Stewart v. Stewart

KRAUSER, C.J. Before appellant, Barbara Ann Stewart, married appellee, James Edward Stewart, in 1988, she signed a prenuptial 1 agreement, prepared by Mr. Stewart’s attorney. In that agreement, she waived any interest she had in certain enumerated items of property owned by Mr. Stewart. Twenty-one years later, Mr. Stewart filed a divorce action in the Circuit Court for Charles County, requesting, among other things, the enforcement of the prenuptial contract. In response, Ms. Stewart filed an answer questioning the validity of that agreement together with a counter complaint for divorce.

A hearing was ultimately held to address the question whether the parties’ prenuptial agreement was valid and enforceable. When the Charles County circuit court held that it was both, the Stewarts entered into a property settlement and separation agreement that incorporated the terms of the prenuptial. But that did not resolve all of the matters in dispute between the parties as, in the parties’ settlement agreement, Ms. Stewart had reserved the right to appeal the circuit court’s validation of the prenuptial agreement. ⁴⁶³ After the circuit court granted Mr. Stewart a divorce, Ms. Stewart predictably noted this appeal, challenging the lower court’s decision to uphold the parties’ prenuptial agreement. That agreement, she alleges, was neither valid nor enforceable, because of Mr. Stewart’s failure to fully and frankly disclose all of his property interests and assets and because he presented the agreement to her so close in time to their impending marriage that she had no opportunity to consult with counsel before signing it.

She further contends that it was unconscionable, because it was “clearly one-sided” and because she signed it “without valuable consideration or understanding of what rights she was waiving.” We find no merit to any of Ms. Stewart’s claims. The prenuptial agreement was valid and enforceable, and, furthermore, it was not, from either a procedural or substantive perspective, unconscionable. Background Ms. Stewart was a single, twenty-six-year-old woman when, in 1986, she met and engaged in an affair with Mr. Stewart, a married, twenty-four-year-old father of three. At that time, she worked at a daycare center for minimum wage, while, in stark economic contrast, Mr. Stewart owned a successful construction business.

What began as an affair ultimately developed into a relationship, and the parties began to live together. Planning to marry, once Mr. Stewart obtained a divorce from his current wife, the parties selected a wedding date of October 22, 1988. Because, at that time, he had approximately $2 million in assets and his pending bride had practically none, Mr. Stewart informed the future “Mrs. Stewart,” that he would not marry her unless she agreed to sign a prenuptial agreement, waiving any and all interest in his assets. His attorney thereafter drafted such an agreement, and Mr. Stewart presented it to Ms. Stewart for her consideration and signature before the wedding. ⁴⁶⁴ As to the date on which that occurred, the parties do not agree.

At the hearing below, Mr. Stewart claimed that he first gave Ms. Stewart a copy of the prenuptial agreement in “the last part of September 1988,” while Ms. Stewart maintained that she did not receive it until the day she signed it. But the parties do agree that Ms. Stewart did sign the prenuptial agreement four days before their wedding date and that Mr. Stewart signed it, either the same day or the next. At the time Ms. Stewart signed the agreement, she was not represented by counsel and would later claim that she had no opportunity to consult with counsel, as she was presented with the prenuptial just four days before the parties’ wedding. But there is no indication in the record as to whether her impending wedding or any event or circumstance would have impeded an effort to consult with counsel.

The prenuptial agreement began with a preambular statement declaring: “WHEREAS, both parties have been afforded the opportunity to retain, advise, and consult with independent counsel of their own choice[.]” It then went on to avow that each party “hereby waives, releases, and relinquishes all right, title, estate, and interest” in any “property owned by [the other] at the time of the marriage ... and in [the other’s] estate upon ... death.” 2 The agreement thereafter listed the following items of property owned by Mr. Stewart or his company, Waldorf Concrete, Inc., that is: Waldorf Concrete itself; fifty acres of real property located near Maryland Route 231 and subject to a $190,000 deed of trust; four condominium units in Waldorf Business Square; a lot in West Virginia; and “[s]tock ownership and interest” in Brandywine Building Supply, Inc. The agreement omitted, however, any mention of Mr. Stewart’s individual retirement account (“IRA”), which was then worth, according to him, “around $60,000” or three percent of ⁴⁶⁵ his $2 million worth of premarital assets. It also failed to mention any property owned by Ms. Stewart, though that omission was, to be sure, inconsequential, as, at the time Ms. Stewart signed the prenuptial agreement, the only property that she owned was a used Ford Maverick, which was worth, as she put it, “maybe” $500. The agreement reserved for each party “the right to transfer or convey to the other any property or interest therein which may be lawfully conveyed or transferred during his or her lifetime or by Will” and further provided that “neither party intended] by this Agreement to limit or restrict in any way the right and power ... to receive any such transfer or conveyance from the other,” but added that “no representations or promises of any kind whatsoever have been made” by either party as to “any such transfer or conveyance.” Paragraph 5 of the agreement then declared that each party covenants and represents to the other that he or she has disclosed to the other the nature and extent of his or her various property, interest and sources of income, as disclosed herein, fully and fairly reflect the said property, interests and sources of income of each party, respectively. Paragraph 6 added that Ms. Stewart declares that she fully understands the terms and provisions of the Agreement, that she has been fully informed of her legal rights and liabilities, that she believes that the provisions of this Agreement are fair, just and reasonable and that she signs this Agreement freely and voluntarily, acting under the advice of independent legal counsel.

