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PROPERTY SETTLEMENT AGREEMENTS - UNCONSCIONABILITY
© 1997 National Legal Research Group, Inc.
KENTUCKY: Shraberg v. Shraberg, 939 S.W.2d 330 (Ky. 1997).
The parties' separation agreement was properly determined to be unconscionable and set aside, where it was manifestly unfair and unreasonable in that it required the husband to pay $160,000 per year out of his annual income of $200,000.
This case is noteworthy in that a highly educated, professional spouse with a very high earning capacity succeeded in having a separation agreement set aside on the ground of unconscionability. While the court applied a somewhat unusual Kentucky statute permitting separation agreements to be invalidated for unconscionability, the case may nevertheless be interesting to lawyers in other states which have no such statute but which do have case law permitting unconscionability to be raised as a ground for setting aside a property settlement agreement.
The husband in Shraberg was a psychiatrist who earned approximately $200,000 per year. Without advice of counsel, he signed a separation agreement which had been prepared by the wife's lawyer. After the agreement had been in effect for about nine months, the husband sought to have it set aside under Ky. Rev. Stat. Ann. 403.180. That statute provides that separation agreements are binding on the court in a dissolution proceeding unless it finds, "after considering the economic circumstances of the parties, and any other relevant evidence produced by the parties, on their own motion or on request of the court, that the separation agreement is unconscionable," in which case the court may either request the parties to revise the agreement or make its own orders.
The trial court held that the agreement was unconscionable, and the Kentucky Court of Appeals affirmed. The Kentucky Supreme Court upheld the lower courts, rejecting the wife's argument that the agreement was just a bad bargain for the husband. The agreement obligated the husband to pay in excess of $160,000 annually for the support of his five children and the wife, while he had an annual pretax income of about $200,000, the court noted. These facts supported the trial court's determination that the agreement was unconscionable, the court decided.
Discussing the Kentucky statute on separation agreements and unconscionability, the court said that the statute recognizes the intimate nature of the marital relationship and the ability of a strong and persistent spouse to overwhelm the other spouse. "In effect, the law has established a measure of protection for parties from their own irresponsible agreements," the court observed. 939 S.W.2d at 333. Case law interpreting the statute shows that fraud, deceit, mental instability, or the like are not required in order to have a separation agreement invalidated, the court said. What is required, the court declared, is a showing of "fundamental unfairness." The agreement here met that test, the court concluded.
One judge, dissenting, agreed with the wife that the agreement was simply a bad bargain and should not be set aside on the ground of unconscionability. The majority decision had the effect of overruling Kentucky cases which held that unconscionability should be construed as something more than a bad bargain, the dissent contended.
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