Opinion
Civil Docket No.: CL16-6180
01-06-2017
Re: Mark McKoy v. Glenys McKoy
Catherine M. Deist, Esquire The Law Office of Cynthia T. Griffin, LLC 999 Waterside Drive, Suite 1212 Norfolk, Virginia 23510 Michael L. Hockaday, Esquire Janaf Office Building, Suite 208 5900 E. Virginia Beach Boulevard Norfolk, Virginia 23502
Catherine M. Deist, Esquire
The Law Office of Cynthia T. Griffin, LLC
999 Waterside Drive, Suite 1212
Norfolk, Virginia 23510 Michael L. Hockaday, Esquire
Janaf Office Building, Suite 208
5900 E. Virginia Beach Boulevard
Norfolk, Virginia 23502 Dear Counsel:
Today the Court rules on the Motion to Void Premarital Agreement filed by Defendant Glenys McKoy ("Wife"). In her motion, Wife seeks to void the premarital agreement (the "Agreement") into which she and Plaintiff Mark McKoy ("Husband") entered, alleging both that the Agreement is unconscionable and that Husband failed to properly disclose his property, thereby making the Agreement unenforceable. The Court holds that the Agreement is unconscionable because it results in a gross disparity in the division of assets to the detriment of Wife and because overreaching and oppressive influences induced Wife to sign it. The Court further finds that Wife has proved, by clear and convincing evidence, that prior to executing the Agreement she (1) was not provided a fair and reasonable disclosure of Husband's property, and (2) did not voluntarily and expressly waive, in writing, the right to disclosure of Husband's property beyond the disclosure he had provided. The Court therefore GRANTS Defendant's Motion to Void Premarital Agreement.
Background
During their premarital courtship, Husband and Wife resided in different countries and spoke different languages. Husband lived in the United States (in Norfolk, Virginia) and spoke English; Wife lived in the Dominican Republic and spoke Spanish. Wife has an eighth-grade education and is the daughter of parents who both are illiterate and who own no significant assets. Prior to marrying, Wife's only job had been selling lottery tickets in the Dominican Republic, and she had acquired no substantial assets. When Wife met Husband, he was working full-time in the United States and had invested in and was managing approximately eighteen residential properties, which yielded to him a combined net annual income of over $200,000.
Wife became pregnant with the couple's first child in May 2008. Sometime before November 2008, with the couple contemplated marriage, Husband presented Wife with the Agreement. At the time they executed the Agreement, neither Husband nor Wife was fluent in the other's language. Husband forwarded the Agreement, which is in English, to Wife in the Dominican Republic via mail. Shortly after Wife received the Agreement, Husband contacted Wife by telephone. With the assistance of Wife's godmother, who acted as a translator despite not being fully fluent in English, Husband told Wife that he needed her to sign the Agreement to protect his business. There was no discussion regarding the specific provisions of the Agreement, Husband's financial situation, or Wife's option to seek independent legal counsel. At some point, Wife had the Agreement translated into Spanish. Wife signed both the English and Spanish copies of the Agreement, without any modifications, while in the Dominican Republic. Husband retrieved the Agreement from Wife while visiting the Dominican Republic in early 2009 upon the birth of the couple's newborn child, and he subsequently signed the Agreement. A Dominican Republic notary public, who apparently is an attorney, notarized both signatures on each copy.
The Agreement provides, in pertinent part, as follows:
• The parties each have made "a full and frank disclosure of his or her assets and worth," and "[f]inancial statements and an itemization of assets" are attached to the Agreement. (Pl.'s Ex. 1, Recital A);
• "The parties have freely and voluntarily made this Agreement with competent, independent legal advice, and with full knowledge of their rights." (Id., Recital F);
• "The parties acknowledge and agree that they have carefully read this Agreement and that the provisions of the Agreement have been explained fully to them by their respective counsel. The parties acknowledge that they have been duly advised of their respective rights, including but not limited to their rights to support [and] equitable distribution . . . ." (Id. ¶ 3);
• The parties stipulate that:
? "This Agreement was not unconscionable when it was executed." (Id. ¶ 5.a);
? "Each party was provided a fair and reasonable disclosure of all the property and financial obligations of the other party." (Id. ¶ 5.b);
? "All the provisions are fair and equitable." (Id. ¶ 5.d);
? "The right to any disclosure not made by this Agreement shall be deemed to be waived by each party." (Id. ¶ 5.e);
• "A fair and reasonable disclosure of all of each party's property and financial obligations has been made to the other. Each party hereby waives any further disclosure beyond what as [sic] already been made." (Id. ¶ 6);
• "Neither [party] expects to have the right to future financial support, security or any monetary guarantees of any sort as a result of the marital relationship, irrespective of any future change in circumstances or unanticipated events." (Id. ¶ 8.a);
• "Each party waives and releases the other from any claim for temporary or permanent alimony, support and maintenance, or spousal support, now or in the future, in the event of a separation or divorce, or in the event of the institution of legal proceedings." (Id. ¶ 8.b);
• "Neither party shall make any claims for temporary support of any sort during the pendency of any legal proceedings that may exist between the parties." (Id. ¶ 8.d);
• "Husband and Wife agree that all property belonging to Husband at the commencement of the marriage and any property acquired by Husband during the marriage by gift, bequest, devise, survivorship, descent, or by any other means, including but not limited to his normal occupation, shall be and remain his separate property. . . . The parties acknowledge and agree that, during the marriage, Wife may choose to contribute considerable personal time, skill, service, industry, effort, and money to the investment and management of Husband's separate property and the income thereof. Any such monetary or non-monetary contribution . . . shall not constitute or create an interest subject to equitable distribution [or] any other claim . . . in favor of Wife in or to Husband's separate property. All separate property of Husband shall be free from any claim or demand by Wife at any time during the marriage or in the event of separation, divorce or death." (Id. ¶ 9);
• "The parties agree that any earnings or income of either party . . . shall be the separate property of the party earning or acquiring such earnings or income as though the contemplated marriage had never occurred." (Id. ¶ 11); and
• "This Agreement has been jointly prepared and negotiated by counsel for each of the parties and shall not be construed against either party." (Id. ¶ 24).
