What Is a Postnuptial Agreement
For couples who have decided to marry with prior assets or debts, the issue of entering into a prenuptial agreement, or prenup, is often a hot topic. Just as often, however, there are those couples who may marry without prior discussions of, and/or even consideration for, a prenuptial agreement. In such situations, a postnuptial agreement, or postnup, may come to take the place of the prenup.
A postnuptial agreement may be entered into at any time after the marriage and, importantly, can be entered into both before or during a separation . Like a prenup, a postnup is a contract, signed by both spouses during the course of the marriage that addresses the disposition of assets in the event of a separation or divorce. A post up may also serve to address issues of custody and support.
While a prenup is generally entered into prior to or shortly after a marriage, and often due to business or for estate planning purposes, a postnup is more often the result of the couple separating, or for other reasons. For example, sometimes the circumstances that led to marriage may have changed, such as an inherited asset or a sudden windfall. Other times, there may be issues of debt or spending that have suddenly come to light.
Postnuptial Agreements Legally Enforceable
The legal validity of a postnuptial agreement may vary based on jurisdiction. Generally, for a postnuptial agreement to be binding, the agreement must comply with applicable state laws regarding marriage contracts. Many states require that a postnuptial agreement be in writing, signed by both spouses, and executed after the marriage has commenced. In addition, some agreements must be acknowledged by a notary public in the presence of one witness, while others simply require an acknowledgment.
Under the law, postnuptial agreements are generally subject to the same principles that govern prenuptial contracts. A postnuptial contract formed between validly married spouses is a marital agreement that is subject to enforcement under applicable state laws regarding marital contracts if obtained under circumstances that give rise to the presumption of unconscionability (e.g., based on economic inequality, lack of legal counsel, lack of property disclosure, the influence of dire circumstances, under duress, fraud, etc.). The agreements are also subject to the general requirements for a valid contract (e.g., in writing, signed, notarized, witness, and enforceable in court, etc.).
Common Postnuptial Agreement Terms
Like premarital agreements, postnuptial agreements are not one-size-fits-all. Nonetheless, postnuptial agreements typically contain sections that fall into several categories. The following are examples of the kinds of issues and terms that parties may agree upon in a postnuptial agreement.
General obligations of the parties
The parties may agree to tell each other everything they know about their financial circumstances and the extent of their property on the date of the postnuptial agreement (or a specified date). They may also make mutual lifetime promises to support each other and any children born during the marriage. The agreement may also incorporate a standard of care for this obligation (e.g., "reasonably prudent").
Specific provisions for a given situation
Unless a postnuptial agreement is entered into to resolve a divorce, some of its provisions are likely to be of a more temporary nature and address an issue that has arisen recently. Such issues include:
Child custody and support
Postnuptial agreements concerning children may be legally enforceable as long as they are consistent with an existing court order or are approved by a family court. Parties may seek to waive child support by agreeing that they will not ask for child support for a set number of years, but child support waivers may draw scrutiny in any event. Postnuptial agreements that do not have child custody components but do address support matters may nevertheless be useful by establishing a standard of living for children, which may be the controlling factor in future support determinations.
Property, debt and tax matters
Again, unless a postnuptial agreement is entered into to settle a divorce, provisions addressing property or debts will be more akin to a contract to convey specific interests in property; to distinguish them from marital property (so that they are not considered for distribution purposes), or to address a party’s obligations to creditors (present or future). Another common provision that may be included is an agreement about how income taxes will be allocated when the parties file a joint return. A postnuptial agreement may also contain an authorization for a supplemental needs trust to provide for a spouse who becomes disabled.
Estate issues
Postnuptial agreements may also address rights of inheritance, elective share waivers and rights of appointment (which are sometimes called waivers of spousal rights). Revised to conform to state laws permitting predeath waivers of elective share and related rights, such provisions may be drafted to follow statutory language or may be based on a particular client’s needs.
