What is a Prenuptial Agreement?
Considered by many to be taboo, prenuptial agreements are on the rise. You might think of a prenuptial agreement as only for the wealthy, but the truth is that any engaged couple, regardless of their wealth can find a prenuptial agreement beneficial. A prenuptial agreement is a contract between two people, establishing against what property each of them will be responsible, and how the assets will be divided, in the event of their divorce.
In general, the purpose of a prenuptial agreement is to clarify the rights and responsibilities of each person in a marriage in accordance with their wishes and to save them from going to court later. While it is very important to not simply cut and paste an agreement from the internet or otherwise, there are several common provisions included in prenuptial agreements . Some of those provisions include: disclosure of assets; rights to manage business during the marriage; rights to alimony or spousal support; division of property upon death and/or divorce; retirement benefits; debt allocation; and even pet custody arrangements.
Some of the more unusual items include: how taxes are to be paid and the allocation of tax refunds or credits; the furnishing of a written accounting, during the marriage if the couple owns or co-owns a business; how possible infidelity may effect a particular provision; waivers of jury trials; and waivers of alimony.
Just as every marriage is different, so too can be the provisions of a prenuptial agreement. There are virtually limitless possibilities!
Postnuptial Agreements
Postnuptial agreements differ from prenuptial agreements in that they are executed after the marriage commences. Up until the 1960’s, these agreements were not enforceable under Connecticut law. In 1969, the Connecticut Supreme Court in McHugh v. McHugh held that postnuptial agreements are enforceable if they satisfy the "contract principles" defined by the Connecticut Supreme Court in the leading prenuptial agreement case of Soley v. Soley. Postnuptial agreements are more limited in scope as the parties must have made their agreement, which must be in writing, during the marriage.
People often wonder why after they are married they would want to make an agreement with their spouse concerning marital property. Connecticut General Statutes §46b-36 provides what is a postnuptial agreement and §46b-37 describes its requirements for approval by the trial court to be included in a divorce decree or separation agreement. People enter postnuptial agreements because over time their wills and desires have changed during their marriage, or their circumstances alter in a dramatic manner due to changes in their health, financial status or behavior. In addition, the postnuptial agreement could govern the disposition of property upon an individual’s death. For instance, there is no allowance for electing a spousal share of an estate after a divorce decree is issued. A postnuptial agreement could address the division of property, assets and debts in consideration of that person’s now deceased, former spouse’s, wishes and will.
The postnuptial agreement is subject to court review and would not be enforceable if it was unfair or encourage divorce. A fact specific analysis of each case is required to ensure that the terms of the agreement are legally acceptable and the parties are not deprived of due process and proof of the elements of contract law exists.
There are many reasons why people enter postnuptial agreements. It can be the Case that one spouse did not have sufficient time to have their attorney review a prenuptial agreement that was prepared prior to marriage or that unforeseen circumstances prevent the couple from having a prenuptial agreement. Often the couple realizes that over the span of their marriage their positions have changed because of inheritance, changes in income or health issues where the possibility of divorce is unlikely but they want mutual protection of each of their interests. Social security or pension benefits may change in the future or survivors benefits could be affected in the event of death of a spouse. When one spouse wishes to preserve their estate planning goals in the event of death, a postnuptial agreement should be considered.
Differences Between Postnuptial Agreements & Prenuptial Agreements
The key differences between prenuptial and postnuptial agreements encompass the timing of the agreements, their enforceability, and the types of clauses and provisions typically included in each.
Timing: Prenuptial agreements are signed before marriage, while postnuptial agreements are entered into after the marriage or civil union has commenced. The timing does not impact the validity of an agreement as long as each party is represented by independent counsel. Courts have consistently held that if a party elects to proceed without independent counsel, the contract may still be valid if it meets the statutory requirements for a marital agreement as set forth in the statute. This is true even when the agreement is entered into prior to marriage, after marriage and before separation, or after separation. An experienced family law attorney can help explain the benefits and potential drawbacks of signing an agreement before or after the marriage or civil union commences.
Enforceability: When entering into a marital agreement, one of the requirements under the statute is that each party must be independently represented. While entering into an agreement without the advice and consent of independent legal counsel will not inherently invalidate the agreement, it does create a rebuttable presumption that a party convincingly establish that the terms of the agreement are unfair and that the interests or rights of the other party were not properly protected. Courts have recognized that "unfairness" must be viewed in terms of the circumstances then existing as opposed to how they might have developed in the future.
Common clauses: The types of clauses or provisions included in a prenuptial agreement usually differ from those typically included in a postnuptial version. For example, it is not unusual for a prenuptial agreement to include provisions regarding the division of assets and liabilities in the event of divorce and/or death (especially in the case where one of the parties has children from a prior relationship or marriage). Leaving aside the possible division of property upon divorce, provisions tend to focus more on the distribution of property upon the death of either party, considering estate planning needs and anticipated changes (the addition of children, etc.). Common clauses in a postnuptial agreement, however, address the division of assets and liabilities upon separation and divorce only, as this agreement is normally entered into following the breakdown of the marriage or civil union.
Benefits of a Prenuptial Agreement
A prenuptial agreement can serve several important benefits, in addition to being an opportunity to protect your assets. By establishing terms in advance, you can save time in the future in the event of a separation or divorce.