The Agreement contains mirror provisions regarding Wife's property. (See Pl.'s Ex. 1, ¶ 10.)
The parties' testimony revealed that several of the Agreement assertions are false. The Agreement was prepared solely by Husband and his attorney, and no negotiations with Wife took place. Husband admits that, prior to Wife signing the Agreement, he did not disclose his assets to her, and the referenced financial statements and itemizations of assets were not attached to the Agreement as indicated. It also appears that Wife did not enter the Agreement with competent, independent legal advice or full knowledge of her rights, and Husband presented no credible evidence to demonstrate otherwise.
The parties were married on October 26, 2009. Wife immigrated to the United States, and the parties lived together in Norfolk, Virginia. They had a second child in August 2010. Wife did not work during the majority of the marriage, but instead stayed home and raised the couple's children. Later in the marriage, Wife began working two jobs as a house cleaner, where she claims to earn between $250 and $350 per week.
This income was from two separate house-cleaning employers—$250 per week from one employer and up to $100 per week from the second employer—as of the September Hearing. After testimony at the September hearing from Husband and the guardian ad litem, as well as argument by Husband's counsel, that her second job limited her available time to spend with the children, however, Wife quit the second job.
Husband's investment properties apparently performed poorly at some point after the parties were married. He filed a personal bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on June 16, 2014, and a Plan of Reorganization dated October 1, 2015, apparently has been confirmed. (Def.'s Ex. 2.)
Husband filed a Complaint for divorce on June 6, 2016, and a Motion for Pendente Lite Relief on June 16, 2016, seeking, inter alia, exclusive possession and use of the marital home and denial of spousal support to Wife. Wife filed an Amended Answer and Counterclaim on August 11, 2016; a Motion for Pendente Lite Relief on August 22, 2016, seeking, inter alia, exclusive possession and use of the marital home, health care and dental coverage, and temporary spousal support from Husband; and a Motion to Void Premarital Agreement on November 14, 2016. Hearings on the Motions for Pendente Lite Relief and Motion to Void Premarital Agreement were held on September 14, 2016 (the "September Hearing"), and in December, 2016 (the "December Hearing"). The Court granted leave for the parties to file post-hearing briefs regarding the enforceability of the Agreement after the September Hearing.
Evidence was presented at a December 13, 2016, hearing, which hearing was continued to December 19, 2016, to offer additional evidence.
The substantial delay between the hearings was at the request of Husband—to support his represented intent to contact the notary public in the Dominican Republic who notarized the Agreement and determine whether she had counseled Wife about the Agreement prior to Wife's execution of the document. Husband nevertheless elected not to file a post-hearing brief and never presented any evidence that Wife received such legal counseling. Wife, on the other hand, filed a Motion to Void Premarital Agreement on November 14, 2016
Positions of the Parties
Wife alleges that, although she voluntarily signed the Agreement, she did not understand its provisions and—based on what Husband told her—believed its sole purpose was to protect Husband's business. She also was not advised by Husband that she should consult an attorney before signing the Agreement. She contends—and Husband admits—that Husband did not disclose his financial worth or his assets when she was presented the Agreement or at any time prior to her signing it. Wife does not recall having her signature notarized, and avers that, in any case, the listed notary public did not counsel her regarding the Agreement. Wife also asserts that no one else provided her legal counseling prior to her signing the Agreement. Wife further emphasizes that her relative lack of education and limited English proficiency—combined with Husband's misrepresentation that the Agreement was intended only to protect his business—precluded her from fully appreciating the contents of the Agreement. Wife argues that, under the circumstances, the Agreement is unconscionable and was executed without the required statutory disclosures, making it unenforceable.
Husband argues that, especially in light of the fact that Wife had copies of the Agreement in both English and Spanish, she had every opportunity to review the Agreement and to consult competent, independent legal counsel. Husband notes that it is undisputed that Wife signed the Agreement voluntarily, and he contends that she also signed it knowingly. Specifically, Husband asserts—without supporting evidence—that Wife received legal counseling from the listed notary public prior to signing the Agreement. Husband contends that although he did not disclose his financial assets prior to execution of the Agreement, under the Agreement Wife waived any disclosure beyond that already made. Husband therefore argues that the Agreement is enforceable.
