If someone asked you what the benefit of a prenuptial agreement is, you likely would have some kind of answer or at least, a general understanding of why people sign prenuptial agreements. But postnuptials are less often used and are seen as a bit more controversial to many.
But there are benefits to postnuptial agreements, and in the right situation, a postnuptial agreement can help you in ways you probably didn’t think about.
What is a Postnuptial Agreement?
A postnuptial agreement is, as the name implies, an agreement that you sign with your spouse that is almost exactly like a prenuptial, except for the fact that it is signed during the marriage, not beforehand.
The agreement can address things like who will get what property, what property is considered marital or nonmarital, alimony, use of the marital home, and other issues.
Married couples are not supposed to be adversaries, and they certainly are not at “arm’s length” from each other, as parties to a contract are supposed to be. There is the inherent risk of coercion, pressure, or misrepresentation between spouses who are signing a contract between them, whether done purposely or whether it happens just because of the nature of the marital relationship.
To be valid, there must be witnesses to the signing of the agreement, which must be in writing, and although a married couple likely already knows each others’ finances, assets, and possessions, a full financial disclosure to each spouse must be made.
This means producing all relevant books and records—it is not enough to just say a spouse had access to records or “could have looked at my bank account.”
The Benefits of a Postnuptial
So why would anybody want a postnuptial agreement?
In many ways, the reasons are the same that anybody would want a prenuptial agreement: to minimize or avoid completely the time, heartache, and expense of a contentious, bitter divorce, should that happen.
A postnuptial agreement can give the parties some security, knowing what exactly they will get, keep, or give up in the event of a divorce. That is in addition to the security of knowing that there will be no or minimal fighting over these things should a divorce happen.
Postnuptials may help keep marriages intact. A couple on the verge of a divorce may opt to stay together and try to make things work if they know that there is a postnuptial in place. So, a party may say, “We can try to work on the marriage if we come to an agreement as to what happens if things don’t work out.”
Avoiding Risks or Waste of Marital Assets
A spouse may opt to stay in a marriage despite knowing that one spouse is taking a big business financial risk or knowing that a spouse is wasting money. A spouse may just have a sense that something is being hidden, money is being spent, or that loans are being taken out by the other spouse. Rather than just leave the marriage, that spouse may be more inclined to stay and work things out, knowing a postnuptial is in place.
Inheritances
A postnuptial can help you keep assets that are yours but which you may want to use to help the marriage.
For example, imagine that you come into an inheritance. That is, at least at first, your property. But the marriage needs that money—perhaps you want to pay off the mortgage, help with debt, help your spouse start his or her business, or use the money for anything else that benefits the marriage.
By doing that, you potentially transform that inheritance from non-marital property, not subject to division, into marital property that could be divided in a divorce.
But a postnuptial can prevent that. If the spouses agree that the inheritance is and remains non-marital property, it frees that money up to be used to benefit the marriage, without the inheriting spouse fearing that if there is a divorce, that non-marital property will be considered to be marital.
Using Non-Marital Assets
A postnuptial agreement can allow spouses to put one spouse’s money into an interest-bearing account or into some other kind of investment and use the interest however they choose, without fear that doing so would make the principal investment into marital property, subject to division in divorce.
Protecting Outsiders Gifting Assets
Even third parties outside the marriage may benefit from a postnuptial.
Take the parents of a spouse who want to help the new couple buy a home. However, they want to make sure that if there is a divorce, the home (or money from the sale of the home) goes to their child—that it is not divided up between the spouses on divorce.
A postnuptial can specify that a gift from someone outside the marriage to a spouse remains the property of that spouse, thus allowing the third party (the parent in our example) to give whatever is needed and allowing the marriage to benefit from the use of the gift.
Sacrifices for the Marriage
Postnuptial agreements can make it easier and safer for one spouse to forego their career for the benefit of the marriage.
Imagine a spouse who gives up a career opportunity to help the other spouse with their business or to help raise kids. That spouse can be protected in the event of a divorce through the use of a postnuptial, making it safer and more palatable for the spouse to give up career or other personal opportunities to help benefit the marriage.
Changes in Your Life
Any change in lifestyle or situation that could affect finances may call for a postnuptial agreement. This can include blended families, or someone losing a job, or getting a significant promotion. Inheritances, bonuses, financial windfalls, or even medical hardships may cause a couple to want to make sure they are protected in the event of a divorce.
A postnuptial agreement can be a valuable tool to help you protect your assets and your marriage. Contact us for help in drafting a postnuptial agreement or seeing if it is right for you.