In Re The Marriage Of Randall J. Shanks And Teresa E. Shanks Upon The Petition Of Randall J. Shanks ( 2008 )

IN THE SUPREME COURT OF IOWA
No. 06–0557
Filed December 12, 2008
IN RE THE MARRIAGE OF RANDALL J. SHANKS
AND TERESA E. SHANKS
Upon the Petition of
RANDALL J. SHANKS,
Appellant,
And Concerning
TERESA E. SHANKS,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Pottawattamie County,
Ronald H. Schechtman (validity of prenuptial agreement) and Joel E.
Swanson (dissolution decree), Judges.
Spouse seeks further review of a decision of the court of appeals
refusing to enforce a premarital agreement. COURT OF APPEALS
DECISION VACATED; DISTRICT COURT JUDGMENT AFFIRMED IN
PART AND REVERSED IN PART, AND CASE REMANDED WITH
INSTRUCTIONS.
John M. French of Peters Law Firm, P.C., Council Bluffs, for
appellant.
James C. Hanks of Ahlers & Cooney, P.C., Des Moines, for
appellee.
2
HECHT, Justice.
This case provides the first occasion for this court to determine the
validity of a premarital agreement under Iowa Code section 596.8. Upon
further review of the court of appeals’ affirmance of the district court’s
order denying a request for specific performance of a premarital
agreement, we conclude the agreement was voluntarily executed,
conscionable, and enforceable. Accordingly, we vacate the decision of the
court of appeals, affirm in part and reverse in part the district court’s
judgment, and remand this case for further proceedings.
I. Background Facts and Proceedings.
Randall Shanks is an attorney with a successful personal injury
and workers’ compensation practice in Council Bluffs. Teresa Shanks
holds an associate degree in court reporting and a Bachelor of Science
degree in marketing management. She has been employed in various
roles, including a position in the marketing department of a casino, and
employment as a bookkeeper, secretary, and office manager in Randall’s
law office.
Randall and Teresa were married in Jamaica on April 23, 1998.
This was a second marriage for both parties. Randall had two children
and Teresa had three children from prior marriages. While
contemplating marriage, Randall and Teresa discussed Randall’s goal of
preserving his current and future assets for his children in the event
their marriage were to end by his death or a divorce. Randall suggested
they enter a premarital agreement, and Teresa agreed, stating she was
not marrying Randall for his money.
In late March or early April 1998, Randall drafted a premarital
agreement and presented it to Teresa by April 13, ten days before their
wedding. The first draft proposed the parties would maintain separate
3
ownership of their assets acquired before and during the marriage, and
provided the parties did not intend to hold jointly-owned property except
a marital home and a joint checking account. The draft included a
mutual waiver of alimony and provided for the equitable division of only
jointly-owned property in the event of a divorce. The draft further
contemplated Randall would maintain $500,000 in life insurance
coverage on his life, and name Teresa as the beneficiary.
Upon receiving the draft, Teresa asked Randall several questions.
He responded to them, but insisted Teresa should seek independent legal
advice as to the meaning and legal effect of the proposed agreement.
Teresa consulted a friend, who referred her to Edith Peebles, an attorney
licensed only in Nebraska. Randall did not know Peebles, but when her
office requested a copy of the draft, he revised the document to identify
Peebles as the lawyer advising Teresa in the matter.
Peebles requested Lisa Line, an associate in her law firm, review
the draft on April 16. Line made several handwritten notations on the
document, including an exclamation that the proposed agreement would
force Teresa to “waive all rights as spouse!” in Randy’s pension assets.
When Line realized the prenuptial agreement was between two Iowa
residents who planned to reside in Iowa, she suggested Peebles should
advise Teresa to have an Iowa-licensed attorney review the document.
When they met on April 16, Peebles advised Teresa to seek Iowa-licensed
counsel. Peebles’s firm charged ninety dollars for the legal services
rendered to Teresa.
After her meeting with Peebles on the 16th, Teresa returned the
document to Randall and requested he make the changes and
4
clarifications suggested in Line’s handwritten notes.1 She did not heed
Peebles’s advice to seek Iowa counsel. Randall made some revisions,
gave the new draft to Teresa, and again told her to review it with her
lawyer.2
Despite Randall’s urging that she have her lawyer review the
revised draft, Teresa did not seek further counsel from Peebles or any
other attorney.3 Randall attached to the revised agreement separate
schedules listing the assets of each party, the parties signed the
agreement on April 17, and they departed for Jamaica the next day. As
we have already noted, Randall and Teresa were married in Jamaica on
April 23, 1998.