Husband asserts—again, without support—that this same notary public had previously counseled Wife on unrelated immigration matters. In addition to Husband presenting no support, see supra note 4, the actual involvement of the notary public in notarizing the signatures is not clear. Wife does not recall getting her signature notarized and, according to the Agreement signature blocks, the notary public notarized both signatures on November 19, 2008. Husband denies ever appearing before the notary public and testified that he signed the Agreement in the United States in early 2009, which would have been several months after the notary public "notarized" his signature. In short, the Court is unable to unravel this Gordian Knot and therefore gives only minimal weight to any offered evidence offered involving the notary public.
Analysis
Legal Standard
Courts have recognized that a contract between a husband and wife is susceptible to "subtle overreaching and misrepresentation" typically absent from commercial arm's length transactions. Derby v. Derby, 8 Va. App. 19, 29-30, 378 S.E.2d 74, 79 (1989). This unique aspect of the marital relationship nevertheless is not a license for courts to "relieve one of the consequences of a contract merely because it is unwise." Id. (quoting Owens v. Owens, 196 Va. 966, 974, 86 S.E.2d 181, 186 (1955)).
The Code of Virginia provides as follows:
A premarital agreement is not enforceable if the person against whom enforcement is sought proves that:Va. Code § 20-151(A) (2016 Repl. Vol.).
1. That person did not execute the agreement voluntarily; or
2. The agreement was unconscionable when it was executed and, before execution of the agreement, that person (i) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; and (ii) did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided.
To demonstrate the unconscionability of a marital agreement, a party "must prove both (1) a gross disparity existed in the division of assets; and (2) overreaching or oppressive influences." Galloway v. Galloway, 47 Va. App. 83, 92, 622 S.E.2d 267, 271 (2005).
"Any issue of unconscionability of a premarital agreement shall be decided by the court as a matter of law. Recitations in the agreement shall create a prima facie presumption that they are factually correct." Va. Code § 20-151(B). The underlying facts supporting a claim of unconscionability, however, "must be determined by the fact finder." Galloway, 47 Va. App. at 92, 622 S.E.2d at 271. A court, when evaluating whether a premarital agreement is unconscionable, views the facts as they existed "when it was executed." Va. Code § 20-151(A)(2). A party seeking to void or rescind a premarital agreement has the burden of proving the supporting grounds alleged by clear and convincing evidence. Drewry v. Drewry, 8 Va. App. 460, 463, 383 S.E.2d 12, 12 (1989).
"[I]n cases involving separation agreements, 'unlike commercial contracts, the state itself has an interest in the terms and enforceability of [the] agreement[]' because, '[i]f either spouse is left in necessitous circumstances by a separation agreement, that spouse . . . might become [a] public charge[]." Sims v. Sims, 55 Va. App. 340, 353, 685 S.E.2d 869, 875 (2009) (quoting Derby, 8 Va. App. at 29, 378 S.E.2d at 79).
Discussion
The Court has considered the pleadings, evidence and oral argument presented at the hearings, and applicable authorities. The Court now rules on the enforceability of the Agreement. The motions for pendente lite relief are addressed in a separate Order.
Because Wife does not dispute that she voluntarily executed the Agreement, Section 20-151 of the Code of Virginia provides that the Agreement is unenforceable only if Wife proves each of the following: (1) the Agreement was unconscionable at the time it was executed, (2) Wife was not provided a fair and reasonable disclosure of Husband's property, and (3) Wife did not expressly waive in writing her right to disclosure of Husband's property beyond the disclosure provided. Va. Code Ann. § 20-151 (2016 Repl. Vol.). Wife must prove each of these elements by clear and convincing evidence. Drewry v. Drewry, 8 Va. App. 460, 463, 383 S.E.2d 12, 12 (1989). For purposes of evaluating the Agreement, the Court must consider the facts as they existed when the Agreement was signed. Va. Code § 20-151(A)(2).
The Court considers these proof elements seriatum.
A. The Agreement Was Unconscionable When Executed.
The Agreement includes a stipulation that it "was not unconscionable when it was executed" (Pl.'s Ex. 1, ¶ 5.a), which is presumed to be correct. Va. Code § 20-151(B). Wife in any case has the burden "to prove by clear and convincing evidence the grounds alleged to void or rescind the agreement." Drewry, 8 Va. App. at 463, 383 S.E.2d at 12.
Courts use a two-step test, promulgated by the Virginia Court of Appeals in Galloway v. Galloway, to evaluate whether an agreement is unconscionable. The disadvantaged party is required to "prove both 1) a gross disparity existed in the division of assets and 2) overreaching or oppressive influences," with courts "view[ing] the apparent inequity in light of other attendant circumstances to determine whether the agreement is unconscionable and should be declared invalid." 47 Va. App. 83, 92, 622 S.E.2d 267, 271 (2005) (citing Derby v. Derby, 8 Va. App. 19, 29, 378 S.E.2d 74, 79 (1989)).
The most recent published Court of Appeals decision regarding enforcement of marital agreements apparently leaves open the possibility that, in "extreme" cases, a disadvantaged party might be able to demonstrate unconscionability by proving only a gross disparity. Sims v. Sims, 55 Va. App. 340, 350 & n.1, 685 S.E.2d 869, 873-74 (2009). Subsequent unpublished decisions, however, have continued to apply the Galloway two-step test, requiring both a gross disparity and overreaching or oppressive influences. See, e.g., Guirguis v. Salib, No. 0038-12-1, 2013 Va. App. LEXIS 12, at *25 (Jan. 15, 2013) (finding that the trial court erred in ruling that a separation agreement was unconscionable because the disadvantaged party failed to prove that the benefitting party engaged in overreaching or oppressive influences); Chaplain v. Chaplain, No. 1301-10-1, 2011 Va. LEXIS 15, at *14 (Jan. 18, 2011) ("Even if the evidence established a gross disparity in assets, the trial court was entitled to conclude the agreement was not unconscionable because the evidence did not establish overreaching by husband or oppressive influences on wife."). Significantly, the Court is not aware of any Virginia appellate decisions that found a marital agreement unconscionable based solely on a gross disparity in the division of assets.