Challenging Postnuptial Agreement Enforceability
Equally important to understanding whether the postnuptial agreement is binding or not is knowing what factors can challenge its enforceability. Factors that can challenge a postnuptial agreement include the following:
(1) Fraud in the inducement – A party may challenge a postnuptial based upon allegations of fraud, including concealment of assets, misrepresentation, or duress;
(2) Unconscionability – A postnuptial may be challenged on the ground that there was an overall unfairness to the agreement. In determining whether an agreement is unconscionable, courts will consider the following:
a. The relative bargaining power of the parties;
b. The relative income of the parties;
c. Whether there was full disclosure at the time of the agreement; and
d. The participating counsel for the parties.
The first three factors are an extension of the ongoing requirements for marital settlement agreements, under both G.L. ch. 208, sec 34, and the Code of Ethics for Attorneys representing clients in domestic relations matter 1.6 (Supplement). The fourth factor has been adopted in some counties in Massachusetts to expand the scope of assets and the spouse’s exposure in regards to the assets that became marital.
- (3) Lack of capacity of one of the parties – A postnuptial agreement may be challenged where a party lacked capacity at the time the agreement was executed. This argument would be similar to one raised where a party might challenge a prenuptial agreement. The standard for lack of capacity is different than that for prenuptial agreements. For prenups , the agreements should be deemed unenforceable if the other party did not know:
- (1) the nature, extent or value of property; or
- (2) the financial obligations to be imposed on them by the agreement; or
- (3) that he or she was waiving his or her marital property rights; or
- (4) that he or she was waiving or limiting alimony rights.
G.L. ch. 208, sec. 25.
But when the agreement is signed during the marriage, this standard changes to one of adequate disclosure, so long as the spouse is able to understand, at the time the agreement is executed, and there is no active concealment or improper pressure. See Greenwald v. Greenwald 52 Mass. App. Ct. 99, 753 N.E.2d, rev. Denied Mass., 447 Mass. 1109, app. denied, 452 Mass. 1116 (2000).
A practical way around a lack of capacity issue is something done by attorneys frequently. If a spouse is elderly and/or compromised, the attorney can have the spouse sign an affidavit stating she/he is familiar with the terms of the agreement and agree to its execution. Generally, this is not a problem where there is no adverse interest between the parties. In fact, it may be a good way to avoid any issues with the fairness and opportunity to counsel arguments.
Postnuptial Agreement Pros And Cons
The legal benefits of a postnuptial agreement can be substantial. They can cover a wide range of both financial and non-financial issues. They can be customized to address your individual concerns. They provide certainty and avoid the high cost and conflict associated with divorce. In many instances, they can be structured to withstand a later challenge. (For example, there is a concept known as a waiver of spousal share in Massachusetts that can be done correctly in conjunction with a postnuptial agreement.)
There are challenges in entering a postnuptial agreement. It is important to ensure that the waiver of counsel, which is required for all separation agreements, is sufficiently comprehensive. The waiver of counsel can be used offensively and defensively in future divorce litigation by a party contesting the validity of the postnuptial agreement.
While there are red flags that will always suggest challenge, the overall enforceability of a postnuptial agreement requires an analysis of eleven different criteria that the Court will review in the event of a challenge. These eleven criteria include whether the parties were in negotiations during a time of duress on the part of an unrepresented or misrepresented party, whether full and fair disclosure of assets were made, and whether the proceedings themselves were fair. The list is detailed in the case of Yoon v. Greenbaum, 80 Mass. App. Ct. 1101 (2011). It is therefore important to have any legal agreement reviewed by an experienced family law attorney who will ensure that the terms of the agreement are comprehensive and that the enforcement provisions are tailored to your individual circumstances.
Postnuptial Agreement Tips
To create a postnuptial agreement that is binding and holds up in court, it’s essential to follow best practices in crafting the document. These include:
• Understanding the legal standards outlined above.
• Having an attorney draw up the postnuptial agreement.
• Fully disclosing all assets, income and debts to your spouse. If facts are withheld, the contract may be set aside by the court.
• Including certain provisions, such as clauses about child support, child custody, and parenting time. (Courts tend not to enforce these types of provisions , however, since the court is not bound by anything two parties agree to that pertains to children.) Keep this in mind and make sure the postnuptial agreement covers other issues, such as equitable distribution of property, spousal support or alimony.
• Working with your spouse to come up with the details of the agreement.
• Never giving or signing a postnuptial agreement under duress.
• Making sure the agreement is fair and equitable.
• Always speaking with an attorney before agreeing to the collaboration.