The marriage later failed, and Randall filed a petition requesting its
dissolution on November 23, 2004. Randall sought, and Teresa opposed,
enforcement of the premarital agreement. The district court bifurcated
the trial, first taking up the question of the enforceability of the
premarital agreement. After a trial of that matter, the court found
1Attorney Lines had written “must change” in the margin at paragraph 59 of the
proposed agreement which identified Peebles as the attorney advising Teresa in
connection with the premarital agreement.
2Among the notable revisions were (1) an acknowledgement that Randall’s net
worth “may increase as much as twenty-fold during the next twenty years,” rather than
ten-fold in the coming decade as indicated in the first draft; (2) a disclosure that
Randall’s law practice included “several significant negligence cases” that were expected
to “provide him with fees in excess of $2 million dollars”; (3) inclusion of a more detailed
version of a formula allocating between the parties the net value of the marital home in
the event of a dissolution or the death of either party; and (4) the addition of a schedule
controlling the division of the value of “property purchased by [the parties] after the
marriage with funds earned after the marriage,” and allocating to Teresa 15% of such
value after five years of marriage, 20% after ten years of marriage, 25% after fifteen
years of marriage, and 30% after twenty years of marriage. These revisions authored by
Randall responded to some, but certainly not all, of the comments and questions noted
by Attorney Line on the first draft of the proposed agreement. Notably, the revised draft
did not delete the name of Edith Peebles as the attorney advising Teresa in the matter.
3Teresa chose not to seek counsel from the Iowa-licensed lawyer who
represented her in her prior dissolution.
5
Teresa’s execution of the agreement was involuntary, and therefore
concluded the accord was unenforceable under Iowa Code section
596.8(1) (providing a premarital agreement is not enforceable if the
person against whom enforcement is sought proves the agreement was
not executed voluntarily).
Following a subsequent trial on property division, spousal support,
and attorney fees, district court dissolved the parties’ marriage, divided
the marital assets, and awarded Teresa spousal support for a term of
only two months. The decree allocated to Teresa assets valued at
$86,755 and ordered Randall to pay Teresa a total of $150,000 in three
equal installments payable on April 1, 2006, September 1, 2006, and
January 1, 2007. The decree made no award for attorney fees beyond
the judgment entered earlier against Randall for temporary attorney fees.
Randall appealed, challenging both the ruling denying his request
for enforcement of the premarital agreement and the property division
ordered in the dissolution decree. Teresa cross-appealed, claiming equity
requires for her a more favorable property division, more substantial
spousal support, and an additional award for attorney fees. The court of
appeals affirmed the district court’s decisions in all respects. We granted
further review to address the validity of the premarital agreement.
II. Scope of Review.
Citing our statement in In re Marriage of Spiegel, 553 N.W.2d 309,
313 (Iowa 1996), that premarital agreements are construed in the same
manner as ordinary contracts, the parties contend our review should be
for errors of law as in other contract cases. There was some confusion in
the district court as to whether the bifurcated trial on the enforceability
of the parties’ premarital agreement should be heard in equity or at law.
The trial court initially concluded the proceeding would be tried at law,
6
and therefore ruled on objections lodged by the parties. At the beginning
of the second day of the proceeding, however, the district court reversed
course, having concluded that at least some of the issues under Iowa
Code section 596.8 should be tried in equity. The district court therefore
tried the remainder of the proceedings in equity, receiving the evidence
subject to the parties’ objections.
Dissolution proceedings are equitable actions, which we review de
novo. Iowa R. App. P. 6.4. Although in Spiegel we noted premarital
agreements are construed in the same manner as ordinary contracts, we
exercised de novo review of the validity of the agreement at issue in that
case. Spiegel, 553 N.W.2d at 316 (“On our de novo review we conclude
Sara has not carried her burden to show the agreement is unfair.”).
Thus, the general rule is that issues concerning the validity and
construction of premarital agreements are equitable matters subject to
our de novo review.4
The fact that, at the outset, the district court viewed the
enforceability of the premarital agreement as a matter to be tried at law
does not control the scope of our review. Although the court ruled on
several objections during the first day of the trial, we conclude we will
have no difficulty conducting de novo review of the record in this case.