1. The Agreement's division of assets is grossly disparate.
The Agreement's core provisions—on their face—apply equally to both parties. For example, Paragraph 8(a) states that "[e]ach party waives and releases the other from any claim for temporary or permanent alimony, support and maintenance, or spousal support, now or in the future, in the event of a separation or divorce." (Pl.'s Ex. 1, ¶ 8(a).) Paragraphs 9 and 10 consist of parallel provisions precluding each spouse from attaining or claiming any right to the property of the other, including both property held "at the commencement of the marriage" and property "acquired . . . during the marriage by gift, bequest, devise, survivorship, descent, or by any other means, including but not limited to [his or her] normal occupation." (Id., ¶¶ 9, 10.) Additional language in Paragraphs 9 and 10 provides that even if one spouse "choose[s] to contribute considerable personal time, skill, service, industry, effort, and money to the investment and management of [the other spouse's] separate property and income thereof, [such actions] shall not constitute or create an interest subject to equitable distribution [or] . . . any other claim, right, lien, or interest whatsoever." (Id.)
The upshot of the Agreement is this: regardless of the situation, any events that might occur, and any contributions made by either spouse to the other's financial well-being, each spouse has no right to any type of spousal support, equitable distribution, or any interest in the other's property.
Although the Agreement's mirror provisions apply in like manner to both spouses, the consequences of those provisions—inasmuch as they could be envisioned at the time of execution—could not be more disparate. Husband testified at the December Hearing that, when he presented Wife with the Agreement, he was employed full time and owned approximately eighteen income-producing properties, such that his annual income exceeded $200,000. Wife, living in the Dominican Republic, was unemployed and owned nothing of significance. It is fair to presume that at the time the Agreement was formed, Husband contemplated that he would continue to earn a significant salary and substantial investment income. It also was entirely foreseeable that Wife—possessed of an eighth grade education, pregnant with Husband's child, and able to speak very little English—would have very limited earning potential and likely would remain at home raising the couple's child (or children); her prospects upon a dissolution of the marriage were predictably bleak. Stated differently, absent the Agreement, Husband's obligation to pay significant post-separation spousal support and to share marital assets with Wife upon divorce was virtually certain.
Wife also never obtained a Virginia driver's license, which poses additional challenges, but it is unclear from the evidence provided whether this was foreseeable when the Agreement was executed.
It is irrelevant that Husband's business prospects declined after the parties married, as unconscionability must be evaluated based on the facts as they existed when the Agreement was executed. Va. Code § 20-151(A) (2016 Repl. Vol.). The Agreement anticipates that a remarkably wealthy spouse will not, under any circumstances, provide support of any kind to a spouse who has no significant property and extremely limited income-earning potential. Further, even if Wife were to make substantial contributions to "the investment and management of Husband's separate property and income thereof during the marriage, the Agreement precludes her from attaining any interest whatsoever in that property. (Pl.'s Ex. 1, ¶ 9.)
Of course, Husband's current financial condition is relevant to any ultimate calculation of spousal support and equitable distribution of property.
That the Agreement contains mirror provisions "protecting" Wife's property and income from claims by Husband does not preclude the gross disparity in the division of assets contained therein. See Chaplain v. Chaplain, 54 Va. App. 762, 767, 682 S.E.2d 108, 110 (2009) (finding unconscionable a premarital agreement wherein "each party waived their interest in the other party's property, their right to inherit from the other, their right to equitable distribution, spousal support, retirement and life insurance benefits, and attorney's fees and costs" (emphasis added)). The design of the Agreement is clear: to completely inoculate wealthy Husband's property—owned both when the Agreement was formed and in the future, and independent of the contributions of Wife—from any claims of his penniless wife-to-be. Stated differently, the Agreement appears designed to ensure that Wife waives spousal support and to minimize—and perhaps prevent the creation of—a marital estate, thereby leaving nothing to Wife. As such, the Court finds that the Agreement's division of assets—viewed at the time the Agreement was executed—is grossly disparate.
2. Overreaching or oppressive influences induced Wife to execute the Agreement.
Under the Galloway two-step test, a gross disparity in terms is insufficient to establish the unconscionability of a Virginia marital agreement; the challenging party also must prove that the agreement was formed in the midst of "overreaching or oppressive influences." Galloway v. Galloway, 47 Va. App. 83, 92, 622 S.E.2d 267, 271 (2005).
