Is a Prenup With a Forfeiture Clause Valid?

Many Galveston couples choose to sign prenuptial agreements in order to minimize potential arguments over property in the event of divorce. Keep in mind, a prenuptial agreement is a legally binding contract. Texas law recognizes such agreements, and courts will not invalidate them except under narrow circumstances spelled out in state law.

TX Supreme Court Rules Wife’s “Rescission” Attempt Triggered $5M Penalty

The mere fact that an agreement may seem “unfair” to one side is not enough to invalidate it. For example, the Texas Supreme Court recently upheld a clause in a prenuptial agreement that nullified a payment to one spouse because she violated a “no-contest” clause that only applied to her. And we’re not talking about an insignificant amount of money either–the wife’s actions cost her $5 million.

The couple in this case married 13 years ago. Just before the marriage, they signed a prenuptial agreement. Basically, in the event of divorce the husband agreed to pay the wife $5 million as a “lump-sum” settlement. But the agreement also provided that if the wife “seeks to invalidate some of all of this agreement, or seeks to recover property in a manner at variance with this agreement,” she would forfeit the $5 million.

The husband filed for divorce six years after the marriage. The wife subsequently filed a counterclaim against the husband, alleging he failed to comply with other provisions of the prenuptial agreement. In a subsequent filing, the wife alleged the agreement itself “was marred with fraud” and asked the court for “rescission” of the entire contract.

After extensive litigation, a trial court judge held the wife’s actions constituted an effort “to invalidate all or a part of” the prenuptial agreement. She therefore forfeited the $5 million lump-sum payment. Both the intermediate court of appeals and the Texas Supreme Court affirmed this decision.

As the Supreme Court explained, “By seeking to rescind the Agreement, [the wife] sought what could have been a greater distribution of the marital estate under the Texas Family Code and related Texas common law than she would have received had the Agreement remained in place.”

The wife argued she should not be punished for seeking rescission because she believed “in good faith” that her husband “had already breached the agreement.” But the Supreme Court said it would not create what it considered a new exception to Texas law governing prenuptial agreements. The Court noted such an exception would “run afoul of our longstanding preference to protect the freedom of contract by enforcing contracts as written.” And in any case, Texas law “disfavors equitable exceptions to the enforcement of contracts as written.”

A Galveston Divorce Lawyer Can Help You

The lesson here is you should never assume a court will invalidate a prenuptial agreement just because you decide, in the midst of a contested divorce, that the terms are unfair or unreasonable. And if you have reason to believe your estranged spouse is not living up to his or her end of an agreement, you should speak with a qualified Galveston divorce attorney as soon as possible. Contact the Law Offices of Tad Nelson & Associates at (281) 280-0100 today if you need advice or assistance on any divorce-related matter.