4Randall cites Iowa Code section 596.9 for the proposition our review is for
errors of law. This section provides “[i]n any action under this chapter to revoke or
enforce a premarital agreement the issue of unconscionability shall be determined by
the court as a matter of law.” Iowa Code § 596.9. We do not believe the legislature
intended with this language to transform a trial in an otherwise equitable dissolution
proceeding into one at law. A court sitting in equity is required to make all necessary
factual and legal conclusions, and the requirement that the court determine
unconscionability “as a matter of law” does not alter the trial court’s traditional role or
our scope of review. Cf. Dennis I. Belcher & Laura O. Pomeroy, A Practitioner’s Guide
for Negotiating, Drafting and Enforcing Premarital Agreements, 37 Real Prop. Prob. & Tr.
J. 1, 14 (2002) (noting section 6(c) of the Uniform Premarital Agreement Act (1983) (after
which section 596.9 is modeled) was included in the Uniform Act “because the
determination of unconscionability by the court avoids a jury issue”).
7
In only a few instances did the district court’s rulings exclude evidence,
and in each of them we agree with the court’s ruling. As the court
reserved ruling on objections after the first day of the trial, we shall
review the entire matter de novo. Sille v. Shaffer, 297 N.W.2d 379, 381
(Iowa 1980) (concluding claims of title by acquiescence, normally tried in
equity, and adverse possession, normally tried in equity, would be
reviewed de novo notwithstanding the district court’s rulings excluding
certain evidence where we were able to review the rulings and agreed
with them). We give weight to fact findings of the district court,
particularly as to witness credibility, but are not bound by them. Iowa R.
App. P. 6.14(6)(g).
III. Discussion.
In Iowa, premarital agreements executed on or after January 1,
1992, are subject to the requirements of the Iowa Uniform Premarital
Agreement Act (IUPAA), codified in Iowa Code chapter 596. Iowa Code
§ 596.12. The IUPAA provides three independent bases for finding a
premarital agreement unenforceable:
A premarital agreement is not enforceable if the person
against whom enforcement is sought proves any of the
following:
(1) The person did not execute the agreement voluntarily.
(2) The agreement was unconscionable when it was
executed.
(3) Before the execution of the agreement the person was
not provided a fair and reasonable disclosure of the
property or financial obligations of the other spouse;
and the person did not have, or reasonably could not
have had, an adequate knowledge of the property or
financial obligations of the other spouse. . . .
Id. § 596.8. The IUPAA is modeled after the Uniform Premarital
Agreement Act (UPAA), which was drafted by the National Conference of
8
Commissioners on Uniform State Laws in 1983. See Unif. Premarital
Agreement Act, 9B U.L.A. 369 (1983). A primary goal of the UPAA was to
increase the certainty of enforceability of premarital agreements. See id.
Prefatory Note at 369. In the absence of instructive Iowa legislative
history, we look to the comments and statements of purpose contained in
the Uniform Act to guide our interpretation of the comparable provisions
of the IUPAA.
A. Voluntariness. The district court found the premarital
agreement in this case was not executed voluntarily because Randall, as
an attorney, had substantially greater power under the circumstances
and Teresa did not receive the advice of independent Iowa counsel. In
making that finding, the district court relied on our decision in Spiegel,
which established that waivers of rights in premarital agreements
executed prior to the adoption of the IUPAA are not enforceable if they
were not “knowing and voluntary.” Spiegel, 553 N.W.2d at 315. In
Spiegel, we undertook a “procedural fairness” analysis to determine
whether the agreement was “fairly, freely and understandingly entered
into” by the parties. Id.
While broad notions of procedural fairness were relevant to our
determination of voluntariness challenges to premarital agreements
executed prior to January 1, 1992, the IUPAA has significantly altered
and clarified the voluntariness inquiry for agreements executed after that
date. In contrast to the “knowing and voluntary” test of “procedural
fairness” applied in Spiegel, section 596.8(1) requires only that the
agreement be executed voluntarily.5 Neither the IUPAA nor the UPAA
5Although we conclude section 596.8’s “voluntariness” requirement does not
incorporate the concept of “knowing” execution, this concept is not irrelevant to the
determination of enforceability of a premarital agreement under the IUPAA. As we
discuss below, under the IUPAA a party’s knowing and understanding execution of a
premarital agreement is a factor in the procedural unconscionability determination.
9
defines the term “voluntarily.” Black’s Law Dictionary defines
“voluntarily” as “[i]ntentionally; without coercion.” Black’s Law
Dictionary 1605 (8th ed. 2004). In Spiegel, we intimated that a
voluntarily executed premarital agreement was one free from duress and
undue influence. Spiegel, 553 N.W.2d at 317 (“As we discuss more fully
below in the divisions dealing with duress and undue influence, Sara
signed the agreement voluntarily, albeit reluctantly.”). We believe this is
the appropriate formulation of the voluntariness inquiry under IUPAA as
well. We therefore hold proof of duress or undue influence is required
under section 596.8(1) to establish a premarital agreement was
involuntarily executed.
