GTH Estate Planning Blog

In Kellar v. Estate of Kellar, the Washington Court of Appeals worked its way through preliminary arguments, to arrive at the point of deciding on the validity of Ken and Donna's premarital agreement. It turned out rich guy Ken got lucky, or more accurately his kids did since the issue was being raised in his estate.

A premarital agreement is valid under Washington law if it is either made with proper procedure, or economically fair. To meet the procedural test there must be full disclosure of finances, an absence of coercion, and independent legal advice for each party. Donna argued in vain on each of these points.

Because Donna was prevented by the dead man's statute from testifying on what Ken had said (see last week's blog), there was little evidence on the amount of financial disclosure. The Court thought it significant that the paragraph of the agreement acknowledging full disclosure was separately initialed by the parties. That seems a little skinny, but the Court let Ken's estate get by on this issue.

Donna also argued that they had been hurried through the process of making the agreement, and so she had felt coerced into it. Successful marriage proposal in early September 2001, agreement made on the 14th, and marriage on the 19th. That does seem rushed, but Ken's estate prevailed on this issue also. It helped that there had been some negotiation. The Court wrote "There is nothing inherently fatal about signing a prenuptial agreement five days before the wedding." Ken's heirs were fortunate; most attorneys advising clients on premarital agreements would be uncomfortable with that kind of timing.

Our rich guy Ken, married to Donna in 2001, died in 2009. He was 84. Donna took his estate to Court over the validity of their premarital agreement. This week and next we will look at the decision of the Court of Appeals.

There were several issues other than validity for the Court to decide. One was on admission of certain evidence under the dead man's statute. That law (found in Revised Code of Washington 5.60.030) prevented Donna from testifying in her favor about things Ken had said to her, now that Ken was no longer able to contradict her. The trial Court had stricken testimony including the following: "Ken asked me to quit my job and fly to South Dakota to get married... I was never provided with any financial statement showing Ken's assets and liabilities before signing the prenuptial agreement. It wasn't until 2005 that I learned that in December 2001, Ken had assets of approximately $93,000,000, approximately $16,000,000 in liabilities, and [therefore] approximately $77,000,000 in equity [net worth]." The first part of that is pretty obviously forbidden by the dead man's statute, the latter part not so clearly because it doesn't include direct statements by Ken. However, the Court of Appeals held that it was all properly stricken as taking unfair advantage of Ken's inability to contradict it. Score one for Ken here.

A second issue was judicial estoppel. The principle here is that what happens in one ruling body should be binding in later-arising matters in Court. The lawyers for Ken's estate had succeeded in the trial Court with the argument that the decision of the South Dakota Gaming Commission, granting Donna a casino license based on her assertion of the separateness of her assets and Ken's, should be held against her in this later claim in his estate. This trial Court decision was reversed by the Court of Appeals. It found the doctrine only applies if the earlier proceeding is a judicial one. The Gaming Commission was not a judicial body but rather an administrative one. Donna scores on this one.

It probably wasn't Coldplay on the radio when Ken proposed. Ken was a little old for that, 75 or 76. And it probably wasn't in a car, because Ken was rich. More likely over dinner, or after dinner at his nice place.

Deadwood, South Dakota was featured in an earlier blog: Musings on Gambling. Wild Bill Hickock was fatally shot in Deadwood while holding what is called the Dead Man's Hand. Our wealthy and romantic Ken, the legality of whose premarital agreement was ultimately called into question, was an investor and a gambler.

Ken was an investor. His Deadwood connection went way back. At about 20 he spent a winter managing a coffee shop in the Franklin Hotel there. He moved to Blaine, Washington near the Canadian line and built up a chain of 17 duty-free border shops between there and Minnesota. He sold those for millions and bought a bank in Ferndale, Washington, and hotels and casinos back in Deadwood.

In June of 2001, maybe with Yellow by Coldplay emitting from his car radio, Ken proposed to Donna. She declined. He tried again in early September, this time with success.

Ken wanted Donna but he also wanted a written premarital agreement with her. He was wealthy, with a net worth of about $77 million. She worked as a waitress, although she also owned some real estate.

In his then-unjustified confidence Ken had had his attorney draw up a premarital agreement in June. It got shelved until she accepted on his second try.

The prenup Lars helped arrange for Uncle Nils, was more properly done and more complete than Carla Dewberry's.

Premarital agreements are commonly viewed as tools of deprivation and exploitation. Prenups are perhaps most common in later-in-life marriages, and the parties are likely to differ in wealth. Does the rich old guy secure the younger and poorer woman at a bargain, leaving her with little after she looks after him for years? Sometimes. But an agreement can be a useful form of communication, resolving important practical questions that might otherwise go unasked. Is Sylvia promised any financial reward? How much, and in what scenarios?

The answers aren't always miserly. Many lawyers recommend a degree of generosity. This is partly because a stingy arrangement is more likely to be found invalid in a later divorce. But there's also the factor that it's a marriage being talked about, not a sale of property between unrelated persons. Nils has no kids and has plenty of money. Why not make a nice gesture to the woman he's marrying?

Nils and Sylvia's document was drafted by his attorney, then reviewed by hers with her. It was done months in advance of the wedding, as a last-minute deal is breakable, implying the possibility of duress. His separate property remains that way. But she gets the house and a $2 million trust out of it if they divorce after at least three years, or if Nils dies before her.

This is what Nils has agreed at the outset, that he must do for Sylvia in those events. He might be a little worried she is more interested in his money than in him, although she does seem genuine. If things go well he can be even more generous; their agreement certainly doesn't prevent that.

Surprising things happen sometimes, with women and men...

Emanuel thought ahead and got burned. Carla was careless (or at least carefree) and got away with it. Why?

Budding music executive Emanuel insisted on certain conditions to marry recent law graduate Carla, who was then working in a big CPA firm. They must keep their incomes and assets separated, and Carla would not get fat (!). The Marriage of Dewberry, decided in 2003 by the Washington Court of Appeals, leaves us wondering about fulfillment of the second condition, but Carla did get fat on the first.

It turned out she was the one who needed a premarital agreement, not Emanuel. His music career foundered, and he ended up working part time for United Parcel. She became a partner in a Seattle law firm, making over $1 million in 2000. [Editor's note: this is not a typical income for a lawyer.] They invested separately, mostly in real estate, although they did have a joint account for expenses of their kids and other shared items.

Nils isn't the main reason things are pretty good for Lars. But it doesn't hurt.

Nils had been a lifelong bachelor, mostly obsessed with accumulating real estate, initially in the grocery business but eventually as a thing in itself. He's now worth millions, and not just a few of them.

Lars is Nils's CPA, and helps to keep track of the real estate holdings and their management, more so as the years go by. Nils is in his eighties.

Lars tries not to think of it this way, but it's convenient that Lars is childless. It's less convenient that Uncle Nils is recently married.