Financial Planning
In most cases, determining how assets will be divided when a marriage ends requires time and legal proceedings. Reaching an agreement with your spouse in advance can help minimize the time and help save money on legal fees, eliminating the need for litigation that may only generate greater conflict.
Preventing Conflict
When issues are already determined prior to a divorce, it’s less likely that those issues will become points of contention. When children are involved, this can be especially valuable. It’s also worth knowing that if you have a prenuptial agreement, your spouse cannot make a claim against your future earnings. If you already have children from a previous relationship, you may want to protect assets intended for your children’s education. The Spousal Protection Act protects this as well.
Protecting Assets
If you own a small business or other assets, a prenuptial agreement can help ensure that these assets aren’t at risk during a divorce. If you purchase or inherit property during your marriage, your spouse may be entitled to some of these assets, as well; a prenuptial agreement can help clarify ownership.
Setting Expectations
Determining expectations before marriage can help you and your spouse more easily arrive at a solution that works best for you both. A prenuptial agreement is an invaluable opportunity to make plans for the future in a proactive way.
Benefits of a Postnuptial Agreement
A postnuptial agreement can address any change in financial status. For instance, if one spouse receives a significant inheritance after getting married, a postnuptial agreement can be put in place to specify the property is not marital and exempt from equitable distribution in the event of divorce or separation.
Additionally, if one spouse starts a business during marriage whereby the value of the business significantly rises, a postnuptial agreement can be utilized to specify the date the business began or otherwise address how the business is going to be valued in the event of a divorce. This agreement can also address payments to various family members, whether or not the spouse who started the business will receive limited compensation or otherwise a fair market rate during the marriage or for the period of time the party owns the business. The agreement can address what will happen to the business in the event of divorce, including whether any increased value during the marriage is marital property to be divided when the parties’ divorce.
Another benefit of a postnuptial agreement is that it can alter the terms of alimony. Perhaps one spouse has a very lucrative career and earns much more than the other spouse. The parties can enter into a written agreement which addresses how long alimony would be paid , whether it is paid in the event of a divorce or otherwise in the event of a separation, how the amount will be determined and various other terms. The parties in a postnuptial agreement can also waive rights to alimony. If both spouses are similarly situated with regard to their earning potential, they can waive alimony or alternatively agree to pay alimony for a period of time equal to the number of years married. On the contrary, if there is a significant disparity in the income of the parties, the one who will likely get alimony may waive rights to alimony, in the event of a divorce.
With a postnuptial agreement, parties can waive their rights to equitable distribution in the event of a divorce. The agreement can address what will happen to certain properties or businesses in the event of a divorce, even if the only reason the agreement addresses the property is to address who will be more likely to receive the property in the event of a divorce.
Legal Requirements of Each Agreement
It is crucial that both prenuptial and postnuptial agreements be drafted properly in order to avoid challenges later on. The same rules apply to both agreements. They must be supported by consideration, must be entered into voluntarily, and must be conscionable under the circumstances.
Most importantly, if a spouse challenges the agreement later on, he or she must do so within the statutory time period after the marriage is completely dissolved, i.e. the ink must be dry.
Consideration for either a prenuptial or a postnuptial agreement can include anything of value, such as an agreement to marry, an agreement to stay married, an agreement to perform certain services, or the waiver of an opportunity for a divorce in exchange for financial benefits.
Both spouses must enter into the agreement voluntarily. In order to meet the "signature test," the attorneys must be able to state on notice that they advised each client not to sign the agreement without having the agreement explained to them by independent counsel.
As with any contract, if an agreement is too unjust it may be found unconscionable. But this rarely happens because parties usually have the right to contract freely and often differ in their ideas of right and wrong when they enter into these agreements.
Section 7.70 of the Texas Family Code provides that: "A pre-marital or post-marital agreement is enforceable without consideration and is not subject to the statute of frauds if the agreement is signed by the affected party. A pre-marital agreement is enforceable without regard to the time of its signing, and a post-marital agreement is only enforceable if all of the signing parties have signed it before the 30th anniversary of the date of the marriage."
However, if the family law attorney is attending to the unpleasantries of protecting the client’s future on the possibility that the marriage will end unhappily, the administrative, business-like process of drafting, negotiating, and executing these agreements requires an honesty and thoroughness so that the consumer does not feel duped after the divorce is decreed; and we the family law attorneys are often portrayed as the villains over in the Family District Courts.
How to Determine What is Right for You
Typically, the right time to consult with a family law attorney about whether to enter a prenuptial or a postnuptial agreement, or whether such agreements are appropriate, is as soon as one and one’s fiancé get engaged. Determining whether to enter a marital agreement is a personal decision that involves an assessment of particular circumstances, such as the following:
• the age of the parties at the time of their marriages;
• whether significant assets are involved;
• the existence of children from prior relationships;
• the disparity between incomes and/or assets;
• whether one party has an ownership interest in a closely held business;
• whether there are a proposed spousal support payments;
• the parties’ respective career paths; and
• the proposed distribution of property at divorce .
The answers to the foregoing questions can serve as framework to help a couple determine the specific terms of any proposed agreement. It is also important to remember that entering into a marital agreement does not have any impact on whether a couple will get divorced in the future, or whether the divorce will be contested or amicable. Instead, the decision to enter an agreement is made based upon the individual circumstances of a couple before marriage. Once you contact a family law attorney, you will be able to assess your situation and determine if a prenuptial or postnuptial agreement is in your best interest.