Having a marital agreement between spouses, such as a prenuptial or postnuptial agreement, could save you a lot of heartache if you and your love decide to split up. On the bright side, the discussions leading up to the execution of a marital agreement could create a healthy and supportive base for a couple to successfully manage their intertwined finances.
What’s the Difference Between Prenups and Postnups?
Prenuptial and postnuptial agreements are contracts between a married couple that set the terms for separation. A prenuptial agreement is executed prior to the marriage; a postnuptial agreement is executed after the parties are already married and while they still intend to remain married. Both prenuptial and postnuptial agreements can accomplish the most common objectives sought in marital agreements, including:
Setting out the separation of assets and debts (whether “marital” or “separate”), and delegating financial rights and responsibilitiesRequiring the parties to make a testamentary disposition for the other spouse in their Last Will and Testament (or conversely, requiring the parties to waive their default right to inherit from a predeceased spouse)Setting out the amount and duration of maintenance (aka alimony)
Once you are married, there is already some entitlement to marital property if the parties divorce. In addition, the legal relationship spouses share creates an actual legal duty owed to each other. For this reason, the law seeks to protect an unassuming spouse from giving their property away (or having it taken) by fraud, duress, or undue influence, and from agreements that may be grossly unfair or against public policy. Additionally, the parties can set out how any marital or separate assets would be distributed in a way that they each accept. For example, one spouse can keep the marital residence in exchange for the other not having to share their retirement assets. Marital agreements often speak to spousal maintenance, more commonly known as alimony. Prenup and postnup agreements allow the parties to make provisions for future spousal maintenance before the idea of divorce arises, including the amount to be paid and for how long the supported spouse can collect maintenance. Marital agreements also may set out the rights and responsibilities of each of the spouses—particularly with respect to financial obligations—during and after the dissolution of the marriage. They may require that all marital disputes be solved by mediation or arbitration, instead of in the court system. Marital agreements are also an important estate planning tool. In most jurisdictions, you cannot disinherit your spouse. However, a prenuptial agreement can create an enforceable contract between spouses that a surviving spouse may not petition the court for their share of your estate after you die. This is useful in a few different scenarios, with the first being if there are children from a prior marriage. A spouse may want to preserve their estate for their children, while making other provisions for their spouse (e.g., by making lifetime gifts to their spouse or naming their spouse as the beneficiary of some other testamentary substitute, such as a pay-on-death account). The agreement may also end a spouse’s right to any portion of the estate of the spouse who dies first if the couple has separated but does not yet have a final divorce judgment. Under normal circumstances, a surviving spouse may seek their share of the estate at any point prior to final divorce judgment, even if the parties are in the middle of divorce proceedings. Imagine a situation in which you and your spouse have separated, and while your divorce proceedings are pending, you die unexpectedly. In this scenario, no matter the reason for the divorce, your surviving spouse would be entitled to a portion of your estate even if your will expressly disinherits them. A marital agreement can expressly agree that this right is removed as soon as the parties separate with the intention of divorce. Alternatively, the marital agreement can also require that a certain testamentary disposition be made to the surviving spouse (or ex-spouse). It is important to review your last will and testament periodically and make sure it reflects your most current wishes. Despite what your marital agreement says about testamentary rights and dispositions, make sure your will is up-to-date.
Time
The preparation of a prenuptial agreement can take weeks to months to complete. If you are planning to have a prenup drafted, you should contact an attorney at least three months prior to your wedding date. The parties need to provide the information to their attorney(s), and in nearly all states they must make some level of financial disclosure to each other as part of the agreement. Compiling this information can be time-consuming for some, especially when they are in the throes of planning a wedding. Once the agreement is drafted, there often will be a period of back-and-forth negotiation. A postnuptial agreement may take even longer to hash out because in addition to the financial disclosure and negotiations, if the couple is already married, it may be harder for them to agree on how to separate their assets in the event of divorce.
Cost
The cost of a prenup or postnup will often vary based on where the couple lives and the amounts and types of assets held by the couple. It also will depend on the amount of time needed for negotiation. Attorneys often charge a flat fee that includes the initial consultation, the drafting of the agreement, and several hours of revisions, communications, and negotiations. Additional time needed may be billed hourly at the attorney’s hourly rate. Like any other legal document, more-affordable options may be found by using online websites and forms; however, trying to save a few hundred dollars could cost you tens or hundreds of thousands in the future if your agreement is deemed unenforceable. For this reason, retaining an attorney experienced in the area of marital agreements is a smart idea.
Durability
While both prenuptial and postnuptial agreements that are validly executed are presumed to be enforceable, there are factors that will cause a court to look at both with more scrutiny. Particularly, courts are looking for the existence of fraud, duress, undue influence, or if the agreement is significantly unfair or inequitable toward one spouse.
Special Considerations
There are certain assets that are typically treated as separate assets, regardless of whether you have a marital agreement, including:
Real or personal property you obtained prior to the marriageInheritancesMost personal injury lawsuit settlement proceedsProperty acquired during the marriage in exchange for your separate propertyIncrease in value to your separate property, except to the extent that it was the result of the contributions or efforts of your spouseDebts incurred prior to marriage
Having a marital agreement that specifically touches on the assets listed above, though, will remove any ambiguity about whether an asset should be treated as separate property.
Which Is Right for You?
A prenuptial agreement may be right for you if you are planning to marry and already have significant assets. It also may be suitable if you have the expectation that your separate assets may appreciate; for example, a piece of real property, a growing business, a degree in a profession that may enable you to earn a lot of money in the future. Furthermore, if you have children from a previous relationship for whom you wish to provide, hashing out this legal agreement before you get married is a wise idea. A postnuptial agreement may be right for you if you are already married and either any of the circumstances above existed at the time of the wedding, or the circumstances developed after you were married. However, be aware that it will likely be harder to enforce a postnuptial agreement with respect to assets that grew and appreciated during the marriage. How assets and debts are treated upon divorce also will depend on whether you live in a “community property” state. Consult an attorney in your area to see if you live in such a state and how it may change the way your prenuptial or postnuptial agreement should be drafted.
The Bottom Line
Both prenuptial and postnuptial agreements, while generally enforceable, will be subject to scrutiny by the court if challenged. Because of the confidential and legal relationship created between spouses upon marriage, however, postnuptial agreements tend to be examined even more. For that reason, if you have the choice about whether you should prepare your marital agreement prenuptial or postnuptial, it often makes more sense to opt for the agreement that’s sealed before the wedding, in contemplation of marriage.
