Challenging Postnuptial Asset Protection Estate Planning
My stepmother gave up her right to an outright distribution of my father’s 401k plan through a post nuptial agreement. The agreement as well as my father’s will clearly state that she is to get 10% of the principal value of the plan per year while my brother and I receive the balance. My stepmom is now trying to void the post-nup because my father did not disclose a life insurance policy worth 100k. Does she have a leg to stand on?
Setting aside an agreement for fraud is a long established principle of law. And misleading statements can be fraud in some circumstances. Similarly lack of full disclosure or over-reaching in a pre- or post-marital agreement can be a basis for setting something in it, or the entire agreement itself, aside. The issue is was there a lack of disclosure, was it truly material, and how do you know your stepmother is right and can prove a failure — perhaps an intentional failure — to disclose? Eventually this would be decided by a judge or jury. Among the issues that would be influential was the nature and duration of the marriage, the parties’ relative wealth, the terms of the agreement (was she also comfortable, and did she want to protect her assets for her family if she died first), and how overreaching or generous it was or wasn’t, and if she made full disclosure.
If she is successful what would she get? It may not be as much as she is getting now, or it may be a lot more. The beneficiary of the 401(k), and probably the waiver, is governed by Federal law, but its value may impact her rights under other state laws of intestate succession or election. AND a court may not let her just set that aside and keep the benefit of everything else. For example, if she knew about the $100,000 policy, what more would she have received for her consent, 1/3rd of that — not the entire $401(k). Also, if she is to get 10% of the principal in the 401(k) per year, anyway, unless she is in her 80s or in bad health, the expected value of that income stream may pretty much equal the whole value. Further, if paid from the 401(k) the proceeds are subject to income tax as she withdraws it. So getting the 401(k) may not mean much financially. This cries out for an experienced lawyer. The lawyer may, after considering the law, the facts and the costs, suggest the matter be compromised, with her getting something more, but not nearly everything she wants.
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