A substantively identical provision, paragraph 7, applied to Mr. Stewart. After the parties were married, Ms. Stewart left her daycare job and, less than seven months later, gave birth to the first of the parties’ three children. To provide a residence for his new family, Mr. Stewart subdivided the fifty-acre parcel near Maryland Route 231 and built, on a nine-acre plot, a large house with a “big pool.” He then titled the home in both his name and Ms. Stewart’s, as tenants by the entireties. To ⁴⁶⁶ pay off the mortgage on the parties’ home, he later sold a number of the assets he had listed in the prenuptial agreement.

In addition to their marital home, the Stewarts acquired, during their marriage, two other properties, one near their home and the other in upstate New York. Both Stewarts were listed on the titles of the two properties, as tenants by the entireties. By the date of the hearing below, the Maryland property was worth a “minimum” of $800,000, while the New York property was worth a “minimum” of $625,000. Neither property was encumbered by a mortgage.

When he was in his mid-forties, Mr. Stewart “closed up” his company, Waldorf Concrete, Inc., and retired. But his marriage did not survive his retirement. Amid cross-accusations of adultery, Mr. Stewart filed a complaint for divorce in the Charles County circuit court, which, among other things, sought enforcement of the parties’ prenuptial agreement. In response, Ms. Stewart filed an answer challenging the validity of the prenuptial agreement as well as a counterclaim for divorce.

After a hearing was held on the question of whether the prenuptial agreement was valid and enforceable, the court found that it was both. In so ruling, it said that, even assuming the truth of Ms. Stewart’s “description of the history and circumstances” under which she signed the prenuptial agreement, her “mind set was that the substance of the agreement ... didn’t matter an awful lot to her because her position was she loved him, she was gonna marry him regardless.” That is why, or so the court seemed to suggest, that although by her own account, she had “three or four days” to seek counsel, she, in the court’s words, “elected not to do that.” That is not to say that she was unaware of the content of the prenuptial agreement. On the contrary, according to the circuit court, “she read through the thing and she knew what it said, she was familiar with some of ... the major assets that the document lists,” including the property on Route 231 and ⁴⁶⁷ the concrete business. Moreover, the document itself notified her that “Mr. Stewart and/or his company” owned the condominium units which housed the concrete business.

And then, upon finding that there was no evidence of duress, coercion, or undue influence, the circuit court declared the parties’ prenuptial agreement to be valid and enforceable. Following that ruling, the parties entered into a property settlement and separation agreement, which was incorporated, but not merged, into an ensuing judgment of absolute divorce. That, in turn, was followed by a consent order addressing custody and child support matters. But, of particular significance, as it is the foundation of this appeal, the property settlement and separation agreement expressly reserved to Ms. Stewart the right to appeal the circuit court’s earlier ruling upholding the validity of the prenuptial agreement, and, once judgment was entered, she did precisely that in noting this appeal.

Discussion I. Ms. Stewart contends that the circuit court erred in upholding the validity and enforceability of the prenuptial agreement because Mr. Stewart, she alleges, did not fully, frankly, and truthfully disclose the value of his property. Specifically, the agreement did not mention, she points out, Mr. Stewart’s ownership of an IRA. Nor did it, she complains, indicate monetary values for the assets listed therein. Because she did not have actual knowledge of the value of Mr. Stewart’s assets, Ms. Stewart claims, relying on Ortel v. Gettig, 207 Md. 594 , 116 A.2d 145 (1955), that the agreement was invalid.

