Prenup vs. Postnup: How Are They Different?

These can make divorce—or one partner’s death—a bit less traumatic

Reviewed by Erika RasureReviewed by Erika Rasure

Prenups and postnups are documents that can save you a lot of financial grief and headaches if your marriage ends in divorce. Prenups are entered into before tying the knot. Postnups are created and signed after the wedding.

The United States Census Bureau has reported that the divorce rate dropped from 9.7 divorces per 1,000 marriages in 2011 to 6.9 divorces per 1,000 marriages in 2021. But here’s the reality: Divorce or death wouldn’t just mean heartbreak if you or your spouse is wealthy, expecting a large inheritance, or entering your second, third, or fourth marriage. Either could also lead to some serious financial ramifications.

Key Takeaways

• Prenuptial (before marriage) and postnuptial (after marriage) agreements spell out how a couple will divide their assets if their marriage ends.
• Prenups are important when one spouse has significant assets, a large estate, children from a previous marriage, or expectations to receive a large inheritance or distribution from a family trust.
• Neither prenups nor postnups can address plans for a couple’s existing or future children.
• It can be helpful to use an attorney to draw up one of these agreements because tax law and other laws can complicate the financial picture.

What Is a Prenup?

A prenuptial agreement is made before the marriage. The couple determines how they’ll divide their assets should the marriage ever come to an end. Prenups are accepted in all 50 states but the states may vary on how they’re interpreted.

Many critics argue that negotiating a prenuptial agreement before your wedding is wildly unromantic and the uncomfortable process can doom a marriage before it begins. Proponents of prenups point out that these agreements can save a lot of heartache, not to mention money, in the event of divorce. This is particularly the case if it’s not a couple’s first marriage.

Prenups can prevent nasty, drawn-out, and excessively expensive court battles if a couple decides to split because everything is already spelled out in the agreement. Everyone knows exactly who gets what and there’s no room for argument. These agreements also spell out financial distributions in case of a spouse’s death. This is particularly important for couples with children from previous marriages.

What Is a Postnup? 

Postnuptial agreements have become increasingly common and they’re almost identical to prenups in many ways. The biggest difference is that postnuptial agreements are made after the wedding. Prenups are generally considered valid upon marriage but a postnup will be scrutinized by the courts before deciding whether it’s enforceable.

Many of your assets become marital property the moment you say, “I do.” These might include retirement assets, stock options earned during the marriage, or real estate purchased since your wedding. You’ll want to determine how to divide these marital assets as well as any future earnings in your postnuptial agreement.

Who Needs a Prenup?

Prenups aren’t for everyone. Divorce attorneys generally agree that a young couple getting married for the first time and bringing few or no assets to the union doesn’t need such a contract. The main exception is if one spouse or both expect to receive a large inheritance or a distribution from a family trust. Most attorneys say prenups are essential for couples with significant assets of their own or a large potential estate inheritance entering into a marriage.

Important

A prenuptial agreement can help protect each spouse’s premarital assets, ensuring that they don’t become marital property even if they’re commingled in some way during the marriage.

You can also determine in a prenup what if any share your spouse will receive of your estate should you get divorced or die. This is especially important if you have a significant estate and children from a previous marriage to whom you want to leave a portion if not all of that estate. Most states will automatically give your surviving spouse a significant share of your estate upon your death if you don’t sign a prenuptial agreement that spells out these details.

A prenup can also protect any income or assets you earn during the marriage as well as unearned income from a bequest or a trust distribution. You may be required to pay alimony to your ex-spouse without a prenup but you can predetermine a specific alimony amount or even eliminate it if you create the document.

Couples often include personal clauses in a prenup as well but inserting unenforceable items such as limits on a spouse’s weight gain or who gets custody of the dog or cat may lead the courts to consider the document frivolous given that a prenup is designed to address financial issues. It’s better to put those pledges in a separate document.

The one thing that can’t be handled by either a prenup or a postnup is matters concerning a couple’s existing or future children. Courts are left to decide what’s in the offspring’s best interests in the event of divorce and prenup provisions of this nature are generally found to be unenforceable.

Who Needs a Postnup?

Many couples opt for postnups because they simply ran out of time to sign a prenup. They didn’t get around to sitting down and discussing the division of assets in the event of divorce or they lacked the desire to do so. Others see the procedure as an awkward, overwrought process that’s better put off until after the nuptials.

It’s often couples who have already been married for five, 10, or even 20 years who decide to sign a postnup, however. The couple is giving their struggling marriage one last college try in some cases and using the postnup as an ultimatum. One of the spouses might have recently received a large inheritance or gift, such as a family home, and wants to clarify that it’s theirs.

What Is Community Property?

Community property is any asset that’s acquired during a marriage by either spouse, including income. It’s legally and automatically marital property that belongs to both spouses and is subject to being shared equally in a divorce. Only nine states are community property states, however. Separate property states allow provisions for separate ownership.

Is Alimony Tax Deductible?

Alimony is still tax deductible if it’s paid according to the terms of a prenup or postnup that was entered into before 2019. The paying spouse can no longer claim a deduction for that money otherwise and the receiving spouse no longer has to claim it as taxable income.

Does a Will Override a Prenup or Postnup?

A will generally overrides a prenup or a prenup but a court can decide that both documents are unenforceable if their terms conflict.

The Bottom Line

Divorce is often said to be one of the most traumatic events in a person’s life. Being able to quickly and amicably handle the financial details after you’ve decided to part ways can remove some of the pain from the process.

Both prenups and postnups can be found valid and enforceable during a divorce but some experts claim a prenuptial agreement is often the more straightforward of the two because it’s made before a couple combines assets. Divorce attorneys nonetheless say that a postnuptial agreement is better than no agreement at all, especially for couples in second marriages with sizable assets or large estates.

Both documents also clarify issues in the event of the death of a spouse, especially one who brought children into the marriage.

Provisions in the Tax Cuts and Jobs Act (TCJA) have altered the landscape of divorce somewhat through changes in how alimony is treated for tax purposes and the elimination of the exemption for each dependent. It may be wise to use both an attorney and a tax advisor if you’re drawing up a prenup or a postnup.

Read the original article on Investopedia.