Galloway's two-step test—by adding the "overreaching or oppressive influences" prong—pays heed to Virginia law's recognition of a private party's right to enter into a lopsided or unwise contract. Derby v. Derby, 8 Va. App. 19, 29, 378 S.E.2d 74, 79; see also Smyth Bros. v. Beresford, 128 Va. 137, 170, 104 S.E. 371, 382 (1920) ("[W]hether [a person's] bargains are wise, or discreet, or profitable, or unprofitable, or otherwise, are considerations not for courts of justice, but for the party himself to deliberate upon." (quoting 1 Story's Equity § 244)); Cooley v. Cooley, 220 Va. 749, 752, 263 S.E.2d 49, 52 (1980) ("[M]arital property settlements entered into by competent parties upon valid consideration for lawful purposes are favored in the law and such will be enforced unless their illegality is clear and certain."). Virginia courts therefore have upheld even highly one-sided marital agreements absent strong evidence of inequitable circumstances surrounding their execution. See, e.g., Galloway, 47 Va. App. at 95, 622 S.E.2d at 272-73 (2005) (holding a separation agreement awarding the benefitting party approximately 94% of the marital assets enforceable); Guirguis v. Salib, No. 0038-12-1, 2013 Va. App. LEXIS 12, at *25 (Jan. 15, 2013) (overturning a trial court's holding that a separation agreement—which awarded to the benefitting party $10,000 of the disadvantaged party's roughly $12,000 income each month—was unenforceable).
Virginia courts analyze the enforceability of post-marital separation agreements using the same rubric as that for premarital agreements. See Va . Code § 20-155 (2016 Repl. Vol.).
As is appropriate, the Court does not consider unpublished Court of Appeals opinions to hold precedential value. The Court instead considers the rationale offered by the Court of Appeals to the extent that the Court finds it persuasive, which is permissible. See Fairfax Cty. Sch. Bd. v. Rose, 29 Va. App. 32, 39 n.3, 509 S.E.2d 525, 528 (1999).
Virginia courts—recognizing that "the relationship between husband and wife is not the usual relationship that exists between parties to ordinary commercial contracts"—apply special scrutiny to marital agreements. Sims v. Sims, 55 Va. App. 340, 350, 685 S.E.2d 869, 874 (2009) (quoting Derby, 8 Va. App. at 29, 378 S.E.2d at 79). In Derby, the Virginia Court of Appeals opined that the spousal relationship "creates a relationship which is particularly susceptible to overreaching and oppression" and that "[b]ehavior that might not constitute fraud or duress in an arm's-length context may suffice to invalidate a grossly inequitable agreement where the relationship is utilized to overreach or take advantage of a situation in order to achieve an oppressive result." 8 Va. App. at 29, 378 S.E.2d at 79.
The Virginia Court of Appeals has identified two facets of the "overreaching or oppressive influences" test:
When the accompanying incidents are inequitable and show [(a)] bad faith, such as concealments, misrepresentations, undue advantage, [or] oppression on the part of the one who obtains the benefit, or [(b)] ignorance, weakness of mind, sickness, old age, incapacity, pecuniary necessities, and the like, on the part of the other, these circumstances, combined with . . . inadequacy of price, may easily induce a court to grant relief, defensive or affirmative.Sims, 55 Va. App. at 349-50, 685 S.E.2d at 873 (emphasis added) (quoting Derby, 8 Va. App. at 28-29, 378 S.E.2d at 79). Although expressed in the disjunctive—such that overreaching or oppressive influences on the part of only one party is required—the Court finds that here there are inequitable "attendant circumstances" on the part of both parties. Chaplain v. Chaplain, 54 Va. App. 762, 774, 682 S.E.2d 108, 114 (2009). These circumstances, combined with the gross disparity of terms—referred to as "inadequacy of price" in Sims—demonstrate manifest inequity in the formation of the Agreement.
With respect to the attendant circumstances related to Husband (the benefitting party), the Court finds that Husband's actions in forming the Agreement involved both "bad faith"—in the form of "concealment" and "undue advantage"—and "oppression."
The Court finds Husband's "concealment" of his assets and financial resources from Wife extremely troubling. Husband failed to disclose—despite multiple contrary provisions in the Agreement, which was drafted solely by him and his counsel—any of his financial assets to Wife, and Wife did not otherwise have the opportunity to discover Husband's financial condition. Husband admitted during his testimony that Agreement Recital A's avowals that he made "a full and frank disclosure of his . . . assets and worth" and that "[f]inancial statements and an itemization of assets are set forth on the attached schedules" were false. (See Pl.'s Ex. 1, Recital A.) He also admitted that Agreement Paragraph 5.b's stipulation that "[e]ach party was provided a fair and reasonable disclosure of all the property and financial obligations of the other party" and Paragraph 6's statement that "[a] fair and reasonable disclosure of all of each party's property and financial obligations has been made to the other" were false. (Id. ¶¶ 5.b, 6.) These critical omissions constitute blatant dishonesty and some degree of concealment on Husband's part.
The Court notes Husband's "undue advantage" throughout the "negotiation" process. Drafting the Agreement was Husband's idea alone, and he obtained assistance from a Virginia attorney. Wife—living in the Dominican Republic—was not informed beforehand of Husband's intent to create the Agreement; nor, despite the wording of the Agreement, does it appear that Wife—or an attorney on her behalf—had any input regarding the Agreement's content at any point before it was presented to her for execution. Despite knowing about Wife's limited education, the existing language barrier, Wife's non-fluency in English, and the legal verbiage in the Agreement, Husband apparently never recommended that Wife seek counsel from an attorney; rather, he asked her to execute the Agreement after only a telephone call—using Wife's godmother as a translator—during which he told Wife that he needed the Agreement to protect his business. In short, Wife's chief—and apparently sole—contribution to the Agreement's formation was her uninformed signature.
