Marital Contracts – What are They?
Prenuptial agreements and postnuptial agreements serve the function of marital agreements. Generally, a marital agreement is a document executed by both spouses and which states how issues relating to the marriage will be handled. In modern times, such agreements are increasingly used by parties who have limited incomes, or first generation wealth, or wealth that has been acquired during the marriage. In other words , marital agreements are commonly used by couples who do not possess the multi-multi-millionaire status that marital agreements were originally designed for. If such an agreement is entered into prior to the marriage it is called a prenuptial agreement. If the agreement is entered into after the marriage, it is called a postnuptial agreement. The purpose of both types of agreements is to define, to the extent possible, the rights and obligations of the parties in the event of death of either party or divorce of the parties.
What is a Prenup?
What is a prenuptial agreement? Well, as its name implies, it is an agreement made prior to getting married between the parties. And like a postnuptial agreement, a prenuptial agreement is a contract between you and your future spouse. It is a way to make sure that you and your spouse are on the same page about the financial future of the relationship.
Most people who enter into a contract do so at a time when they are in a good place with the person with whom they are making a contract, which puts them in a very strong position when it comes to negotiation. Contracts are supposed to be entered into freely and willingly by both parties. A contract made under duress is generally unenforceable. In these pre-marital days, you have the opportunity to really take the time to negotiate with your partner what is fair and practical at this point. No one is under duress.
The most common reasons people execute prenuptial agreements include:
In order for a prenup to be enforceable, it is important that the parties enter into the contract voluntarily. As is the case with any kind of contract, if either party is engaged in fraud, duress, or undue influence the prenuptial agreement may not be considered enforceable.
In addition, each party must make a full and fair disclosure of his financial status. Unless you have some kind of ability to do investigative research on your spouse or significant other to determine his/her status, it will be important for you to trust the other party to provide you with the information. It is also important that the prenuptial agreement not be unconscionable. In other words, that the terms are not wildly out of whack or unfair in relation to the circumstances at the time of its execution – i.e., his salary is $10 million per year, you make $50,000.
Depending on the state in which you live, there may be additional requirements for the enforceability of a prenuptial agreement.
Grasping What a Post-nuptial Agreement Means
A postnuptial agreement is signed after the marriage has begun. Sometimes it can be used in circumstances where the couple can agree to changes in the prenuptial agreement or determine what the terms of a property settlement in the event of a divorce on specific provisions (other than child support) can be.
In many cases, divorce or separation occurs without any planning whatsoever. As a result, spouses can be fighting over things that could have been easily resolved with a little bit of planning. For example, spouses have engaged in a long battle over social media passwords which can be handled with a simple postnuptial agreement or even a provision in a prenuptial agreement.
It also can be situations where a couple has a prenuptial agreement in place but one of the parties has become incapacitated and the other part wishes for the assets of the incapacitated party to be held in trust for the benefit of the incapacitated spouse.
The Primary Legal Distinctions
When it comes to the enforceability and validity of prenuptial and postnuptial agreements, both differ. To begin with, with regard to these documents, there is a distinction between the substantive law to be applied (i.e. the actual State Laws which our Courts are bound to apply) and the different procedural requirements which each document must meet.
This clerking firm considers this distinction to be extremely important because it is on the basis of this substantive law that the issues surrounding these documents need to be decided and without respect to any particular procedural requirements. As an example, whether or not a prenuptial agreement was brought about under procedural constraints which require a finding of anything other than fair and equitable (such as the so-called Statutory Requirements which dictate that a prenuptial agreement must be entered into no less than 28 days before marriage) does not in any way alter the fact that once that prenuptial agreement is properly found to have been entered into, the parties’ substantive rights under our statutory scheme to an Equitable Distribution and alimony are entirely severed and cannot be the subject of further negotiation between the parties.
This is not the case with postnuptial agreements. Even assuming that these agreements survive the requirements associated with past the statute, the Statute which recognizes such documents mandates that they enter into the provision that nothing contained in the agreement can eliminate the right to alimony. Therefore, one thing is certain about such agreements: they cannot be the subject of confirmation upon the resolution of a divorce case.
The Financial Implications & Clauses
Both prenuptial and postnuptial agreements can address a variety of financial issues, some of which may only be discussed in one context or the other, and some of which are common across both types of agreements. For example, property division is a common issue addressed in both pre and post nuptial agreements. A prenuptial agreement that pertains to property usually seeks to clarify whether the assets owned prior to marriage will be considered marital assets or not in the event of a divorce. For example, if prior to marriage, a parent purchases a house and the sole titleholder is the purchaser, upon his or her marriage, the prenuptial agreement could clarify that the spouse who was not the purchaser shall have no interest in the house in the event of a divorce and that the house remains the separate property of its purchaser. Many premarital agreements likewise address how income received during the marriage will be treated, what debt each spouse is responsible for, and also address the issue of support in the event of a divorce. For example, a prenuptial agreement might state whether a spouse is entitled to receive spousal support in the event of a divorce to an amount above or below the statutory level, whether such support shall continue indefinitely or terminate at some point, or whether the parties are contractually agreeing that spousal support shall not be awarded in the event of a divorce. Many prenuptial agreements provide in great detail what the parties have agreed upon that would otherwise be left up to the court’s discretion under the law. In some jurisdictions where prenuptial agreements are enforceable, parties need not rely upon the court to make these financial issues clear; they have become contractual obligations by the parties themselves through this process of advance planning and can be much more specific than the law.
