Demystifying Choice of Law Clauses

A choice of law clause identifies the law that applies to any dispute regarding the construction of a premarital agreement. Without a choice of law clause, a conflict of laws issue will arise if the spouses relocate to a new state. If the parties execute a premarital agreement in State A and move to State B and file for divorce there, which state law will apply to the interpretation and enforceability of the premarital agreement?

Absence of Choice

If the premarital agreement does not have a choice of law clause, then courts may infer the choice of law to protect the parties’ reasonable expectations. Section 187(1) of the Restatement of Conflicts of Law states that “the law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.” As explained in the comment to Section 187(1),

even when the contract does not refer to any state, the forum may nevertheless be able to conclude from its provisions that the parties did wish to have the law of a particular state applied. . . . [T]he fact that the contract contains legal expressions, or makes reference to legal doctrines, that are peculiar to the local law of a particular state may provide persuasive evidence that the parties wished to have this law applied.”

Rest. 2d., Conflicts of Law, § 187(1) comment a. Although intent may be inferred, it may not be invented. If the parties intend for the premarital agreement to be portable, then they should include a choice of law provision in the premarital agreement.

Premarital Choice of Law

Under the Restatement (Second) of Conflicts of Law, parties to a contract may chose the law that will govern the validity of the agreement, unless the chosen state has no substantial relationship to the parties and there is no other reasonable basis for that state’s law to apply, or the enforcement of the agreement would violate fundamental public policy of the forum state. The Uniform Premarital Agreement Act (UPAA), which has been adopted by twenty-six states, provides that parties to a premarital agreement may select the state law that will interpret the meaning of the agreement. The focus of this article is on premarital agreements drafted under the UPAA.

Wording Matters

To further minimize the risk of a conflict of laws issue, parties should give careful consideration to drafting the choice of law clause. Under the UPAA, parties may select the state law that will govern the “construction” of their premarital agreement. Some states have construed this provision broadly so the law of the selected state will determine whether the agreement is valid according to the law where it was made, while others have taken a narrow view and applied the chosen law only to disputes over the meaning of the agreement, limiting the choice of law to rules of contract interpretation. If the agreement is valid under the law where it was made but the state where the agreement is being enforced has very different rules on how to make a premarital agreement, then the agreement’s validity is threatened.

For example, in DeLorean v. DeLorean (1986) 511 A.2d 1257, the parties executed a premarital agreement in California and married in California. The choice of law clause stated the agreement “shall be construed under the laws of the State of California and enforceable in the proper courts of jurisdiction of the State of California.” The parties moved to New Jersey and a divorce proceeding was initiated there. The New Jersey court used California law to determine if the agreement was valid. The New Jersey court concluded that the premarital agreement was enforceable under California law. Had New Jersey law been applied, the agreement would have been invalid due to New Jersey’s higher disclosure standard.

But in Marriage of Proctor, 203 Or.App. 499 (2005), the court held that the choice of law clause only applied to the interpretation of the premarital agreement. The Proctors were married in California. The premarital agreement included a choice of law provision stating “this agreement is made and entered into between the parties in California and shall be interpreted as construed in accordance with the laws of the State of California.” The Oregon court applied California law solely to interpret the premarital agreement and clarified that choice of law provisions are limited to the construction of the agreement. Choice of law provisions do not relate to the law that governs substantive issues like the division of property.

DeLorean and Marriage of Proctor highlight the importance of a well-drafted choice of law clause.

The Solution

So, what does a well-drafted choice of law clause look like? Here is a sample we use in our premarital agreements:

Sample Provision: Choice of Law

This sample choice of law provision addresses the procedural and substantive law issues. The first paragraph states that courts shall use California law to interpret and determine the validity of the premarital agreement. The remainder clarifies that the parties’ substantive rights and obligations are determined according to the premarital agreement.

This Agreement is entered into in the State of California. The validity and meaning of this Agreement shall be construed according to the laws of the State of California that were in effect when this Agreement was made..

This Agreement determines the rights and obligations as to the property of either party wherever located and as to spousal support, regardless of where either or both of the parties are residing at the time of any separation, the filing of any action between the parties, the death of either party, or where this Agreement is enforced or interpreted.

The legal rights of the parties have been modified, altered, or eliminated by this Agreement, and shall be governed as laid out in this Agreement, without reference to what the laws of any state would have provided absent this Agreement.

Each party understands that the laws of many states and countries give courts the power to require a husband or a wife, upon separation or divorce, to transfer a share of his or her property, whether owned before marriage or acquired during marriage, to his or her spouse. This power is sometimes called an “equitable distribution” or the power of special equity. Neither party wishes any court to have such powers concerning their marriage. All property rights between the parties are to be determined according to this Agreement.

Each party expressly waives any right to a trial by a jury regarding their rights under this Agreement.

Conclusion

Conflict of laws issues can make or break a premarital agreement. Parties should include a well-drafted choice of law provision to ensure that their premarital agreement is enforceable in any state.