What You Need to Know About a Postnuptial Agreement

Many of my clients who go through a divorce after several or many years of marriage suddenly realize that the prenuptial agreement terms to which they agreed are no longer appropriate to their current circumstances.  There are others who tell me they simply ran out of time prior to the wedding to draft a prenuptial agreement. But, if a divorce is looming, many couples often recognize the importance of a martial contract, be it a prenuptial or postnuptial one.

What most couples who have a prenuptial agreement in place don’t consider — most notably those who aren’t facing divorce, but continue to remain married — is that if they do have a contract, they need to update it because a good many of the stipulations in their initial contract have long since become passe.

I always tell my clients (sadly, sometimes after the fact) that updating their marital contract should be handled just like any other important document they have on file. They should renew and amend it. Examples are an estate plan, a living trust, or a will. These documents should be reviewed yearly because they will likely need amending. Life circumstances change from one year to the next for most of us. Same goes for a marital contract.

There are also those I talk to who never thought of drafting a prenuptial agreement when they planned their wedding because they didn’t think they had anything to safeguard. But often, most married couples who stay together long enough will amass some sizable assets, and while courts in most states will honor some type of a community property settlement, others may not. And then what happens when one spouse amasses assets and wealth on his/her/their own?

Disputes arise.

There are likely to be strong disagreements as to who is entitled to those singularly earned assets if/when the marriage ends and it comes time to divide things up. People In this category are not always sports or show business figures either. For instance, this group may also include those who started a small business and eventually grew it into a huge franchise operation; those who left the mail room for the board room where they began raking in a CEO’s perk-packed package; or even the inventor of a product who has constantly enjoyed stacking up handsome royalties.

Interestingly, it could be that both spouses have grown their portfolios individually over the years, yet never considered that in the face of a breakup they would have to turn half of their respective “personal” assets over to their soon-to-be-ex.

It’s Never Too Late to For a Postnuptial Agreement

When it comes to exploring the idea of a postnuptial contract, the question I often get is: “Is it too late?”

No. You can always enter into a postnuptial agreement (also referred to as a marital agreement) at any time during the marriage. In sum, it is a voluntary marriage contract that is created after the legal wedding—be it months or years.

A postnuptial agreement can protect similar items as those spelled out in a prenuptial agreement and can be used to help resolve issues in marriage by removing a source of disagreement over finances, assets, inheritances, children and so forth. When basketball legend Michael Jordan separated from his wife Juanita many years ago, he insisted on a postnuptial agreement when the couple reconciled. Smart move. He was making millions due to his prowess on the court while she was a nonworking mom at home. That’s not to suggest Juanita was not entitled to Jordan’s earnings, but when they first married, he certainly wasn’t worth the amount he was when they separated. In all fairness, it was his talent, goodwill, and accomplishments that bolstered their bank account(s).

Often, people may have intended to enter into a prenuptial agreement but ran out of time before the wedding and later want to address financial and legal issues in the event of a divorce or a death — like what will done with the house, investments, 401(k)s, money market accounts, stocks, bonds, and the like.

Having a postnuptial agreement in place is especially important if a couple has children from a previous marriage. Calling out ahead of time what the children each get in the event of a parent’s death is crucial. There are many protracted fights with blended family members after one of the spouses passes away. Such disputes can go on for years.

What Goes into a Postnuptial Agreement?

The postnuptial agreement can be used to protect one or two specific areas such as spousal support, how the marital home will be split, debt, guaranteed beneficiary of a life insurance policy during the marriage, or even what happens to the family pet. The latter may seem incidental in the moment, but there have been plenty of knockdown, drag-outs over pets.

In sum, prenuptial and postnuptial agreements are very similar in the way of substance. There is one big difference, however. With a postnuptial agreement there is a fiduciary or confidential relationship between spouses which requires that negotiation of a postnuptial agreement include additional disclosure requirements because the parties are not negotiating at “arms-length.” When spouses make an agreement during marriage, each spouse must provide the other with full disclosure of all information pertaining to issues contained in the agreement. Because of this duty of loyalty to one another and to deal with them in good faith and fairly, the courts will apply more scrutiny to postnuptial agreements.