Modern marriage issues: Postnup agreements

“’Till death do us part” can be a long time, and financial and life circumstances can, and likely will, change from the relationship your clients had on their wedding day. A newer type of legal document called a postnuptial agreement, or postnup, can help to adjust expectations in the relationship around financial division of assets in the event of a divorce.

Postnups have become more common and enforceable since “no fault” divorce statutes came about in the 1970s. You’re probably familiar with a prenup, a financial document drawn up prior to marriage with a division of assets to be applicable in the event of divorce. Consequently, a postnup is drawn up after marriage for a variety of reasons, including the lack of ability to create a prenup prior to the marriage, or life and financial circumstances changing.

This type of agreement is becoming more popular and common, especially as modern relationships have new financial challenges. If you’re advising clients on issues related to life-changing events, then you’ll want to learn more about postnups.

Why a couple would need a postnup

Life changes and the situation when a couple got married may have changed. Some of the reasons your clients may want to consider a postnup include the following:

• One spouse entered the marriage with significant wealth, and no prenup was created.
• You have a blended family and want to ensure that the children from previous marriages have equitable rights to your estate.
• A spouse receives a large inheritance, and the future of the marriage is uncertain.
• You or your spouse leaves the workforce to help the other, or makes a significant career sacrifice for the other’s benefit.
• One of you owns a business and wants to make sure that the potential division of business assets is fair.
• There is a substantial amount of debt tied to one spouse, and you want to ensure that this does not become divided in a potential divorce.
• Some states are called “community property states,” which means that in the event of a divorce, all assets will be split 50/50 regardless of what each spouse brought into the marriage and what was contributed during the marriage.
• One spouse may have spending or gambling habits that are causing financial trouble in the relationship.

Besides a focus on divorce, a postnup can also be a useful tool for estate planning or relationship trust-building by putting expectations on paper. 

How to draw up a postnup

While your clients do not need a lawyer to draft this kind of agreement, it is highly recommended to consult with one to ensure that the document is legally enforceable, no blind spots have been overlooked, and that you are aware of any specific postnup laws applicable in your state. This is no different from calling in an attorney or other professional to work with your clients in areas unfamiliar to you.

A few pointers:

• A postnup is required to be in writing, signed by both parties voluntarily with a notary, and without terms that are unfair or one-sided. Both spouses need to fully disclose all their assets and liabilities, including debt and/or financial obligations, to each other in order for the agreement to be considered valid.
• You may also wish to include a choice-of-law provision that designates which state’s laws apply. For example, if your clients live in a state that has friendlier provisions for postnups, but might divorce or pass away in a state with different laws.
• This type of agreement may not be for every marital situation. If both spouses are not on the same page about the necessity of an agreement, it may cause tension and communication issues. In any negotiation around a postnup, honesty and communicating clear objectives are key to ensuring that both spouses’ needs are met and that the agreement is fair.

Pro tips to help you have the postnup discussion

• Begin the conversation proactively when both spouses are happy in the marriage, and in a headspace around creating additional security and peace of mind.
• Remember that this agreement does not mean an inevitable divorce; it’s part of a diversified financial planning strategy.
• Get the clients to discuss how they would each want assets to be divided in the event of a divorce, fully disclosing to each other all of their assets and debt, including future potential assets such as inheritances.
• Determine spousal support, especially if one spouse has stayed at home or made sacrifices in their career for the other spouse.
• You can discuss certain conditions for divorce proceedings, such as requirements to go to counseling, mediation, or a cooling-off period before filing. 
• Ensure both spouses have adequate time to read and evaluate the agreement so that it is considered beneficial to both of them. If one spouse feels they were coerced into signing, it may make the document unenforceable.
• Make a commitment with your clients to review the postnup periodically to ensure that it still makes sense and update it for any new circumstances.

A postnup can be an additional layer of security on a robust financial plan, and the discussions around assets can create a new sense of honesty and communication in a marriage. If clients choose to create a postnup, remember to encourage them to communicate honestly, seek legal advice, and keep an open mind around what’s best for both spouses.

Editor’s note: This article was also published by the CPA Practice Advisor.