In Ortel , the Court of Appeals declined to uphold a prenuptial agreement because there was inadequate disclosure of the value of the husband’s assets. It reasoned that the wife’s “knowledge of the fact that the husband had an electrical business” and owned various real properties (but not their “actual value”) was so “indefinite” that she could not be deemed to have “actual knowledge of his worth.” Id. at 612 , ⁴⁶⁸ 116 A.2d 145 . Ms. Stewart suggests that we should reach the same conclusion for the same reasons here. Maintaining that she too had, at best, “indefinite knowledge” of Mr. Stewart’s worth, which fell “far short” of actual knowledge, Ms. Stewart claims that her prenuptial agreement, like the one in Ortel , was invalid for that reason.

To bolster her claim, Ms. Stewart adds that paragraph 3B of her prenuptial agreement stated that Mr. Stewart had an interest in Waldorf Concrete, Inc., but declined to address the value of that interest, stating, without further elaboration, the following: B. Waldorf Concrete, Inc., a corporation organized according to the laws of the State of Maryland. The property herein described and described within the provision of paragraph one [whereby Barbara purportedly waived any interest in James’s property] shall include any appreciated value of the property described and shall further include any appreciated value which may be attributable to the reduction of any encumbrances. Ms. Stewart insists that, without an accountant’s statement, she “had no way to calculate” the present value of Waldorf Concrete, at the time she signed the agreement, nor did she have any means to perform a future earnings analysis. As a result, she neither knew nor had any way of knowing the value of Mr. Stewart’s interest in Waldorf Concrete.

Ms. Stewart further contends that the prenuptial agreement at issue was invalid for lack of consideration, specifically asserting that there was “no consideration ... other than marriage,” which, according to her, “is not to be deemed valuable consideration.” Because a prenuptial agreement is a contract, we review it “under the objective law of contract interpretation.” Cannon v. Cannon, 384 Md. 537, 553 , 865 A.2d 563 (2005). We do so, mindful that, unlike the normal run of contracts, prenuptial agreements invariably involve a confidential relationship that is “presumed to exist as a matter of law” between the parties entering into that kind of an agreement. Id. at 572 , 865 A.2d 563 . To establish the validity of such a ⁴⁶⁹ contract, the agreement’s proponent must show that there was no “overreaching,” id. at 568, 865 A.2d 563 , that is, that “in the atmosphere and environment of the confidential relationship,” there was neither “unfairness” nor “inequity” in “the result of the agreement or in its procurement.” Hartz v. Hartz, 248 Md. 47, 57 , 234 A.2d 865 (1967).

That may be achieved in several ways. One of which is to show that the agreement “documents a full, frank, and truthful disclosure,” Cannon, 384 Md. at 573 , 865 A.2d 563 , of the “worth of the property, real and personal, as to which there is a waiver of rights in whole or in part, so that he or she who waives can know what it is he or she is waiving.” Hartz, 248 Md. at 56-57 , 234 A.2d 865 . Indeed, if this standard is met, the agreement may well be rendered resistant to attack. Id.

In the absence of such a disclosure, “adequate knowledge” 3 of what that disclosure would have revealed “may serve as a substitute” for such disclosure and thereby confirm that there was no overreaching. Id. at 57 , 234 A.2d 865 ; accord Cannon, 384 Md. at 574 , 865 A.2d 563 . “Proof of knowledge, unlike full, frank, and truthful disclosure, does not require that the enforcing party demonstrate that the attacking party had knowledge of the discrete value of each asset. Instead, knowledge means that the attacking party must be shown to have adequate knowledge—-knowledge of the existence of the assets subject to the waiver and knowledge of what those assets are worth in sum so that the attacking party may be found to know what it is he or she is waiving.” Cannon, 384 Md. at 573 -74 n. 21, 865 A.2d 563 . As the Court of Appeals has explained, the “purpose behind a requirement of disclosure or knowledge is ‘so that he or she who waives can know what it is he or she is waiving.’ ” Id. at 574, 865 A.2d 563 (quoting Hartz, 248 Md. at 56-57 , 234 ⁴⁷⁰ A.2d 865 ).

If either disclosure or knowledge “is proven by the enforcing party and insufficiently rebutted by the attacking party, there can be no overreaching.” Id. If, however, there is neither full, frank, and truthful disclosure by the party seeking to enforce the agreement, nor “actual knowledge” by the party attacking the agreement, and if “the allowance made to the one who waives is unfairly disproportionate to the worth of the property involved at the time the agreement is made,” then the validity of the agreement “must be tested by other standards.” Hartz, 248 Md. at 57-58 , 234 A.2d 865 . Since the “real test” in determining the validity of a prenuptial agreement is whether there was “overreaching,” the Court of Appeals has set forth a two-pronged test, derived from the definition of “overreaching” itself, a test which requires the court to ask, first, “was the benefit to [the party attacking the agreement] commensurate with that which she relinquished so that the agreement was fair and equitable under the circumstances,” and, second, “did the subsequent would-be repudiator of the contract enter into the agreement freely and understanding^.” Id. Accord Cannon, 384 Md. at 568-69 , 865 A.2d 563 .