Teresa testified she executed the agreement voluntarily. Upon our
de novo review, we conclude Teresa failed to establish duress or undue
influence.
1. Duress. There are two essential elements to a claim of
duress in the execution of a contract: (1) one party issues a wrongful or
unlawful threat and (2) the other party had no reasonable alternative to
entering the contract. Spiegel, 553 N.W.2d at 318 (citing Turner v. Low
Rent Hous. Agency, 387 N.W.2d 596, 598 (Iowa 1986); In re C.K., 315
N.W.2d 37, 43–44 (Iowa 1982)). Here, Randall informed Teresa he would
not get married again without a premarital agreement. We rejected the
argument that such an ultimatum was wrongful or unlawful in Spiegel.
Additionally, similar to the bride-to-be in Spiegel, Teresa had the
reasonable alternative of cancelling the wedding in the face of such a
threat. These facts fall far short of a showing of duress sufficient to
support a finding that Teresa involuntarily executed the agreement.
2. Undue influence. We stated the standard for undue
influence in Spiegel:
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Undue influence is influence that deprives one person of his
or her freedom of choice and substitutes the will of another
in its place. “[M]ere importunity that does not go to the
extent of controlling the will of the grantor does not establish
undue influence.” Freedom from undue influence is
presumed.
Spiegel, 553 N.W.2d at 318 (citations omitted). The district court found
Randall’s position as a lawyer, and his status as Teresa’s fiancée and
employer, put Randall in such a position of power over Teresa that she
was willing to put her full faith in his judgment in drafting the
agreement. Despite the potential for abuse inherent in the parties’
complex relationship, we find the evidence presented was insufficient to
establish undue influence. Although Teresa testified that Randall subtly
encouraged her not to take the second draft to an attorney, the district
court found this testimony incredible. We credit the district court’s
credibility determination and find Randall encouraged Teresa to seek the
advice of counsel as to both drafts of the agreement. The facts presented
here simply do not demonstrate the “improper or wrongful constraint,
machination, or urgency of persuasion” required for a finding of undue
influence. Stetzel, 174 N.W.2d at 443. We are not persuaded that
Randall’s will was substituted for Teresa’s own judgment in deciding to
sign the agreement. Spiegel, 553 N.W.2d at 319.
Having found the premarital agreement was not a product of
duress or undue influence, we conclude Teresa has failed to prove she
executed the agreement involuntarily. We next consider whether the
agreement is unconscionable and therefore unenforceable.
B. Unconscionability. While the IUPAA largely adopts the
provisions of the UPAA verbatim, section 596.8(1) of the IUPAA differs
from the UPAA in two important particulars. First, the UPAA allows a
party to modify or eliminate spousal support in a premarital agreement,
11
as long as the modification or elimination does not cause the other party
to be eligible for public assistance at the time of enforcement. Unif.
Premarital Agreement Act § 6(a)(2), 9B U.L.A. at 376. The IUPAA, on the
other hand, prohibits premarital agreements from adversely affecting
spousal support. Iowa Code § 596.5(2). Thus, the district court correctly
concluded the purported alimony waiver in this premarital agreement is
invalid and unenforceable.6
Second, under UPAA section 6(a)(2), a court may not consider the
alleged unconscionability of the agreement unless it first finds there was
no fair and reasonable financial disclosure, voluntary waiver of such
disclosure, and the challenging party did not have, or reasonably could
not have had an adequate knowledge of the other party’s property and
financial obligations. Unif. Premarital Agreement Act § 6(a)(2), 9B U.L.A.
at 376. As noted by the Supreme Court of California, section 6 of the
UPAA was intended to
enhance the enforceability of premarital agreements and to
convey the sense that an agreement voluntarily entered into
would be enforced without regard to the apparent unfairness
of its terms, as long as the objecting party knew or should
have known of the other party’s assets, or voluntarily had
waived disclosure.
In re Marriage of Bonds, 5 P.3d 815, 824 (Cal. 2000) (citing National
Conference of Commissioners on Uniform State Laws, Proceedings in
Committee of the Whole, Unif. Premarital Agreement Act (July 23–26,
1983) at 49–97).
In contrast to the UPAA approach, unconscionability alone is
sufficient to render a premarital agreement unenforceable under the
6As our disposition of this appeal includes a reversal and a remand to the
district court for the enforcement of the parties’ premarital agreement, the district court
shall revisit the subject of spousal support and enter an appropriate order under the
circumstances.