The Agreement provides that it "has been jointly prepared and negotiated by counsel for each of the parties and shall not be construed against either party." (Pl.'s Ex. 1, ¶ 24 (emphasis added).)
The Court also believes that Husband introduced an element of "oppression" by placing Wife in a vexing predicament: demanding that she sign a premarital agreement as a precondition of marriage while she was living in another country and pregnant with his child. If Wife wanted to raise the couple's child with the benefit of both parents—she and a man with whom she says she was in love—she had no choice but to sign the Agreement.
With respect to the attendant circumstances related to Wife (the disadvantaged party), the Court finds relevant her "ignorance" of the content of the Agreement and her "pecuniary necessities," which stem from her limited formal education and training and her inability to speak or read English.
Regarding her "ignorance" of the Agreement provisions, Wife did not fully appreciate what she was signing, and it appears that she may not have had either the lingual capacity to comprehend the terms of the Agreement or the sophistication to understand their import without the assistance of independent legal counsel. She testified that her godmother—whose English was not particularly good—told her, via translation, that Husband said that the Agreement was solely for the purpose of protecting his business. Wife ultimately agreed to sign the Agreement based on that understanding—also having received the assurance of her illiterate parents. The parties' testimony displayed that Husband was a substantially more sophisticated actor than his eighth-grade educated Wife, and the Court finds that he parlayed this inequality to his advantage.
"Virginia adopted in large part the Uniform Premarital Agreement Act as the Virginia Premarital Agreement Act." Chaplain v. Chaplain, 54 Va. App. 762, 775 n.5, 682 S.E.2d 108, 114 (2009). The Virginia Court of Appeals in Chaplain noted the following:
Whether the absence of independent legal advice of counsel is a factor to be considered in determining whether a premarital agreement is unconscionable is not addressed by the Virginia Premarital Agreement Act. However, the Comment to Section 6 of the Uniform Premarital Agreement Act states: "Nothing in [this section] makes the absence of assistance of independent legal counsel a condition for the unenforceability of a premarital agreement. However, the lack of that assistance may well be a factor in determining whether the [unconscionability] conditions stated in [this section] may have existed."
The Court also finds, based on Wife's limited formal education and her sparse training and work experience, that the Agreement's foreclosure of any property award to her foreseeably would leave her in a position of "pecuniary necessity." Her present circumstances are in line with what could be foreseen at the time of the Agreement's execution: she is unable to move into her own home because her housecleaning work will not support her living independently of Husband, and there do not appear to be any viable prospects available to her for higher education, training within a trade, or higher-paying work. These circumstances invoke the State's interest—that Wife might become a "public charge"—which concerned the Sims court and concerns this Court as well. 55 Va. App. at 353, 685 S.E.2d at 875.
The Court recognizes that after speaking with Husband—via translation—and prior to executing the Agreement, Wife had the document translated into Spanish. Wife credibly testified that she never sought or received any legal counsel regarding the Agreement, however—notwithstanding Husband's unsupported assertion to the contrary. She also testified that Husband never recommended that she seek counsel. Having reviewed the Agreement and heard the testimony of the parties, the Court is convinced that—even reviewing the document in her native language—Wife could not appreciate the significance of the Agreement without the assistance of counsel. To be clear, Wife should have taken advantage of her opportunity to seek legal counsel before executing the Agreement, and the Court is not suggesting Husband committed fraud or engaged in patently nefarious behavior by not recommending that Wife do so.
As noted, courts may consider "a gross disparity in the value exchanged [a]s a significant factor in determining whether oppressive influences affected the [marital] agreement." Derby, 8 Va. App. at 28, 378 S.E.2d at 79. And as discussed supra, the mirror provisions in the Agreement—which preclude both parties from receiving spousal support or attaining any interest in the other's property—belie an intended (and foreseeable) outcome whose lopsidedness would be hard to surpass. An attempt by a wealthy husband to entirely foreclose the possibility of a presently impoverished wife—with an eighth-grade education and extremely limited future income-earning potential—from receiving any property or support from him is strong evidence of overreaching. As the above discussion reveals, this disparity is far from the only evidence of inequity.
It is impossible to draw direct comparisons with other Virginia cases that have ruled on the enforceability of marital agreements, as the facts and circumstances of each case vary greatly. The primary value of looking to such case law is the possibility of gleaning—in a somewhat impressionistic exercise—a qualitative understanding of where Virginia appellate courts set the bar of unconscionability in the context of marital contracts. That said, the Court notes a number of similarities between the facts present in the instant case and those in other cases where courts have evaluated the enforceability of marital agreements.
