Postnuptial Agreements: The Basics
A postnuptial agreement is recognized under New York law which means that it is enforceable by the courts. A postnuptial agreement deals with the financial aspects of a couple’s marriage and what is going to happen to the family assets and liabilities in the future in the event of death or divorce. It can deal with any and every financial issue including alimony. The laws of contract govern the agreement. In New York, however, such agreements cannot address child support and custody issues since the courts feel that these decisions need to consider the best interests of the children at the time.
Unlike a prenuptial agreement which must be entered into before the marriage, a postnuptial agreement can be entered into after the marriage. Such an agreement is often entered into because the parties had a pre-marital agreement which needs to be updated because circumstances have changed. For example, the pre-nuptial agreement may not address how to divide the marital assets and debts in the event of a divorce. Or perhaps, when the couple signed the pre-marital agreement they had no children . However, now with children, they need to deal with various contingencies in the event of a divorce such as who is going to pay for college. The post nuptial agreement can address those issues.
Another example of when a postnuptial agreement might be entered into is if the parties are experiencing marital difficulties and are contemplating divorce but want to delay until after their child is bar or bas mitzvah. Under Jewish law a 13 year old boy or a 12 year old girl must go through certain rituals to become an adult and fully participate in synagogue activities. After that, different rules apply (depending on the religious denomination) concerning who pays for private school, religious schools and college. Often, the parties don’t want to go through the cost and emotional toll of a divorce if they think they can work things out, even if they have begun a divorce action. So the parties agree to enter into an agreement which will take effect if they do not reconcile before their child reaches a particular age which usually coincides with the bar or bas mitzvah.
Divorce Explained
Divorce is a legal dissolution of marriage and the termination of marital status. Contrary to popular belief, divorces are not granted to only one party to the marriage. In other words, the decree of divorce is granted to both parties to the marriage. Divorce is a creature of statute and controlled by certain sections of the Domestic Relations Code. Under Pennsylvania law, divorces are granted pursuant to a mutual consent for the grant of the divorce or a no-fault divorce after a one year separation period. Divorce allows the parties to separate from each other, ending the legal relationship between the parties. The Divorce Code also allows for the court to enter Orders regarding the distribution of marital assets and liabilities, maintenance (which is spousal support awarded during the pendency of the divorce), custody and child support.
The Differences Between Postnuptial Agreements and Divorce
When discussing postnuptial agreements, it can be easy to confuse this option with divorce. With postnuptial agreements in particular, holding out a certain amount of hope for the future of the marriage is more appropriate. Key differences between postnuptial agreements and divorce include the following:
Legal Differences: The decision to get a divorce is a major legal change. Although divorces can be negotiated through mediation or collaborative law, they generally result in a legal separation of the spouses that will enable each spouse to apply the terms of the agreement to his or her future in the capacity of a single person. The divorce process changes the way the mutual estate between the spouses is addressed by the court to a permanent state. This often means that assets are permanently divided between the spouses and that spousal support payments are put into effect with no change based on future earnings once finalized. Unlike divorce, there may be some hope for reconciliation if a postnuptial agreement is entered into.
Financial Differences: While divorce requires dividing assets and debts according to state laws, a postnuptial agreement only divides assets and debts when there is a breach of agreement. When a postnuptial agreement is used as a tool to fix the marriage with the possibility of remaining together, the couple must agree that their agreement will not become effective unless a breach occurs. While the agreement may address the same issues as a divorce, the idea is to work together instead of separating.
Emotional Differences: In some cases when a couple enters into a postnuptial agreement, it signals a new hope for the future. An understanding of the issues and how to address them as individuals and as partners may help to prevent a future divorce, which is always a welcome outcome.
Pros and Cons of Postnuptial Agreements
Benefits and Drawbacks of Postnuptial Agreements
Generally, the benefits of a postnuptial agreement are as follows:
However, a postnuptial agreement may also come with some potential drawbacks:
For example, a spouse may think that the postnuptial agreement will ensure that his or her premarital assets (such as a bank account) will not be impacted in the event the parties divorce. However, the postnuptial agreement may not include a waiver of the so-called "marital estate" (i.e. income, royalties, or appreciation that occurred during the marriage). As a result, in the event the parties divorce, the non-offending spouse may still have rights to those assets or the proceeds therefrom.