12
IUPAA, notwithstanding fair and reasonable financial disclosure. Iowa
Code § 596.8(2). By bifurcating the unconscionability and disclosure
considerations, we believe the Iowa General Assembly rejected the choice
made by the UPAA’s drafters to permit challenges based on
unconscionability only if appropriate financial disclosures are not made
and the other spouse lacked such knowledge. Under the IUPAA, courts
may address unconscionability claims whether or not appropriate
financial disclosures are made. One commentator has described Iowa’s
modification of the UPAA’s enforcement provision as being a “less
rigorous” approach to enforceability of premarital agreements. Barbara
Ann Atwood, Ten Years Later: Lingering Concerns About the Uniform
Premarital Agreement Act, 19 J. Legis. 127, 154 n.130 (1993). While
section 596.8(2) grants Iowa courts somewhat greater latitude to conduct
a “fairness review” of a premarital agreement than the UPAA, we believe
the review contemplated by section 596.8(2) is not as searching as that
performed by the district court in this case. Review of premarital
agreements for “unconscionability” is substantially more circumscribed
than review for mere inequity.
Neither the IUPAA nor the UPAA attempts to define
“unconscionability” in the context of premarital agreements. The
comment to UPAA section 6 indicates the concept is patterned after
section 306 of the Uniform Marriage and Divorce Act (UMDA), which
states:
. . . The standard of unconscionability is used in commercial
law, where its meaning includes protection against one-
sidedness, oppression, or unfair surprise, and in contract
law. . . . In the context of negotiations between spouses as
to the financial incidents of their marriage, the standard
includes protection against overreaching, concealment of
assets, and sharp dealing not consistent with the obligations
of marital partners to deal fairly with each other.
13
In order to determine whether the agreement is
unconscionable, the court may look to the economic
circumstances of the parties resulting from the agreement,
and any other relevant evidence such as the conditions
under which the agreement was made, including the
knowledge of the other party. . . .
Unif. Marriage & Divorce Act § 306, Comm’r Note (1973) (citations
omitted). The UPAA and IUPAA narrow the temporal focus of the
unconscionability analysis to the time “when [the agreement] was
executed.” See Unif. Premarital Agreement Act § 6(a)(2), 9B U.L.A. at
376; Iowa Code § 596.8(2).
In the commercial context, we have noted a “bargain is said to be
unconscionable at law if it is ‘such as no man in his senses and not
under delusion would make on the one hand, and as no honest and fair
man would accept on the other.’ ” Casey v. Lupkes, 286 N.W.2d 204,
207 (Iowa 1979) (citing Hume v. United States, 132 U.S. 406, 411, 10
S. Ct. 134, 136, 33 L. Ed. 393, 396 (1889)). Neither this court nor the
legislature has attempted to precisely define the term “unconscionable”
in the context of commercial contracts. Smith v. Harrison, 325 N.W.2d
92, 94 (Iowa 1982) (citing 15 S. Williston, A Treatise on the Law of
Contracts § 1763A (3d ed. W. Jaeger 1972)). In considering claims of
contractual unconscionability, we examine the factors of “assent, unfair
surprise, notice, disparity of bargaining power, and substantive
unfairness.” C & J Fertilizer, Inc. v. Allied Mut. Ins. Co., 227 N.W.2d 169,
181 (Iowa 1975). It is not sufficient that a party made an imprudent
bargain:
People should be entitled to contract on their own terms
without the indulgence of paternalism by courts in the
alleviation of one side or another from the effects of a bad
bargain. Also, they should be permitted to enter into
contracts that actually may be unreasonable or which may
lead to hardship on one side. It is only where it turns out
that one side or the other is to be penalized by the
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enforcement of the terms of a contract so unconscionable
that no decent, fair-minded person would view the ensuing
result without being possessed of a profound sense of
injustice, that equity will deny the use of its good offices in
the enforcement of such unconscionability.
Smith, 325 N.W.2d at 94 (citing Carlson v. Hamilton, 332 P.2d 989, 990–
91 (Utah 1958)). The Restatement (Second) of Contracts provides further
explanation of the concept of unconscionability:
A bargain is not unconscionable merely because the parties
to it are unequal in bargaining position, nor even because
the inequality results in an allocation of risks to the weaker
party. But gross inequality of bargaining power, together with
terms unreasonably favorable to the stronger party, may
confirm indications that the transaction involved elements of
deception or compulsion, or may show that the weaker party
had no meaningful choice, no real alternative, or did not in
fact assent or appear to assent to the unfair terms. Factors
which may contribute to a finding of unconscionability in the
bargaining process include the following: belief by the
stronger party that there is no reasonable probability that
the weaker party will fully perform the contract; knowledge
of the stronger party that the weaker party will be unable to
receive substantial benefits from the contract; knowledge of
the stronger party that the weaker party is unable
reasonably to protect his interests by reason of physical or
mental infirmities, ignorance, illiteracy or inability to
understand the language of the agreement, or similar
factors.
