Postnuptial Agreements: Are They Enforceable?

Though not always enforceable, they can spare couples costly divorce cases

Reviewed by Pamela RodriguezReviewed by Pamela Rodriguez

Prenuptial agreements, or prenups, have long been a “plan B” for engaged couples. They force future spouses to negotiate the division of assets, as well as the responsibility for debt they possess, should their marriage take a wrong turn. However, those same questions can sometimes linger—or become more important—well after the two have tied the knot. Consequently, postnuptial agreements, or postnups, are gaining popularity.

Postnups are designed to settle some of the same issues a prenup does, such as who gets which property and how much alimony a spouse will receive after a split, but in this case, the contracts are signed after the wedding. “It’s a way for couples to say, ‘We’re not getting divorced, but if we do, I want to define what will happen,’” says Lori Shemtob, a family law attorney based in Blue Bell, Pennsylvania.

Key Takeaways

• Like a prenup, a postnuptial agreement spells out how a couple will divide their assets in the event of a divorce, but it is signed after the wedding—sometimes years afterward.
• Couples may have a variety of reasons to sign a postnup, including protecting an inheritance, providing for a stay-at-home spouse, assigning ownership of a business, repaying a parental gift, or salvaging a marriage.
• Before spending money on a postnup, check with a reputable marriage attorney to find out how well these agreements hold up in court in your state.

The Postnup Phenomenon

Though mid-marriage contracts are still a relatively new legal mechanism, divorce lawyers say a growing number of couples are becoming aware of them. “They are becoming more common,” says Shemtob. In some cases, she says, clients plan on staying in their marriage but feel more comfortable defining a “what if” scenario. Other times, they’re older couples who want to revise a prenuptial agreement they signed decades ago when their financial situation looked very different. 

In a 2015 survey by the American Academy of Matrimonial Lawyers, 90% of legal professionals said property division was one of the most common areas addressed by these contracts, followed by alimony/spousal maintenance (73%) and retirement accounts (45%). 

The agreement can be in place for the duration of the marriage, or it may include a sunset provision in which the contract expires after a given number of years. If the couple ends up getting divorced and the agreement is no longer in force, their marital assets and liabilities would be allocated in accordance with state law.

Among the decisions postnups don’t address: what the child support arrangements will be or how child custody will be assigned after a divorce. Those are areas that the courts ultimately have to decide.

Reasons for Postnuptial Agreements

Couples may seek postnuptial agreements for any number of reasons. It may be that they simply didn’t get around to drafting a prenup before their marriage, says Alice Ahearn, a Washington, D.C., attorney specializing in family law. With a postnuptial agreement, they can iron out the same financial considerations they wanted to address all along—albeit after they’ve exchanged vows.

More often, there’s an important life event that pulls them down this path. “People tend to do them when things are changing,” says Ahearn. The following are among the scenarios in which couples may seek a postnup.

Important

A couple’s financial circumstances are likely to change significantly over the course of their marriage, a reality that postnuptial contracts can address.

Protecting an inheritance

When one of the spouses expects a large inheritance, the two may want to work out who’s entitled to the money should they split. That’s especially important in community property states, in which assets acquired during the marriage generally are otherwise split equally between the spouses.

Inheritances received by one spouse during the marriage are usually not considered community property. However, if a bequest has been handled in a way that caused it to commingle with community property, that inherited asset may be considered community property. When there’s a postnup in place, the agreement would override that equal claim on the property and ensure that the individual beneficiary continued to have sole claim to their inheritance.

Even in some noncommunity property states like Pennsylvania, any increase in the value of the inheritance is considered marital property, says Shemtob. So if the wife acquired $1 million and it grew to $3 million during the marriage, the $2 million gain would belong to both spouses. A postnup is a way for the spouses to agree that the whole sum will stay with the original owner.

Providing for stay-at-home spouses

A stay-at-home spouse whose earning power has dwindled as a result of being out of the job market—or a spouse who wants to provide for children from a previous relationship—may also see the value of a legal document dictating the partition of assets. “You can plan what could happen if things don’t work out with the marriage and you’re left in this very vulnerable financial situation,” Ahearn says.

Repaying gifts

In cases for which one spouse’s parents gave the couple a substantial amount of money—perhaps for the down payment on a house—a divorce settlement can be a particularly awkward process. A postnuptial agreement provides the in-laws (and their child) with the peace of mind that they’ll be reimbursed if the relationship doesn’t last. The contract may stipulate, for example, that the spouse whose family was the source of the money gets the first $100,000 in assets to recoup the funds. “Sometimes the way that money is given doesn’t create a legal obligation, but the parents may want to ensure repayment,” Ahearn says.

Rebuilding a relationship

In some cases, negotiating these issues is seen as a way to keep a struggling marriage solvent. Suppose, for example, that one of the individuals has been unfaithful. Agreeing on postdivorce terms that are favorable to the other spouse can be a sign of an intention to keep the relationship intact. “The couple knows what the financial outcome will look like, so it lets them focus on the relationship being saved,” says Ahearn.

How Much Will It Cost?

Though having a postnuptial may be a smart option for certain couples, these agreements usually don’t come cheap. To avoid conflicts of interest, each spouse needs their own legal representative to hammer out the contract, and that can lead to significant attorney fees.

Each spouse can end up paying several thousand dollars, especially for more sizable estates or in cases with which a business is involved. Even so, hashing things out during the marriage is less punishing than the alternative. “It’s going to be cheaper than going through the divorce process,” says Ahearn.

Shemtob says couples who have talked beforehand and seem to be on the same page are better able to keep fees in check. “If it’s acrimonious, it’s going to be more expensive because you’re being billed at the lawyer’s hourly rate,” she says.

Dividing interest in a business

Assets like bank accounts and retirement funds are relatively easy to value in a divorce proceeding. But putting a dollar figure on a business in which one or both spouses are principals is considerably harder. Because valuing a company can be extremely expensive and time-consuming, some couples use postnups as a way to categorize the business as separate property that will stay with the titled spouse. The couple may agree to give the other spouse a bigger share of nonbusiness assets to make up for it.

State Laws and Enforceability

Before proceeding with a postnup, it’s also worth keeping in mind that these agreements are easier to enforce in some states than in others. Most courts tend to uphold the agreements as long as they’re written, signed without coercion, and involve a full disclosure of financial information on both sides.

However, some jurisdictions put up additional barriers. In New Jersey, for example, the postnup must be considered “fair and just” in order to be enforceable, a standard that invites a degree of subjectivity. And in California, where spouses have a fiduciary obligation to each other, the contract must reflect “the highest good faith and fair dealing [by] each spouse, and neither shall take any unfair advantage of the other.”

Because these contracts are less common than prenuptial agreements are, some states simply don’t have much case law with which to compare them. That’s why it’s important to get a local family law attorney who can help negotiate an agreement that holds up in court.

Prenups, on the other hand, have a longer history and benefit from nationwide acceptance. In theory, that makes them a better solution when it comes to designating what will happen to your financial assets and obligations. The reality, however, is that many couples will see their financial picture change significantly throughout the course of their marriage; postnuptial contracts are a way to handle those changing circumstances.

The Bottom Line

Postnuptial agreements may seem like a safety blanket for stay-at-home spouses or couples trying to repair a damaged marriage. However, before proceeding, it’s worth figuring out the laws in your state through a reputable marriage attorney. In some cases, the agreements end up worthless by the time they actually reach the courtroom.

Read the original article on Investopedia.