18 Aug Utility and Enforceability of Prenuptial Agreements

Back in 1994, Kevin Costner separated from his first wife of 16 years. This divorce settlement cost him $80 million dollars, one of the largest Hollywood divorce settlements in history. Costner learned his lesson, and before the second time around at marriage with handbag designer, Christine Baumgartner, the two entered into a Premarital Agreement.

A Premarital Agreement, more commonly known as a Prenuptial Agreement (or “Prenup”), is a written contract entered into by two people before they are married. The agreement serves as a tool to determine each person’s property rights in the event that they later get divorced.

The public often equates prenuptial agreements with individuals who have earned a lot of money during their own lifetime or have a claim to a lot of money through a trust or a will. For example, Kevin Costner, most known for the roles he played in Field of Dreams, Dances With Wolves, or more recently, Yellowstone, has had a successful Hollywood career. In fact, court documents listed his 2022 income as $19,517,0641, with family expenses listed at $6,645,285. Additionally, the estate that Costner and Baumgartner have been residing in throughout the length of their marriage was purchased by Costner in 1988, 16 years before the parties’ marriage and worth about $145 million.

Premarital Agreements do not just serve as protection for the assets of critically-acclaimed Hollywood actors and other wealthy individuals. These types of agreements can be used to clarify financial rights during the marriage, pass separate property to children from prior marriages; help to avoid potential disagreements down the road; or provide protection from the other party’s debts.

In short, the prenup is a tool that navigates the parties through the divorce process, helping to avoid long negotiation and expensive fees that come with divorce. Without a premarital contract, The Illinois Marriage and Dissolution of Marriage Act (or other state law, depending on where you live) is what is used to navigate the parties’ rights and responsibilities in a divorce.

Any party to a prenuptial agreement has a variety of ways available to him/her to challenge the prenuptial agreement after its execution.  Under Illinois law, for example, there are several reasons for deeming a prenup or provisions of a prenup unenforceable:

–           Fraud: if one party did not execute the agreement voluntarily.

–           Unconscionable terms: There are three elements that make a Premarital Agreement unconscionable:  1) If before the agreement was executed the party challenging the prenup was not provided fair and reasonable disclosure of the property or financial obligations of the other party, 2) the party did not waive this right to disclosure of the property or financial obligations, and 3) the party did not reasonably have any knowledge of the property or financial obligations of the other party.

–           Hardship to a party: If a provision of a premarital agreement modifies or eliminates spousal support and that modification or elimination causes one party to the agreement undue hardship in light of circumstances not reasonably foreseeable at the time of the execution of the agreement, a court, notwithstanding the terms of the agreement, may require the other party to provide support to the extent necessary to avoid such hardship.

For Costner and Baumgardner, who share three minor children and have been married for 16 years, the Premarital Agreement laid out arrangements regarding their living situation and legal fees in the event of a divorce. Baumgartner also had 30 days to vacate Costner’s home (and any other properties owned by Costner) starting the day the divorce was filed.  Costner was to pay Christine $200,000 in the first two years of their marriage and $1 million upon the filing of a divorce.  To cover the costs of a new home the agreement provided that Costner was to give Christine an additional $200,000 for a down payment on a home (provided they did not acquire real estate jointly in the marriage, which they did not do).  Costner has additionally offered to cover the costs of insurance, taxes, and mortgage for a year.

Baumgardner’s challenge to the terms of the prenup remains ongoing.  Her challenge doesn’t come risk-free, either. The prenup also has a clause that causes a party to forfeit his/her payout if he/she challenges the agreement.

Here, Costner’s Premarital Agreement clearly had the effect of allowing him to keep nearly all of his estate, earned both prior to and during the marriage.  However, the outcome doesn’t seem quite fair in light of the lifestyle during the marriage, the length of the marriage, the fact that the couple had children together, and his vast estate as compared to hers.   Ultimately, anyone entering into a prenuptial agreement should not rely on challenging it as a way to avoid its terms.  The better approach would be to ensure that the deal will be fair in light of all current and potential future circumstances.

If you are considering a Premarital Agreement or going through a divorce that involves a Premarital Agreement, please don’t hesitate to contact us.