Authors: Attorney Daniel J. Schlichting & Law Clerk Elizabeth L. Spencer
Phone: (608)-257- 0945
The Wisconsin Court of Appeals recently released a decision interpreting a clause, deemed to be ambiguous, of a pre-marital, or pre-nuptial, agreement. The Court held that the agreement required reimbursement of voluntary payments by one spouse toward the debts of the other spouse. The decision of Pettit v. Hein, 2015AP1412, introduces concerns over what have been considered standard clauses in marital property agreements and thus calls for a review of Wisconsin marital property agreements and how to ensure your agreement will remain intact.
In 1986, the Wisconsin Marital Property Act (the “Act”), codified as chapter 766, went into effect, making title no longer controlling in determining the ownership of assets. Spouses and those intending to marry may enter into an agreement but, if not married, the agreement will only take effect once the marriage has occurred. The Act provides a general rule that all property of a
couple is marital property, with a few stated exceptions, and a spouse has a one-half interest in each item of marital property. An agreement can be used to reclassify any property but if entered
into after December 31 st , 1985 must comply with the Act. Thus, in order to ensure control over assets spouses often enter into marital property agreements.
Under the Act, agreements can include provisions for the disposition of assets at death, regarding the right to control assets and payment of obligations during marriage, and division of the estate and other property arrangements in the event of dissolution. Married and marrying individuals can enter into a marital property agreement that: (A) governs the ownership of property if the marriage ends by divorce; (B) governs ownership of property if the marriage ends by death of one or both of the spouses; or (C) governs ownership of property if the marriage ends by divorce or death.
Marital property agreements can be used in the event of the dissolution of the marriage to protect assets and establish maintenance. In the aforementioned case, Pettit v. Hein, the couple entered into an agreement prior to their marriage that included the disposition of their obligations. Through a marital property agreement spouses can designate which party will receive certain assets upon divorce as opposed to both parties having a one-half interest in everything. Courts will typically enforce an agreement unless it is deemed inequitable or a spouse can demonstrate under Wis. Stat. § 766.58(6) that it was unconscionable, involuntary, or they did not receive disclosure about the other spouse’s financial obligations.
A couple may also choose to enter into an agreement as part of a comprehensive estate plan. Through an agreement, spouses can classify all property as marital property simplifying estate administration because it eliminates the necessity to keep marital and individual property separate. Additionally, upon the death of a spouse, it will also not be necessary to determine which assets are marital and which are individual property. Conversely, spouses may use the agreement to designate some assets as individual so that they can easily bequeath the item to the desired recipient. Agreements may also provide tax advantages. Classifying the entirety of a couple’s assets as marital as part of an estate plan will equalize each spouse’s estate, and often allow the couple to maximize estate tax exemptions. Finally, a provision can be added whereby the spouses contract for the disposition of all or a portion of their community property at the time of each of their deaths to probate.
Petit v. Hein has raised concern because the Court found a standard provision to be ambiguous leading to a result that was undesirable by one of the parties and running up a hefty bill. As a result, when deciding to draft an agreement for either potential dissolution purposes or estate planning purposes, couples should consult with an attorney and then carefully review any drafted
agreement ensuring that both parties have the same understanding of the provisions. Additionally, given that a court can find an agreement invalid based on a failure to disclose the appropriate financial information, each party must ensure that they have provided their attorney with the correct information.