Ambiguity in Prenups Can Cost You
Signers, beware. The Wisconsin Court of Appeals recently issued a per curiam decision interpreting a Pre-Marital Agreement, frequently referred to as a prenuptial agreement or “prenup,” as requiring reimbursement for voluntary payments made by one spouse toward the debts of the other spouse.
In Pettit v. Hein, No. 2015AP1412, the parties entered into a Pre-Marital Agreement that contained the following provision, the meaning of which was the central issue before the Court:
Unless prohibited by law, [contractual obligations of one party] shall be satisfied exclusively out of the individual property of the [party that incurs the debt]. . . If a creditor obtains payment or satisfaction in connection with the obligation of a party out of the individual property of the other party. . . the other party shall be entitled to full reimbursement from the incurring party or his or her estate. (emphasis added)
During their marriage, Hein contributed $111,500 towards Pettit’s individual debts with respect to a home loan and property taxes. Hein sought reimbursement of that amount upon dissolution of the marriage. The parties agreed that Hein made these payments voluntarily and that they were not intended to be gifts to Pettit. Pettit argued that because the reimbursement provision uses the word “obtains,” the parties intended that reimbursement would be required only where a creditor compels payment through an action against the non-incurring party. Because the payments Hein made were voluntarily and not “obtained” through an action brought by the creditor, Pettit argued reimbursement was not necessary.
The Court disagreed and determined that Pettit was required to fully reimburse Hein for the total amount of $111,500. According to the Court, the reimbursement provision did not distinguish between voluntary payments and payments realized through an action against the non-incurring party and, therefore, any payments made by Hein must be reimbursed.
Because a Pre-Marital Agreement is a contract, courts interpret them using general contract principles to help resolve any disputes as to the meaning of specific provisions. Therefore, it is very important for such agreements to be as specific as possible to avoid any ambiguity, such as in the reimbursement provision of the Pettit-Hein agreement.
If you currently have a Pre-Marital Agreement, it is advisable to confirm that the language in the reimbursement provision, and any similar provision, is not ambiguous. If an ambiguity exists, you may be required to provide reimbursement for any amounts voluntarily paid toward individual debts of your spouse. Those considering entering into a Pre-Marital Agreement should also be sure that the agreement specifies when reimbursement is required.
Please contact your DeWitt attorney for more information on Pre-Marital Agreements.
About the Author
Jordan Taylor is a Partner practicing out of our Madison office. He is a member of the Trusts & Estates, Business and Real Estate practice groups. Contact Jordan by email or by phone at (608) 252-9369.
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