Initially, the facts of the instant case appear to be within the confines of the Court of Appeals' ruling in Sims. There, the court held that the second unconscionability prong—regarding overreaching and oppressive influences—can be satisfied by demonstrating "gross disparity in conjunction with pecuniary necessity [and infirmity] on the part of the disadvantaged spouse." Sims, 55 Va. App. at 350, 685 S.E.2d at 874 (emphasis added). The disadvantaged party's "pecuniary necessity" in Sims was based on her being "totally disabled." Id. at 345, 685 S.E.2d at 871. Although Ms. Sims did not receive disability and did not qualify for Medicaid, she "was receiving food stamps and borrowing money from family and friends 'to try to get by.'" Id. The Sims court ultimately held that "[p]roof of 'pecuniary necessities' and infirmity satisfies the second prong of the unconscionability test without the need for separate proof of overtly 'oppressive influences' exerted by [the benefitting party] or on [his/her] behalf." Id. at 352, 685 S.E.2d at 874-75. It did so, however, without specifically defining the requisite level of "pecuniary necessities" and "infirmity." Although the Court here finds that Wife's pecuniary necessities are relevant, they are not as extreme as those present in Sims and they are not coupled with infirmity. The Court therefore is reluctant to find that the facts in the case at bar satisfy the somewhat truncated Sims standard. The Court also need not do so, as other attendant circumstances are present.
In invalidating the separation agreement in Pramagioulis v. Pramagioulis, the Virginia Court of Appeals noted that—as is the case here—the document was "prepared by husband's attorney" and "Wife was not represented by an attorney at the time." No. 1437-10-2, 2011 Va. App. LEXIS 20, at *3 (Jan. 25, 2011). Other similarities to the case at bar include: the wife's mistaken impression that the agreement's purpose was business-related—in that case to help the husband acquire a bond for his company; the lack of any discussion of property division before signing the agreement; and the husband's failure to provide an itemized list of his property and/or debts. Id. at *6.
See supra note 10.
In Derby v. Derby, the Court of Appeals identified the "shocking" disparity in the agreement's division of property as a factor in holding that the marital agreement was unconscionable. 8 Va. App. at 30, 378 S.E.2d at 80. This Court likewise is shocked by the Agreement's similar provisions, which completely preclude any property claim asserted by Wife, who—at the time of the Agreement's execution—foreseeably would be in dire financial straits in the event of marital separation. The Derby court's conclusion that one spouse took advantage of the other's "emotional problems . . . in a manner that induced an unconscionable agreement," id. at 32, 378 S.E.2d at 81, is not unlike Husband's exploitation here of Wife's pregnancy, lack of education and work experience, and foreign residency and citizenship.
In Chaplain v. Chaplain, the Court of Appeals held that a wife established a prima facie case that a premarital agreement was unenforceable because it was unconscionable. 54 Va. App. 762, 682 S.E.2d 108. A number of the attendant circumstances in that case echo now familiar themes: a gross disparity in the agreement's terms notwithstanding mirror provisions for each spouse; the absence of discussions or negotiation of terms before execution; a failure to disclose assets by the benefitting party; and an imperfect understanding of the agreement's purpose by a disadvantaged spouse lacking legal counsel. Id. at 774-76, 682 S.E.2d at 114-15. Particularly resonant is the fact that in Chaplain the wife was a citizen and resident of a foreign country, Morocco, and claimed to speak and read only limited English. Id. at 774, 682 S.E.2d at 114.
The Court of Appeals subsequently upheld—in an unpublished decision—the trial court's finding on remand that the premarital agreement was conscionable. Chaplain, 2011 Va. App. LEXIS 15. The court cited the following facts, inter alia, to support its holding: wife "spoke and understood English very well" but had stated that "if husband ever sought to divorce her, she would lie about her ability to understand English"; wife was forty-years old and had extensive work experience; wife was largely aware of husband's extensive property holdings; husband took wife to see his attorney, who reviewed the contents of the agreement with wife; and wife had a savings account and indicated to husband that her family's holdings in Morocco "might exceed his." Id. at *7-13.
It is noteworthy that in several cases that cite lack of legal representation as a factor—and that found marital agreements unconscionable—nothing appears to have prevented the disadvantaged party from seeking legal guidance.
The instant case is distinguishable from Guirguis v. Salib, where the Court of Appeals held that an agreement awarding spousal support to a wife in an amount almost equal to the husband's entire monthly salary was not unconscionable. 2013 Va. App. LEXIS 12. Three facts present there stand in particularly sharp contrast to the case at bar. First, as a "licensed medical doctor who earns a significant annual salary," the husband (the disadvantaged party) was a far more sophisticated party than Wife in the instant case. Id. at *24. Second, disclosure does not appear to have been a factor in Salib—which makes sense given that it was the disadvantaged party whose financial resources were at issue in that case. Id. at *3. And third, the potentially "oppressive" influence in Salib came from the disadvantaged party's priest—a third party—and not the benefitting party. Id. at *19. The court specifically pointed out that "[t]he record does not suggest that the wife manipulated the husband into signing the separation agreement by unfairly appealing to his respect for [the priest]." Id.
A review of these cases reveals some facts that—viewed in isolation—appear more inequitable than the circumstances of the case at bar and other facts that seem less so. This court ultimately finds, however, that the collective facts and circumstances of this case fit comfortably within the compendium of cases where Virginia courts have held marital agreements unenforceable. The Court notes that were it applying a similar set of facts in a commercial contract setting, its unconscionability conclusion might be different. Under the unique circumstances here, however, the Court finds that Husband held all of the trump cards in a winner-take-all "negotiation" that actually was anything but. The failure of Husband, as the more sophisticated party, to disclose fundamentally important information—and to misrepresent in the Agreement that he had done so—is particularly unsettling. That he exercised his undue advantage so dishonestly and uncharitably over a foreign woman carrying his child—as a condition of marriage—is nothing less than unconscionable. Section 20-155 was designed by the General Assembly to protect spouses from such unprincipled marital contracting.