As the first prong of this “overreaching” test addresses the substantive fairness of the prenuptial agreement, while the second prong addresses the manner in which the repudiating party’s assent to that agreement was obtained, we shall refer to the first of the two prongs as the “substantive prong” and the second as the “procedural prong.” Although the agreement in question does not reach the heights of a full, frank, and truthful disclosure of all of Mr. Stewart’s assets, failing, as it does, to specify the value of each asset or their collective worth, it does, -with one minor exception (an exception amounting to only three percent of his total assets), set forth all of Mr. Stewart’s assets. And, given the number and nature of those assets (which, we stress, were not just numbered bank and investment accounts), it would have surely alerted Ms. Stewart that, by executing the agreement, ⁴⁷¹ she would be waiving any claim she might have to assets worth thousands of dollars. Nor can Ms. Stewart rely on any claim that she did not review the agreement, as the court found that “she read through” the prenuptial agreement; that she “knew what it said”; and, lastly, that she “was familiar with” the “major assets that the document list[ed].” Indeed, the court observed that Ms. Stewart had admitted that she was “aware of the farm on 231,” a fifty-acre enterprise, and of Mr. Stewart’s “concrete business,” two of Mr. Stewart’s most valuable assets, a not unreasonable conclusion given that the parties had lived together for a year before their marriage. In sum, although Ms. Stewart did not receive notice of the specific value of each asset or of their collective worth, she did unquestionably receive what amounted to, for all intents and purposes, just shy of a complete list of those assets via the agreement and knew of the existence, nature, and potential worth of the most valuable of Mr. Stewart’s assets before she ever signed the prenuptial.

And finally, we note that there is no indication, that, had she requested additional information as to the value of the assets, such information would not have been forthcoming. In short, the agreement plus Ms. Stewart’s actual knowledge of Mr. Stewart’s principal assets put her on notice that she was, in fact, about to execute a waiver of any claims she might have to substantial assets. Nonetheless, out of an abundance of caution, we shall, for the moment, assume that she did not receive anything that came close to full disclosure of Mr. Stewart’s assets or have adequate knowledge of their existence or value and turn to the two-pronged “overreaching” test, that is whether, even if there was neither full, frank, and truthful disclosure of the parties’ assets nor a substitute for such disclosure, the prenuptial agreement is still valid and enforceable because the benefit to the party attacking it was “commensurate with that which she relinquished so that the agreement was fair and equitable under the circumstances” and because “the subsequent would-be repudiator of the contract” entered into the agreement ⁴⁷² “freely and understanding^.” Hartz, 248 Md. at 58 , 234 A.2d 865 . Accord Cannon, 384 Md. at 568-69 , 865 A.2d 563 .

Given what Ms. Stewart knew of Mr. Stewart’s assets, before presentation of the agreement at issue, what she knew of the purpose and contents of the agreement, and the circumstances surrounding its execution, we find, under those “other standards,” Hartz, 248 Md. at 58 , 234 A.2d 865 , that there was sufficient evidence to support the circuit court’s conclusion that both the substantive and procedural prongs of the “overreaching” test were satisfied and that the agreement was, therefore, valid and enforceable. “Ovemaching” Test—Substantive Prong We begin with the substantive prong of the “overreaching” test, that is, whether the benefit to the waiving party is “commensurate with that which she relinquished so that the agreement was fair and equitable under the circumstances.” Hartz, 248 Md. at 58 , 234 A.2d 865 . In that regard, we note that the agreement did not require Ms. Stewart to waive alimony or her right to a monetary award, to which she might be entitled under Family Law Article § 8-205. At the time the parties entered into the agreement, these potentially valuable rights were retained by Ms. Stewart. Furthermore, Ms. Stewart’s complaint that there was “no consideration ... other than marriage” to support the prenuptial agreement at issue is without merit.

Though “consummation of the marriage is itself sufficient consideration” to support a prenuptial agreement, Cannon, 384 Md. at 553 , 865 A.2d 563 , the marriage also conferred upon Ms. Stewart potential economic benefits of a substantial nature, assets she did not waive under the prenuptial agreement, namely, the right to receive alimony and a monetary award upon the dissolution of that marriage. 4 ⁴⁷³ In sum, there was a sufficient factual basis for the circuit court’s holding that, in the words of Hartz, the agreement was “fair and equitable under the