Restatement (Second) of Contracts § 208 cmt. d (1981) (emphasis added);
accord C & J Fertilizer, Inc., 227 N.W.2d at 180 (quoting similar language
from Restatement (Second) of Contracts § 234 cmt. d (Student Ed.,
Tentative Drafts Nos. 1–7, 1973)).
The concept of unconscionability includes both procedural and
substantive elements. C & J Fertilizer, Inc., 227 N.W.2d at 181; accord
Rite Color Chem. Co. v. Velvet Textile Co., 411 S.E.2d 645, 648–49 (N.C.
Ct. App. 1992). Procedural unconscionability generally involves
employment of “sharp practices[,] the use of fine print and convoluted
language,” as well as “a lack of understanding and an inequality of
15
bargaining power.” Rite Color Chem. Co., 411 S.E.2d at 648. A
substantive unconscionability analysis focuses on the “harsh,
oppressive, and one-sided terms” of a contract. Id.
Although we have not adopted a precise definition of
“unconscionability,” the foregoing discussion illustrates the concept is
not a means by which a party may escape the requirements of an
unfavorable contract after experiencing buyer’s remorse. Thus, absent
an unconscionable bargaining process, a court should be hesitant to
impose its own after-the-fact morality judgment on the terms of a
voluntarily executed premarital agreement.
Before examining the procedural circumstances surrounding the
execution of the agreement at issue in this case, we first look to whether
the terms of the agreement are so harsh or oppressive “such as no
[person] in [their] senses and not under delusion would make” such a
bargain. Casey, 286 N.W.2d at 207.
1. Substantive unconscionability. At the outset, we
acknowledge premarital agreements are typically financially one-sided in
order to protect the assets of one prospective spouse. Courts must resist
the temptation to view disparity between the parties’ financial
circumstances as requiring a finding of substantive unconscionability.
Spiegel, 553 N.W.2d at 316 (noting this court’s refusal to interfere with
the parties’ freedom of contract by declaring a one-sided premarital
agreement void per se); accord Adams v. Adams, 603 S.E.2d 273, 275
(Ga. 2004) (“That the antenuptial agreement may have perpetuated the
already existing disparity between the parties’ estates does not in and of
itself render the agreement unconscionable when, as here, there was full
and fair disclosure of the assets of the parties prior to the execution of
the agreement, and Wife entered into the agreement fully, voluntarily,
16
and with full understanding of its terms after being offered the
opportunity to consult with independent counsel.”). As in our pre-
chapter 596 jurisprudence, the focus of the substantive
unconscionability analysis is upon whether “the provisions of the
contract are mutual or the division of property is consistent with the
financial condition of the parties at the time of execution.” Spiegel, 553
N.W.2d at 316.
The district court found the agreement executed by Randall and
Teresa was not substantively unconscionable. We agree. Most, but not
all, of the provisions of the agreement are mutual in scope. The
agreement basically sought to maintain the parties’ premarital assets as
separate property and to perpetuate their premarital financial conditions
throughout the marriage. The parties agreed to maintain separate
property during the marriage, with the exceptions of a marital home and
a joint checking account. Any property acquired by either party in their
sole name during the marriage was to remain separate property. The
parties’ earnings during the marriage were to remain separate, except to
the extent they were deposited in the joint checking account.
The agreement specifically provides for the allocation of any jointly-
owned property in the event of a dissolution. The accord dictates such
property will be allocated between the parties in different percentages
depending on the nature of the property and the length of the marriage.
As we have noted, the marital home was among the assets the parties
expected to own jointly.7 The agreement establishes a formula to allocate
7The record discloses the real estate which became the marital home was owned
by Randall at the time of the marriage. We understand the title to that asset remained
in Randall’s name at the time of the trial of this matter. The premarital agreement
contains no express provision requiring the marital home to be titled in both parties’
names. The district court declined to enforce the premarital agreement, and therefore
made no attempt to allocate the value of this asset. As our decision remands this case
17
eighty percent of the net value of the home to Randall and the remaining
twenty percent to Teresa in the event of a dissolution.8 Other property
purchased with marital funds is to be distributed consistent with a
schedule that is based on the duration of the marriage (e.g., Teresa
would receive fifteen percent of such property after five years, twenty
percent after ten years, and thirty percent after twenty years). While
these provisions clearly contemplated the allocation of a greater portion
of the marital assets to Randall than Teresa, we believe they were at least
consistent with the parties’ financial conditions at the time of the
marriage, and were not so oppressive to Teresa as to justify a finding of
unconscionability.