Alternatively, a postnuptial agreement may provide for spousal support. While it may be acceptable for a spouse to waive their right to support (in exchange for a lump sum payment), sometimes it may be more appropriate to have an open-ended spousal support number for purposes of appeal should a spouse become disabled, or incapable of being employed. An appeal of any spousal support number may well end up in a support payor spouse having the spousal support number increased to an amount that is greater than the original number.
The bottom line (so to speak, pun intended) is that both parties should consult with their own independent counsel so that the representation is not in the role of mediator. Consideration must be given to the length of the postnuptial agreement (typically 1-5 years following signing) and whether or not the agreement will be renewed in the future. Finally, consideration should be given to whether the postnuptial agreement can be amended or voided. That consideration may be essential to joint parties that own a business or whose income fluctuates tremendously.
The Pros and Cons of Divorce
In the context of the issue we are examining here, perhaps the best that can be said about divorce is that it provides finality. For better or for worse, a court order, judgment, and commence a suit seeking a divorce cannot be subsequently undone by the parties to the marriage absent a subsequent judgment or court order evidencing that intention.
On the other side of the ledger, divorce has perhaps received a deservedly bad reputation in recent years as a means of ending an undesirable relationship. So many stories of divorce, driven by so many cases in the news, have sounded the alarm over the destructive emotional and financial aspects of divorce.
At the end of the day and after so many decades of divorce in the United States, the stories are all too familiar. The circumstances are not relatively novel. In what seems like an age gone by, the wife devoted her life to children and the home, or following her husband’s career paths across the country while this was going on for years. The parties divorce, and there is no plan to ensure the economic well-being of the wife (or the husband for that matter) . We know how this plays out and the stories have been retold so many times. The harm that comes from divorce can be seen daily in the newspaper as stories are recounted where one or the other party is left to struggle economically, having given up so much (career-wise, financially, etc.) not only for the benefit of the other but also to reduce costs to the couple as a family. It is one thing to accept that there would be a net zero to the spouses’ individual finances, but without knowing the end point many times, the parties are left in a precarious place even more precarious than that of the individual with the same level of income who had lived nearly all of his or her professional life as a solo practitioner.
A cooperative approach to the financial issues and planning may avoid some of these problems. And a postnuptial agreement, while costing the parties money they’ll never recover (and there is a shift there of resources away from something else), can help clarify and minimize conflict in the future in the most significant way it can; by making the financial aspects clear cut. In that way, it ultimately saves money.
When Might You Want to Consider a Postnuptial Agreement Rather Than Divorce?
Often, the first step when deciding whether to get a divorce is to see a qualified therapist and try to save the marriage. In some cases, however, seeking counseling does not help things. It may be that one party has become interested in someone else, there are insurmountable differences or the couple is just unhappy. In those cases, divorce is often the best option. Or is it?
Sometimes, continuing to work on the marriage is the best choice for all involved. So, when the marriage is to be preserved — perhaps for the sake of the children — even if it is unhappy, that is where a postnuptial agreement comes in.
A postnuptial agreement is a viable option when improving things will reduce the chances of divorce in the future, when doing so can help with successfully co-parenting after a separation, when it is necessary to save the business or when the divorce would be too messy.
Improving the Marriage:
If the parties are willing to do the right things to improve the marriage, then they may be able to make it work. They could be:
A postnuptial agreement can help the couple document these agreements and provide safeguards in case the parties fail to comply.
Understanding That Children Are Better Off With Parents Who Are Cohesively Working Together:
Sometimes, the best thing for parents to provide for the children is not to separate or go through a divorce. When this is the case, then keeping the marriage intact is beneficial for the children. Often, children do better and there is less angst and conflict in the family and between the parents when the decision is made to stay together, rather than go through the divorce process.