A postnuptial agreement , like a prenuptial agreement, addresses the economic rights of the parties, but sometimes a postnuptial agreement may focus more on clarifying entitlements in the event of a divorce for the duration of the marriage. For example, if there is a substantial age difference between the parties and the couple has been married for ten years, it could be anticipated that the marriage, if it breaks up, will end after the shorter monied spouse retires and will last for a more limited duration. In that case, a postnuptial agreement can clarify how the issues of spousal support and the division of the marital assets shall be handled in such an event. In some instances, the duration of the marriage is even specified in the agreement, such as: this agreement anticipates that the marriage shall last a minimum of 15 years, with this being a critical component to the waivers of support and equitable distribution in reliance upon the duration of the marriage; however, if the marriage should last fewer than fifteen years, the support and equitable distribution shall be divided by taking into consideration that the marriage lasted less than fifteen years. With a postnuptial agreement, the parties are concerned about the financial impact of a divorce and perhaps also in protecting the stability of their family by providing the certainty of the safety net of the agreement should there be a divorce. The postnuptial agreement ensures that the parties will have thought out the issues, set them out in writing, and provide a roadmap in the event of a divorce to avoid litigation and disruption to the family. It also prevents the party who does not have the greater assets from being at a distinct financial disadvantage in the event of a divorce.
The Pros and Cons
Advantages and Disadvantages of Prenuptial and Postnuptial Agreements
Like any legal tool, both types of agreements have their advantages and disadvantages. Depending on your situation, these factors can play a major role in influencing whether one or both agreements is right for you.
One of the most important things to consider is when you realize you need one of these contracts. With a prenuptial agreement, time is on your side. You have the luxury of discussing all aspects of your finances and figuring out a fair solution with your soon-to-be spouse. A postnuptial agreement, however, usually comes into play when the relationship has already experienced significant turmoil, or when a partner suddenly realizes his or her financial vulnerability. Once contact with the other partner begins, it can be difficult to negotiate without re-living all of the pain and hurt that brought you to this very point in the first place.
Financial security is something that benefits both partners in a prenuptial agreement. With a postnuptial agreement, the agreement can safeguard assets, but not to the same extent. Any assets acquired during the marriage will still be subject to division. This may be very problematic for one spouse if they are putting their spouse through graduate school, while also working to put away money for retirement. If the spouse eventually decides the relationship isn’t working, he or she risks losing half of the retirement savings that were set aside during the marriage. Meanwhile, half of their spouse’s student loans will be shared by them as well, further hindering their own financial future.
Financial benefits for one party can often become a major source of resentment for the other party in a divorce. For example, if one spouse signs a prenup that stipulates that he or she must pay only half of the home’s equity if the couple separates, the aggrieved spouse must then struggle to pay their half of the home’s value following the divorce. All of the previously discussed negative impacts of failing to have a prenuptial agreement can occur with a postnuptial agreement as well. However, the court may not agree to enforce the terms contained in a postnuptial agreement.
For many individuals, the stress of signing either of these agreements is high. For this reason, the improvement of relationship quality following negotiations of either a prenuptial or postnuptial agreement tends to be a major benefit. The buzz surrounding each agreement makes it the focus of the couple’s attention, rather than the reasons behind that extraneous buzz. In most cases, the discussion of details and negotiation of terms will lead to a much better understanding of each other.
Regardless of the perceptions you hold of premarital and post-marital agreements, it’s critical that you talk to your spouse (or your soon-to-be spouse) about how these documents may affect you both. From there, you can determine whether the security and peace of mind that these documents provide actually outweigh the disadvantages.
How to Know Which is Right for You
When deciding between a prenuptial and a postnuptial agreement, couples should consider a range of factors including their individual financial situations, the nature and extent of their assets and debts, and whether their relationship dynamics warrant such a document.
Prenuptial agreements are most commonly associated with high-net-worth individuals who may want to protect their wealth should the marriage end in divorce. However, this stereotype alone does not mean that a prenup is the right choice for every couple, especially if they don’t have significant assets or if they are only just beginning to build up their wealth. In such cases, a postnuptial agreement may be more appropriate, as it allows the couple their best chance at determining how their property and finances should be handled in the event of a divorce without the pressure of doing so before they are even wed. In addition, many people of modest means overlook the fact that an affordable postnuptial agreement may save a great deal of time and money in the event of a divorce that cannot be agreed upon until some time after the marriage has occurred. With an affordable postnuptial agreement in place, there will be no evidence that one party was trying to take advantage of the other through the terms of the agreement, which could limit the legal battles in the future. Some couples may find that they do not even need a postnuptial agreement, as they are able to come to a verbal agreement outside of the court system. However, whatever agreement the couple comes to, it is important to consult with an experienced family law attorney to determine if a postnup is appropriate for that particular situation. Ultimately, each couple will have to make their own determination as to whether a prenuptial or a postnuptial agreement is best for them based on their circumstances and their relationships.
Legal Guidance & Final Steps
The importance of seeking counsel when drafting these agreements cannot be overstated. While an online template can provide a framework, legal counsel can ensure that the document is free of ambiguities and conforms to the laws in your state. Legal language and a more comprehensive approach will protect you and your partner from unintentional gaps or unclear terms.
When legally formalizing any type of agreement, the first step is to have drafts reviewed by your legal teams. The attorneys will ensure that the terms are in your best interest, and they’ll amend any questionable provisions for optimal clarity. The next step is to sign the documents in front of a notary . If you are creating a prenup, the document must be notarized before your marriage begins.
In the years that follow the signing of the document, you may wish to update the prenuptial or postnuptial agreement if your situation changes dramatically, such as after having children or receiving an inheritance. You can add to the existing contract to address these milestones; however, both parties will need to fully agree to the terms of the amendment.
In short, contracting either type of agreement has never been easier or so widely accepted. With state statutes encouraging these contracts, it makes sense to consult an attorney about implementing one.