The Court of Appeals of Maryland, the highest court of that state, recently decided a very interesting case regarding postnuptial agreements – a decision at odds with what would happen in Missouri and many other states.
In McGeehan v. McGeehan, husband and wife both had significant assets acquired prior to and after the marriage. Without wife’s knowledge, husband invested some of wife’s premarital funds in the purchase of real estate as well as trading some of her premarital stock, causing a loss of hundreds of thousands of dollars. The parties had no prenuptial agreement. Upon learning of the lost funds, wife instructed husband to execute a gift deed of two properties to effectively compensate wife for the loss in the investments. The parties never reduced this agreement to writing but the property title transfer took place.
Some years later, the parties filed for divorce. Husband considered the transferred property marital property subject to division; wife countered that was separate property per the deed transfer and their oral agreement.
The Maryland high court sided with wife. It found under Maryland law that all property acquired during the marriage is marital property unless deemed otherwise by a valid agreement of the parties. The court decided that the deed transfer and the testimony of wife to the agreement qualified as a valid agreement, even though the deed makes no mention of the intent to exclude the property as marital property in the event of divorce.
Had this case arisen in Missouri, the outcome would have been somewhat different. First, Missouri only recognizes postnuptial agreements that are reduced to writing and show that the parties had full disclosure and access to legal counsel. Consequently, Missouri would not have considered the oral agreement a sufficient postnuptial agreement.
However, that would not be the end of the story in Missouri. Wife could still argue the source of funds rule and attempt to trace the assets to her premarital separate property. Wife could also argue that husband committed misconduct in his taking her funds without her knowledge or consent. The trial court in Missouri can consider source of funds and misconduct in allocating property. So, while the property may well be marital property in this case, the court could reach the same outcome as the Maryland court in terms of distribution.
The Maryland decision is troubling not because of the final distribution of property but in its recognizing an oral postnuptial agreement where the parties disagreed about its contents at trial. Missouri only recognizes postnuptial agreements in writing because of the very high stakes of the distribution and the difficulty of proving intent as to distribution when not reduced to writing. Married couples can transfer ownership for a variety of reasons during the marriage, usually for tax purposes. That does not mean they meant to remove that property as marital property in the event of divorce. Courts should continue to require written proof of any release of property in the event of divorce and not rely on oral testimony of other agreements.
If you have questions about postnuptial agreements, contact us – we can help.