What Are Postnuptial Agreements?
A postnuptial agreement is a familial contract between two spouses. Just as in a prenuptial agreement, the postnuptial agreement of the marital couple can be used to decide the division of property and finances in the event of a divorce or death. It can also be drafted to determine a variety of additional issues that may come up over the course of the marriage. Postnuptial agreements are legally binding. For example, if husband intended to provide life insurance benefits to his wife in a postnuptial agreement but later dies without doing so through a life insurance policy, the surviving spouse has a right to bring a claim in the probate court to have the postnuptial agreement enforced pursuant to the terms of the agreement.
Like prenuptial agreements, postnuptial agreements often appear in the context of a couple who is already married and seeking a divorce. In a traditional prenuptial agreement context, as an earlier example, the couple will define what the divorce will look like before getting married, while in a postnuptial agreement, a couple will enter into a contract after they are already married. Of course, prenuptial agreements can also be drafted far in advance of any divorce proceedings .
An obvious reason couples may opt to create a postnuptial agreement would be to protect their assets in the event of a subsequent divorce. This could be due to a wide range of interweaving reasons ranging from one spouse dumping another, a significant change in one spouse’s financial health, another incoming child, another wife, a new job, etc. Another reason couples may make postnuptial agreements is due to the possibility of being moved out of the country for work. If a spouse is being transferred for a job, for how long does the other spouse have to wait for him/her return? This can be a source of tension if it’s not addressed up front.
Still another reason a spouse may choose to enter into a postnuptial agreement would be health insurance. Health insurance may be easier and less expensive through the employer of one spouse. But if the couple decides to divorce, one spouse may lose access to the other’s health care benefits through the other spouse’s employment. To extend health insurance coverage after divorce, particularly in a high income bracket, can be prohibitively expensive for the divorced spouse. A postnuptial agreement can be used to define what health benefits to which the spouse will remain entitled after divorce, whether through private insurance or the like.
Legal Considerations for a Binding Postnuptial Agreement
In order for a postnuptial agreement to be considered legally binding, a number of essential legal criteria must be met. For a postnuptial agreement to carry legal weight, it must represent a legal, enforceable contract, which requires at least the following: voluntary consent, full disclosure, and fair terms (also referred to as an unconscionability test). A postnuptial agreement that is not voluntary could be set aside or deemed invalid because the signatories were not of sound mind and free of undue influence at the time of signing. If full disclosure is not present, meaning that insufficient information regarding each party’s assets, income, and debts is provided at the time of contract, the postnuptial agreement is more likely to be considered invalid, and a court will typically exercise its authority to set aside the agreement. In contrast, a court will be much more willing to uphold a postnuptial agreement if all disclosures are made and a fair and reasonable division of property is set out in a way that the parties find acceptable. In the case of a postnuptial agreement signed after significant changes in financial status or health, for instance, a fair and reasonable division of property is crucial. Unless the contract being signed represents a fair and reasonable contract for both parties, the court may agree to set it aside.
Problems with Enforceability
Several types of challenges to postnuptial agreements arise in Illinois:
(1) Coercion or Duress
For example, if an agreement was finalized right before a spouse was going on active military duty, he or she may have been coerced into signing under threat of abandonment.
(2) Fraud
For example, if the agreement was originally drafted to favor the wife for tax purposes and then, before being signed, it was "modified" to favor the husband for tax purposes, and the wife was unaware of this modification, her consent to the agreement could be deemed fraudulent – at least with respect to the "modification."
(3) Unconscionability
A postnuptial agreement that so heavily favors one party and so greatly disadvantages the other party as to be shocking or oppressive may be deemed unconscionable by the court and thus unenforceable.
(4) Lack of Understanding
For example, if one party signs a postnuptial agreement in the hospitable right after giving birth to a stillborn baby, the circumstances surrounding the agreement may demonstrate that the spouse did not have full understanding of the agreement when signing it.
State Variations and Provisions
Postnuptial agreements are treated differently across various jurisdictions in the United States. Some states, such as Alaska, Delaware, Illinois, New Jersey, Oregon, South Carolina, Texas, and Virginia, set out specific statutory requirements for postnuptial agreements. For example, postnuptial agreements are either deemed enforceable (or presumed to be enforceable) if they meet state law standards or treated like prenuptial agreements and thus unenforceable if they do not meet their state law standards.
Other states, however, treat the agreement simply in the context of the case law, applying contract law analysis to determine their validity. For example, North Carolina is not a community property state, and does not have specific statutory requirements governing the enforceability of postnuptial agreements, nor does it treat such agreements as prenuptial agreements like many of the other states listed above. Instead, North Carolina applies common law contract analysis to determine whether the postnuptial contract is valid.
Still other states have yet to address the issue at all.
The state-specific rules and variations are critical to keep in mind for potential drafters.
