Enforcing a Premarital Agreement in a Divorce in Arizona
The Arizona Court of Appeals made a decision on the validity of a premarital agreement and the division of marital assets in the case of Pownall v. Pownall.
In 1990, shortly after the parties began living together Mr. Pownall purchased a home. He paid the down payment and mortgage using his earnings with the title in his name only. Mr. Pownall and his stepfather opened four pizza franchise locations in which he had a fifty percent interest, using only his earnings to finance the businesses.
Then, in 1994, the parties decided to marry and Mr. Pownall had his attorney create a premarital agreement to keep his interests in the pizza businesses, as well as any future businesses, separate. Both parties met with the attorney, where it was explained to Mrs. Pownall that he would only be representing Mr. Powall’s interests and she had the right to have another attorney review the agreement before she signed it. She declined to hire another attorney and after reading through the document, she signed it. The parties married, but a little over two years later Mr. Pownall filed for dissolution.
During their divorce proceedings, the trial court decided that their premarital agreement was invalid because Mrs. Pownall was unaware of the full extent of the property subject to the agreement. The trial court also concluded that a quasi-marital partnership existed and awarded Mrs. Pownall half of the interest that Mr. Pownall owned in his pizza franchises, less the money he contributed to the franchise fee from his separate property.
Next, the court awarded Mrs. Pownall a sum of money for her share of the income in the year that the parties were separated and awarded Mr. Pownall the residence. The court denied wife’s request for spousal maintenance based on the property already awarded to her, the short length of the marriage, and her current employment.
Mr. Pownall appealed their decisions with the Arizona Court of Appeals arguing that the trial court erred in finding the premarital agreement invalid because Mrs. Pownall failed to meet the burden of proof that it was unconscionable or that she didn’t voluntarily sign the agreement.
The appeals court ruled that not only had the attorney that prepared the agreement given a fair and reasonable disclosure of the property value, but Mrs. Pownall knew the lifestyle that the businesses provided and could have independently assessed their value.
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The Arizona Court of Appeals also commented that since she declined the opportunity to hire a separate attorney to protect her interests, she could not later claim they were not on equal bargaining terms. Also, the Arizona Court of Appeals concluded there is no evidence proving she was unfairly compelled to sign the document and thus ruled the premarital agreement to be valid.
Having declared the premarital agreement valid, the appeals court also reviewed the ruling the trial court made in regard to the division of the business interests. The parties agreed husband purchased his interest in the pizza franchises previous to their marriage, but Mrs. Pownall argued they agreed to combine their efforts to acquire property jointly.
The court found that, although the parties maintained joint checking accounts, Mrs. Pownall’s name did not appear on any of the documents for the residence or the businesses and she did not contribute funds to purchase or maintain either.
The court added that the premarital agreement, signed by both parties, clearly indicated husband’s intention to keep the residence and businesses as his sole and separate property. Because the evidence did not support her claims, the appeals court ordered that the residence and businesses would remain his separate property.
Mr. Pownall also appealed the trial court’s order to pay wife a share of his income for the year they were separated. The trial court found that while she had exclusive use of the residence, he was still paying the mortgage. He argued that because she had possession, but was not paying the mortgage for the residence, it would not be fair and equitable to require him to pay her a share of his income during the parties’ separation. The court decided that the reimbursement award was equitable and remanded the decision to the trial court for the adjusted amount to be awarded.
Mrs. Pownall cross-appealed the court’s order denying her spousal maintenance, which had been denied because of the short time the parties were married, her gainful employment, and the property that had been previously awarded to her.
She argued that she lacked sufficient property to meet her reasonable needs and that she was unable to support herself through her employment. Because the appeals court found the premarital agreement to be valid, Mrs. Pownall would not be entitled to receive any portion of the values of the residence or the businesses. Therefore, they remanded the decision regarding alimony back to the trial court taking into consideration the new circumstances of the marital property that will now not be awarded to her.
This case illustrates the importance of having a premarital agreement reviewed by separate attorneys working on behalf of each party’s interests when entering into a marriage with a premarital agreement, so that all parties are aware of all benefits and consequences of signing the agreement.
Also, that property acquired before the marriage that wasn’t expressly agreed by both parties to be community property will, in almost all situations, be awarded to the party who purchased it. Lastly, that the amount of spousal maintenance, if any, to be awarded may be impacted by the amount or marital property each spouse is awarded in the proceedings.