Because Wife has proved, by clear and convincing evidence, both that a gross disparity existed in the division of assets and that overreaching or oppressive influences surrounded the formation of the Agreement, the Court holds that the evidence establishes as a matter of law that the Agreement is unconscionable.
B. Wife Was Not Provided a Fair and Reasonable Disclosure of Husband's Property.
Beyond proving unconscionability, a party challenging the enforceability of a premarital agreement must prove, by clear and convincing evidence, that the benefitting party did not make a "fair and reasonable disclosure of the property." Va. Code Ann. § 20-151(A)(2)(i) (2016 Repl. Vol.). The Agreement indicates that such a disclosure was made. Amongst the "Recitals" is the following: "Each [party] has made a full and frank disclosure of his or her assets and worth. Financial statements and an itemization of assets are set forth on the attached schedules." (Pl.'s Ex. 1, Recital A.) Further, Paragraph 5.b stipulates that "[e]ach party was provided a fair and reasonable disclosure of all the property and financial obligations of the other party" and Paragraph 6, titled "Disclosure," states that "[a] fair and reasonable disclosure of all of each party's property and financial obligations has been made to the other." (Id. ¶¶ 5.b, 6.)
Recitations in a disputed marital agreement are presumed correct. Va. Code § 20-151(B). Husband admitted at the September Hearing, however, that he did not in fact disclose to Wife either his assets or his financial situation and, further, that the referenced financial statements and itemizations of assets were not attached to the Agreement. The Court therefore finds that Wife has overcome the presumption of correctness.
To the extent that Husband relies on the Agreement provision asserting that "[t]he right to any disclosure not made by this Agreement shall be deemed to be waived by each party" (Pl.'s Ex. 1, ¶ 5.e), the Court finds that this provision does not conform to the statutory disclosure requirement. --------
The Court thus finds that Wife has met her burden of proving, by clear and convincing evidence, that Husband did not make a fair and reasonable disclosure of his property.
C. Wife Did Not Voluntarily and Expressly Waive, in Writing, the Right to Disclosure of Husband's Property Beyond the Disclosure Provided.
Section 20-151 of the Code of Virginia contains a final requirement to establish that a premarital agreement is unenforceable: the party challenging the agreement must prove that she "did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided." Va. Code Ann. § 20-151(a)(2)(ii) (2016 Repl. Vol.).
The face of the Agreement suggests that Wife cannot satisfy this element of proof. Paragraph 6, titled "Disclosure," states, "A fair and reasonable disclosure of all of each party's property and financial obligations has been made to the other. Each party hereby waives any further disclosure beyond what [h]as already been made." (Pl.'s Ex. 1, ¶ 6 (emphasis added).) If this is a legitimate waiver, the Agreement is enforceable under the statute—no matter its unconscionability.
The problem with this supposed waiver, however, is its context within an Agreement that is replete with related false statements regarding disclosure. The Agreement assures "a full and frank disclosure of . . . assets and worth," and the clause putatively waiving "further disclosure" immediately follows this: "A fair and reasonable disclosure of all of each party's property and financial obligations has been made to the other." Id. (emphasis added). As discussed supra, these affirmations are patently false, at least with respect to Husband's disclosure. Significantly, without Husband's initial disclosure—which purported to disclose all property—the validity of a waiver of "any further disclosure beyond what has already been made" is eviscerated, as the waiver of any additional disclosure is expressly premised on the initial disclosure of all property. What does it mean to waive disclosure beyond a prior full disclosure of all property when in fact no disclosure was ever made? The Court admits that this is one Zen koan it cannot solve.
Under Virginia law, waiver is "an intentional relinquishment of a known right." Stanley's Cafeteria, Inc. v. Abramson, 226 Va. 68, 74, 306 S.E.2d 870, 873 (1983) (emphasis added). A valid waiver therefore requires "knowledge of the facts basic to the exercise of the right." Id. Here, Wife's waiver of further disclosure is predicated on her possessing the knowledge gleaned from Husband's "initial disclosure." Such knowledge was absent here.
As Husband declared that he had fully disclosed his assets and worth at the time the Agreement was executed, the Court finds that Wife's ostensible waiver "beyond the disclosure provided" is invalid. The Court finds that this is not the type of disclosure waiver the General Assembly envisioned would bar proving unenforceability of an otherwise unconscionable premarital agreement. For purposes of Section 20-151, then, Wife has proven by clear and convincing evidence that she did not—and indeed could not—waive disclosure of Husband's property or financial obligations "beyond the disclosure provided."
Conclusion
The Court holds that the Agreement is unconscionable because it results in a gross disparity in the division of assets to the detriment of Wife and because overreaching or oppressive influences induced Wife to sign it. The Court further finds that Wife has proved, by clear and convincing evidence that, prior to executing the Agreement, she (1) was not provided a fair and reasonable disclosure of Husband's property, and (2) did not voluntarily and expressly waive, in writing, the right to disclosure of Husband's property beyond the disclosure he had provided. The Court therefore finds the Agreement unenforceable and GRANTS Defendant's Motion to Void Premarital Agreement.
Sincerely,
/s/
David W. Lannetti
Circuit Court Judge DWL/jmk cc: Stephanie G. Johnson, Esq.
Id.