The ‘Allard’ Enchilada: Antenuptial Agreements, Marital Assets, Income, and LLCs

The Michigan Supreme Court is poised to decide the effect, if any, that MCL 552.23 and MCL 552.401 have on a divorced couple’s antenuptial agreement. The Supreme Court heard oral argument on March 10, 2016.

The two questions posed by the Supreme Court in Allard v Allard are significant to both family law and business law practitioners:

• whether MCL 552.23 and MCL 552.401, which address when a spouse’s separate estate may be treated as marital property, apply where the parties entered into an antenuptial agreement, and

• whether the real estate held by an ex-spouse’s limited liability company, including the marital home, and any income generated by those properties, can be treated as marital assets and, if so, under what conditions.

The antenuptial agreement in Allard stated: “Any property acquired in either party’s individual capacity or name during the marriage, including any contributions to retirement plans … shall remain the sole and separate property of the party named on the account or the party who acquired the property in his or her individual capacity or name.” Based on this, the trial court awarded the plaintiff-husband assets totaling more than $900,000, including six LLC entities, the stock he owned, and all bank accounts titled in his name alone or titled in the name of his single-member LLCs. The trial court awarded the defendant-wife assets worth about $95,000, including the stock she owned, an IRA in her name, and all the bank accounts in her name.

The Michigan Court of Appeals in a published opinion (Docket No. 308194) held that the property acquired by the LLCs was not subject to the antenuptial agreement and the income earned during the marriage should not be treated as separate property.

At oral argument, plaintiff asserted that a valid antenuptial agreement which controls the disposition of marital assets trumps any laws that address the same, when there is no legislative indication that the statutes cannot be waived. According to the plaintiff, MCL 552.23 and MCL 552.401 did not apply to invalidate an otherwise enforceable contract, and allowing parties to devise their own remedies promotes certainty and stability.

However, the defendant argued the antenuptial agreement’s terms did not supersede MCL 552.23 nor MCL 552.401. The defendant maintained the lower courts erred by ignoring the Legislature’s mandates, as well as the Court of Appeals decision in Reed v Reed, 265 Mich App 131 (2005). The defendant further claimed it is impossible to have a marital estate of zero dollars, which is what the plaintiff had argued. “[T]here was undisputedly income, and massive amounts of it, in this marriage, and such should plainly be divided, as it was not encompassed by the language of the parties’ antenuptial agreement,” the defendant asserted.

The State Bar Business Law Section and Family Law Section both filed amicus briefs in the case. In its brief, the Business Law Section told the court: “As a matter of law, the property, real and personal, held by the … LLCs, and the income generated by that property, should not be part of the marital estate because they are not owned by either spouse.” Meanwhile, the Family Law Section told the court that a prenuptial agreement does not divest the Trial Court of its authority to invade separate property in the property division under MCL 522.23 and 522.401, nor is a prenuptial agreement valid to the extent it purports to waive spousal support or attorney fees.