Additionally, although Teresa unilaterally waived any marital
interest in certain assets (such as Randall’s retirement assets), she also
derived some potential benefits under the agreement. First, she received
a potential benefit under the provision that required her to provide as
little as six percent of the total initial investment in the home, but
entitled her to receive twenty percent of any net proceeds in the event of
a dissolution. The agreement also required Randall to purchase and
maintain $500,000 of life insurance, with Teresa named as beneficiary
______________________________
for enforcement of the agreement, the district court shall adjudicate any dispute as to
the parties’ respective legal and equitable interests in the real estate or in the proceeds
from its sale under the agreement.
8
This allocation specifically applies only to that portion of the value, if any, of the
home in excess of each party’s contribution to the cost of the construction of the home.
Prior to the marriage, Randall invested more than $100,000 in the construction of the
home. The premarital agreement expressly contemplated that Randall would invest up
to $150,000 of additional funds and Teresa would contribute $15,000 from the sale of
her premarital home to complete the initial improvements and financing on the
structure. In the event of a dissolution, the premarital agreement provided the parties
would first recoup these initial financial investments in the construction and financing
of the home before the allocation to the parties of any excess value. Teresa also
committed in the premarital agreement to pay $500 a month as her share of the home
mortgage payments.
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during the marriage. Finally, although she waived any right to Randall’s
estate including the elective share of a surviving spouse, the premarital
agreement provided that upon Randall’s death during the marriage,
Teresa would be involved in the wind-up of Randall’s law practice, and
she would receive a percentage of the value of the practice at the time of
its liquidation. Because the agreement contemplated leaving both parties
substantially in the same financial condition as they were before the
marriage, included primarily mutual covenants and obligations, and
provided for some potential financial benefits to Teresa, we conclude the
agreement was not unduly harsh or oppressive, and therefore was not
substantively unconscionable.
2. Procedural unconscionability. As previously noted, the
primary focus of the procedural unconscionability inquiry is the
advantaged party’s exploitation of the disadvantaged party’s lack of
understanding or unequal bargaining power. Courts have found the
following factors, among others, are relevant to procedural
unconscionability: the disadvantaged party’s opportunity to seek
independent counsel, Friezo v. Friezo, 914 A.2d 533, 551–57 (Conn.
2007); the relative sophistication of the parties in legal and financial
matters, id. at 555–57; the temporal proximity between the introduction
of the premarital agreement and the wedding date, Lutgert v. Lutgert, 338
So. 2d 1111, 1114–16 (Fla. Dist. Ct. App. 1976); the use of highly
technical or confusing language or fine print, Rite Color Chem. Co., 411
S.E.2d at 648; and the use of fraudulent or deceptive practices to
procure the disadvantaged party’s assent to the agreement, Marsh v.
Marsh, 949 S.W.2d 734, 741 (Tex. Ct. App. 1997).
In holding the agreement procedurally unconscionable, the district
court stressed the fact that Randall is an attorney and therefore was in a
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vastly superior bargaining position to Teresa. It appears the district
court believed there are no circumstances under which an attorney could
enter into an enforceable premarital agreement with a spouse who is not
represented by independent legal counsel. Although any doubt as to the
conscionability of the agreement at issue in this case could have likely
been avoided if both parties had been represented by competent Iowa-
licensed counsel, we conclude such legal representation is not a
condition of enforceability under section 596.8(2). While Randall
certainly had greater inherent bargaining power as both the party whose
assets were primarily protected by the agreement and as an attorney, he
twice insisted Teresa should seek the advice of counsel in connection
with the agreement. Attorney Peebles also urged Teresa to do so. The
anti-paternalistic notions underlying the IUPAA lead us to conclude
Teresa’s decision to forego her opportunity to seek further legal advice
after her conference with attorney Peebles is a choice that emasculates
her unconscionability claim. Equitable principles will not permit a party
to eschew an opportunity to consult counsel as to the legal effect of a
proposed contract, execute the contract, and then challenge the
enforceability of the agreement on the ground she did not have adequate
legal advice.
