a cooperative apartment in Manhattan valued at $1,825,000. In 2002, the wife commenced an action for divorce and ancillary relief. Before trial, Supreme Court granted husband's motion to amend his answer to assert the 1965 prenuptial agreement as a defense to wife's equitable distribution claims. Supreme Court appointed a Special Referee to conduct a hearing on the issues of equitable distribution, maintenance and counsel fees. The Referee determined that the French contract provided for the separate ownership of assets held in the parties' respective names during the course of the marriage. As a result, the husband retained his liquid assets of approximately $7 million and wife kept her assets ranging from $700,000 to $800,000. As to the jointly held properties, which the parties agreed were subject to equitable distribution, the Referee recommended that the wife be awarded the Manhattan apartment, together with $75,000 in reimbursement for repairs, and that the husband be awarded the country home in Massachusetts. The Referee proposed that the wife receive $7,500 per month in maintenance until either husband or wife dies or the wife remarries. The Referee concluded that legal fees expended in connection with wife's challenge to the prenuptial agreement were not compensable under Domestic Relations Law 237. After deducting that portion of wife's claim for counsel fees attributable to contesting the agreement, the Referee awarded wife $92,779.57 in attorneys' fees. Supreme Court confirmed the Referee's report. The Appellate Division affirmed , with one Justice dissenting. The Court of Appeals modified. The Court of Appeals rejected the wife’s contention that all of the parties' property should be subject to equitable distribution under Domestic Relations Law 236(B)(5) because the 1965 agreement, drafted and executed in France, was intended to apply to property ownership during the course of the marriage, but not to the distribution ofproperty in the event of a divorce. In her view, the primary purpose of theagreement was for each spouse to avoid liability for the other's debts. The Court of Appeals noted that it is well settled that duly executed prenuptial agreements are generally valid and enforceable given the "strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements" (Bloomfield v Bloomfield, 97 N.Y.2d 188, 193 [2001]. Prenuptial agreements addressing the ownership, division or distribution of property must be read in conjunction with Domestic Relations Law 236(B), enacted in 1980 as part of New York's Equitable Distribution Law. The statute provides that, unless the parties agree otherwise in a validly executed prenuptial agreement pursuant to section 236(B)(3), upon dissolution of the marriage marital property must be distributed equitably between the parties while separate property shall remain separate. As relevant here, separate property is defined to include "property described as separate property by written agreement of the parties pursuant to subdivision three of this part" . Under the statute, a prenuptial agreement may include a "provision for the ownership, division or distribution of separate and marital property" and is valid and enforceable if it "is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded" (Domestic Relations Law 236[B][3]. The Domestic Relations Law therefore contemplates two basic types of prenuptial agreement that affect the equitable distribution of property. First, parties may expressly waive or opt out of the statutory scheme governing equitable distribution. Second, parties may specifically designate as separate property assets that would ordinarily be defined as marital property subject to equitable distribution under Domestic Relations Law 236(B)(5). Such property would then remain separate property upon dissolution of the marriage. In either case, the intent of the parties "must be clearly evidenced by the writing" .(Tietjen v. Tietjen, 48 AD3d 789, 791 [2d Dept 2008] ). Here, the parties' written agreement, adopting a "separation of estates" scheme,fell within the second prenuptial agreement category. The agreement specifiedthat separate ownership of assets applies not only to the property that each partyhad acquired at the time of the marriage, but also to property that they "may cometo own subsequently by any means whatsoever." It further assures that "wife shallhave all the rights and powers over her assets accorded by law to women marriedunder the separate-estates system without any restriction." The Court held that contrary to wife's argument, the Domestic Relations Law contains no categorical requirement that a prenuptial agreement must set forth an express waiver of equitable distribution.When read together, Domestic Relations Law s 236(B)(1)(d)(4) and (B)(5)(b)provide that assets designated as separate property by a prenuptial agreement willremain separate after dissolution of the marriage. That was the case here. The Court of Appeals agreed with the courts below that the agreement constituted an unambiguous prenuptial contract that precluded equitable distribution of the parties' separate property, rendering it unnecessary to resort to extrinsic evidence.

The wife also argued that the courts below erred in precluding her recovery of legal fees under Domestic Relations Law 237 for services provided in opposing her husband's affirmative defense predicated on the prenuptial agreement. The Court of Appeals agreed with her. Neither party sought to set aside the prenuptial agreement. Instead, their dispute centered on whether the terms of the contract applied to the ownership of assets upon divorce. In this respect, her request was similar to the fee application inVentimiglia v. Ventimiglia (36 AD3d 899 [2d Dept 2007] ), where attorneys' feeswere awarded to a party who contested her spouse's affirmative defense based on anantenuptial agreement. It held that remittal to Supreme Court for reconsideration wasnecessary because this portion of wife's fee application should not have beenexcluded as a matter of law.