How to Draft a Well-Protected Postnuptial Agreement
In addition to following the basic enforceability criteria stated above, there are a number of practical tips for drafting a postnuptial agreement:
1. Get legal advice.
Critically important. For the agreement to be enforceable, there must be a full and fair disclosure of assets and debts by each spouse. It is essential for each spouse to obtain independent counsel for review and advice regarding the agreement. If both spouses desire, this can be done on a joint basis. If one or both spouses does not consult with an attorney, the agreement is more likely to be set aside, and the party failing to consult with counsel might be found to have been hiding assets.
2. Don’t rush the process.
Significant legal and financial rights and obligations can attach to a postnuptial agreement. Therefore, a party should take time to consider the issues involved, including seeking independent legal counsel. A 10-to-14 day "waiting period" between the time the agreement is signed and the time it is to become effective would help to demonstrate that it does not result from undue influence or duress.
3. Be accurate and be mindful of future changes .
All assets and debts of each spouse should be disclosed and be accurately identified in the agreement, including valuations. Future property acquired by gift, inheritance, or other means during the marriage is likely to be separate property, unless the married couple has considerable longevity or is able to overcome the presumption that property acquired during a marriage is marital. Therefore, postnuptial agreements should include general provisions regarding the classification of assets and debts expected in the future.
4. Consideration for the contract should be other than marriage.
In order for a postnuptial agreement to be enforceable, marital rights must be expressly relinquished. This would generally be achieved if a spouse signs the agreement after the marriage has taken place rather than in contemplation of marriage. The documented relinquishment of marital rights constitutes independent consideration, thereby supporting the agreement. Separation can also be considered sufficient consideration where it involves a relinquishment of marital rights and substantive change of position relating to assets and debts.
Case Examples
To further illustrate the legal binding nature of postnuptial agreements, we can examine a couple of case studies: An anecdotal example often discussed is a set of spouses in their 50s. Both spouses had children from previous marriages and wanted to put together a comprehensive estate plan. They decided upon a postnuptial agreement as part of their plan to ensure that none of their children felt a lack of inheritance or estrangement due to their marriage. Thus, they had an estate plan and a basic postnuptial agreement for lifestyle and financial expectations during their marriage, their wishes in the event of separation and divorce, and what would take place in the event of death. Their plan covered all contingencies, which was to both parties’ advantage. By contrast to this example of success, there is another example that is often cited of a postnuptial agreement failure. A spouse who was unhappy in her marriage moved away, leaving her partner to attend counseling on his own while she remained in the children’s home. They argued about money and property. Out of frustration, the wife prepared a postnuptial agreement with the children present. As such, the husband initially signed the postnuptial agreement, thinking it did not really matter whether he signed it or not because the wife had filed for divorce and refused to negotiate, and the children pressured him to sign it. However, he would later attempt to have it declared invalid in court. The wife argued that she was, indeed, in a good position to do the postnuptial agreement because she handled all the finances and had more financial knowledge than her husband. The husband testified to the effect that he hadn’t consented to sign the agreement and that his signature was extrinsically obtained. The case ultimately found in favor of the wife, leaving the postnuptial agreement intact. The examples above show that the enforceability of postnuptial agreements is determined by purposeful actions on behalf of both spouses. This encompasses the time the agreement is drafted and agreed upon for terms, as well as the time a postnuptial agreement may be enforced in the future. Postnuptial agreements must be entered into with intent without fraud or coercion and with prior disclosure of all relevant information. Any spouse who attempts to alter the enforceability of a postnuptial agreement should think very carefully about the potential consequences.
Pros and Cons
In the right circumstances, postnuptial agreements can provide much longed-for financial clarity in a marriage. They are extremely helpful for spouses with complicated finances who want to resolve the issues, such as what should happen if they split up and what should happen if they die or become incapacitated. In fact, postnuptial agreements are so helpful that many couples create them after already having gone through the divorce process, and have found it to be an expensive and stressful experience.
On the downside, while premarital and postnuptial agreements generally protect people from each other’s debts, they do not absolve people of their debts to creditors. So, for example , a person who is married to someone they suspect has undisclosed debt can’t use a postnuptial agreement to avoid their spouse’s creditors — they need to approach that head-on with a divorce proceeding.
Another potential downside is that a postnuptial agreement can be upended if it isn’t entered into for the right reasons. If a client’s relationship with their spouse has broken down and they are on the verge of separating or divorcing, entering into a post-nuptial agreement at that point is not always in their best interests because they are in a position where they may be forced to yield to their spouse in order to get them to remain in the marriage or avoid the divorce. Therefore the post-nuptial agreement is viewed by the court as having been entered into for the wrong reasons and it will be set aside. In that situation, it is usually better for a person who’s already in that position to enter into a separation agreement because it is simply not legally correct to sign a postnuptial agreement designed to protect yourself against the financial fallout of a marriage that is essentially over.