Temporal considerations can in some instances support a finding
of unconscionability. Although Randall presented the agreement only
ten days before the wedding date, Teresa had sufficient time to consider
the implications of the agreement and an opportunity to seek advice of
counsel. Indeed, Teresa actually sought, and to some extent received,
legal advice from Edith Peebles as to the implications of the first draft of
the agreement. Despite Randall’s urging, she unilaterally declined to
seek additional advice on the revised draft.
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The district court found Teresa is not an unsophisticated party:
Teresa is an intelligent lady. She knew the blight caused by
divorce as she had experienced it. She was a college
graduate with extraordinarily good marks. Teresa was a
court reporter by training and conversant with legalese. She
had been a paralegal. Though she had not been exposed to
the subject of premarital agreements, she was familiar with
people contracting, waiving, and releasing their rights,
particularly in the bodily injury field.
Teresa’s failure to obtain legal counsel was a product of her own refusal
to do so despite serial encouragements from both Randall and attorney
Peebles. Teresa’s failure to heed the recommendations of others to
consult counsel was not a result of impropriety on Randall’s part, and
does not weigh in favor of a finding of unconscionability. See In re
Marriage of Pownall, 5 P.3d 911, 915 (Ariz. Ct. App. 2001) (“[Wife] should
not be permitted to decline the opportunity to protect herself then later
claim that the parties were not on equal bargaining terms. Nor was it
Husband’s attorney’s duty to explain the nature or value of the rights
Wife was relinquishing. He explained that he was not her attorney and
that he represented only Husband’s interest.”).
Finally, Randall communicated to Teresa his desire for a
premarital agreement to protect his assets for his children. Teresa
responded that she was not marrying Randall for his money, and acted
accordingly by acquiescing, without thorough investigation or objection,
to a premarital agreement that facilitated her marriage. Teresa’s words
and actions demonstrate she placed higher value on marriage and
Randall’s companionship than the opportunity for greater financial
security. “Buyer’s remorse” will not excuse Teresa’s voluntary
relinquishment of her marital property rights.
Although Randall’s vastly superior legal knowledge and stronger
financial position posed a danger that such advantages would be abused,
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we find no abuse occurred in this case. Randall insisted that Teresa
consult her own counsel. Although she ultimately chose not to seek the
advice of a lawyer licensed to practice law in the state of Iowa, we cannot
say this choice or her assent to the premarital agreement were the
products of any unconscionable conduct or tactic of Randall. We find
Teresa has failed to demonstrate the agreement was unconscionable.
C. Financial Disclosure. When the parties executed the
agreement, schedules listing the parties’ respective assets and their
approximate value were attached. Teresa nonetheless contends the
agreement is unenforceable under Iowa Code section 596.8(3) because
Randall failed to provide her with fair and reasonable disclosure of his
property and financial obligations. The district court rejected this
assertion, finding Teresa was sufficiently knowledgeable about Randall’s
financial circumstances to satisfy the IUPAA. We agree. Section 596.8(3)
requires only “fair and reasonable” disclosure, or that the party could
have had “adequate knowledge” of the other party’s property and
financial obligations. This statutory standard is consistent with Iowa law
extant at the time of the adoption of the IUPAA. See Spiegel, 553 N.W.2d
at 317 (“We have never required that a party have precise valuations of
the other’s assets; a general knowledge of the true nature and extent of
the other’s properties is sufficient.”). In addition to the knowledge she
derived from the property schedules attached to the agreement, Teresa
learned generally of Randall’s properties and his earning capacity
through her employment as Randall’s paralegal and secretary.
Teresa contends Randall’s disclosure was inadequate because she
was not provided full access to his personal bank account and pension
information. Section 596.8(3) does not impose such an exacting
standard. We agree with the district court that Randall’s financial
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disclosure was fair and reasonable and that Teresa had sufficient
knowledge of Randall’s financial situation to understand the
consequences of her waiver of a marital interest in Randall’s property.
IV. Conclusion.
Teresa has failed to carry her burden to prove the premarital
agreement is unenforceable under Iowa Code section 596.8. Accordingly,
we vacate the decision of the court of appeals, affirm the dissolution of
the parties’ marriage, reverse the district court’s order denying
enforcement of the premarital agreement, and remand this case for
further proceedings consistent with this opinion.
COURT OF APPEALS DECISION VACATED; DISTRICT COURT
JUDGMENT AFFIRMED IN PART AND REVERSED IN PART, AND
CASE REMANDED WITH INSTRUCTIONS.
All justices concur except Baker, J., who takes no part.