California provides for postnuptial agreements by a statute, section 721 of the California Family Code. The statute explains that spouses have a special relationship with each other that “imposes a duty of the highest good faith and fair dealing.” It requires that “neither [spouse] shall take any unfair advantage of the other” when they enter contracts, such as postnuptial agreements.
The Burkle Court explained the situations in which unfair advantage will invalidate a postnuptial agreement. Unfair advantage does not occur simply because a spouse gains a benefit through the postnuptial agreement. The point of postnuptial agreements is to gain a benefit of some kind; for example, financial security. Spouses will almost always benefit from entering an agreement, and spouses can fairly receive different benefits from the postnuptial agreement.
When both spouses receive a benefit from entering a postnuptial agreement, the transaction will be considered a mutual exchange. Under general contract principles, mutual exchange occurs when both parties promise to do something they are not legally obligated to do in return for the other party’s promise. The court will likely consider a postnuptial agreement to be fair when both spouses give up a property right in order to gain another property right. This can occur when spouses divide community property into separate property through the postnuptial agreement. In that scenario, both spouses receive the benefit of increased separate property. These mutual benefits are not unfair advantages.
To be an “unfair advantage,” as prohibited by California law, the benefit one spouse receives must occur to the detriment of the other spouse. For example, when a postnuptial agreement converts community property to the separate property of only one spouse, that spouse has received the benefit of increased separate property. If the other spouse does not receive something in exchange for giving up the right to the community property, then the transaction is to the determent of that spouse and may constitute an “unfair advantage”. When it appears that one spouse has received an unfair advantage, the court will automatically presume that the contract was obtained by undue influence.
Undue influence has a specific legal definition. It is the improper use of trust to pressure or manipulate a person to enter a contract. Requesting or suggesting that you and your spouse enter a postnuptial agreement is not undue influence. Undue influence is abusing the trust your spouse has in you so that you can get a better deal in the postnuptial agreement.
The spouse who receives the unfair advantage has the responsibility to prove there was no undue influence. If there is substantial evidence to rebut a presumption of undue influence, then the postnuptial agreement will be upheld. To successfully rebut the presumption of undue influence, you must show that your spouse voluntarily entered the postnuptial agreement with knowledge of all the facts and an understanding of the effect of the postnuptial agreement. The voluntary component can be satisfied by providing evidence there was no fraud or duress. Knowledge of the facts is shown by completing a full and fair financial disclosure prior to entering the postnuptial agreement. Understanding the effect of the postnuptial agreement is most easily proven if your spouse has independent legal counsel.
If the postnuptial agreement is fair, then the presumption of undue influence will not apply. To help ensure that the agreement will be considered fair by a reviewing court, both spouses should provide a full financial disclosure and have the opportunity to consult with separate lawyers. However, the best way to guard against invalidation of your postnuptial agreement is to provide benefits for both spouses.