Business Considerations:
There are also reasons to get married that are business-related. If a spouse or both spouses have a business that is thriving, this is another reason to stay together, because the business could easily be lost in the divorce. A business is often perceived as separate property because one party owned it prior to the marriage; however, the business can sometimes be perceived as joint in many ways.
A good example of this is the physician’s spouse: if a husband is a physician, the wife should do everything possible to keep the practice intact. The practice is valuable, and it was built during the marriage and with the spouses’ joint efforts. Often, the physician’s practice is considered community property and subject to equitable distribution in a divorce. By separating things now, by means of a postnuptial agreement, these efforts and resources will not be wasted in a divorce, if one spouse spends time and effort to try and preserve the marriage.
The doctor’s spouse may also have other interests in that practice, beyond the obvious above. For example, she might be a nurse or play an important role in the practice. However, the practice of having the wife have a hand in the business may now be causing issues in the marriage. For this reason, it may be best to pay her out now and remove her from her role, if it is having a negative impact on the marriage.
By doing this, the wife is financially secure for the future, and any chance of a divorce is minimized — especially if her role contributed to her husband’s infidelity.
A new life begins with every new child that is born to a couple. If the marriage already had strain before the birth of the baby, this strain can be exacerbated by the new child’s arrival. In some cases, the stress of having a baby can make the parties realize that marriage is not what they want, but in other cases it can help them realize that they have to work harder to make things work or they will lose everything, including their family. In those cases, a postnuptial agreement can be very effective.
Ideally, things would be better for everyone involved if the marriage worked out. A postnuptial agreement is often the best option when the couple has the resources, time, and dedication to making things work.
Are There Any Practical Legal Considerations When Drafting a Postnuptial Agreement?
Similar to their prenup counterparts, there are requirements governing the enforceability of postnuptial agreements. Many of these provisions are contained in the Uniform Premarital Agreement Act (UPAA). The requirements include the following: if both spouses are represented by legal counsel, provisions made by the agreement are generally enforceable; provisions made by oral agreements are not legally enforceable; and terms that are incomplete or vague may be struck from the agreement.
In Minnesota, a postnuptial agreement must be in writing, signed by both parties, and not be unconscionable at the time it is executed. To satisfy the requirement that the agreement not be unconscionable, the postnuptial agreement requires full and fair disclosure of the financial status and liabilities of both spouses as well as a waiver of further disclosures. Also, if a spousal maintenance provision is made, it is placed within a reasonable level of compensation based upon the length of a marriage.
Some key choices often included in postnuptial agreements include the following: spousal maintenance – whether or not alimony will be given, and if so, to whom, and for how long; disposition of property – decisions about premarital and marital property, and what would happen upon divorce, death, etc.; inheritance rights – that the parties could agree to give up the right to claim statutory shares of each other’s estate; and property division – that each spouse’s interests in certain types of property be divided equitably.
How Do You Decide if a Postnuptial Agreement Works for You, or If You Should Get a Divorce?
For many couples, deciding whether to pursue a postnuptial agreement or divorce often comes down to a careful examination of the factors that matter most. While there is never a perfect answer, there are some considerations that can guide you toward making the right choice:
Emotional Readiness: This encompasses not only your feelings about your spouse but also your overall emotional readiness to face one of two major upheavals in your life. Are you prepared to emotionally detach from your spouse so that you can face a divorce? Alternatively , do you feel that you can overcome obstacles in your marriage and return to a healthy relationship?
Financial Situation: Will you be able to afford a divorce? What will your current living situation be like once the divorce is finalized? Could a postnuptial agreement help protect your assets? Your financial situation may be a strong deciding factor as to whether to pursue a new agreement or end the marriage altogether.
Familial Implications: How will your decision impact the rest of your family? For example, some parents feel that divorce would have a negative impact on their children based on a number of factors. As such, they choose to either pursue counseling or sign a postnuptial agreement, even if the marriage is strained.
No matter which option you choose, the most important thing is to make the decision that is right for you. Thinking through the above factors will help you determine whether to pursue a postnuptial agreement or divorce.