The Rise of Post-Nuptial Agreements

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Post-nuptial agreements are becoming more popular with wealthy couples.

These agreements, unlike their better-known sibling, prenuptial agreements, are signed after the wedding—sometimes years later.

Like prenups, post-nups are contracts that primarily spell out how assets and liabilities would be split upon divorce or death. They can address how the entire marital estate will be divided or carve out just how one property will be treated upon divorce.

In a survey last year by the American Academy of Matrimonial Lawyers, 50% of divorce lawyers cited an increase in spouses seeking post-nuptial agreements during the past three years.

Common reasons for an individual to suggest a post-nup to his or her spouse are to punish the partner for bad behavior, such as infidelity, or to show commitment to a fractured marriage by guaranteeing a richer settlement for the partner if things don’t work out, lawyers say.

The contracts are also used when, for other reasons, spouses want to change the financial agreements set in a prenup.

In some families with considerable wealth or a family business, an older generation may pressure their adult children to have prenups or post-nups as a condition for being named beneficiaries for some assets. And some people decide to seek a post-nup rather than proposing a similar agreement before the wedding.

“It’s a less-loaded [discussion] than the ‘Please sign here before we walk down the aisle,’” says Michelle Smith, a financial adviser in New York who specializes in divorce.

Punish a spouse and protect assets

One of the most common reasons couples sign post-nups is because one of the parties committed marital misconduct, such as an affair, and the offended party doesn’t want to give up any rights in a divorce by forgiving the spouse, says Joslin Davis, president of the American Academy of Matrimonial Lawyers.

For example, in a state such as North Carolina that allows its courts to consider marital fault when determining alimony, a wife can use a husband’s infidelity as a factor for more alimony. But if she takes him back after he cheated, she may lose that leverage, Ms. Davis says.

As a condition of taking him back after the infidelity, the wife might demand a post-nup.

Alternatively, the husband, in an effort to show he wants to work on the marriage, might offer his wife a post-nup that says he will transfer an asset, such as his stock portfolio, to her now and have that asset not be considered a marital asset in case they later divorce. The post-nup might stipulate that the wife won’t be able to both keep the stock portfolio and use the affair against the husband in a future divorce proceeding, Ms. Davis says. The portfolio is, in effect, a payment to her for forgiving him.

Couples should be aware that states vary in their enforcement of post-nups, which are essentially contracts in which spouses waive certain rights that they would otherwise be entitled to under state law, Ms. Davis says.

For instance, Ohio doesn’t recognize post-nups and Minnesota only recognizes post-nups if each spouse is represented by his and her own attorney.

Courts scrutinize post-nups more closely than prenups which makes them harder to enforce, Ms. Davis says. Because spouses are supposed to take care of each other, courts don’t look kindly on agreements in which one spouse agrees to give up rights or assets he or she would be entitled to receive in a divorce.

Certified financial planner Vickie Adams suggested a client seek a post-nup after the woman found her husband’s name in the information dump after the hack of infidelity site Ashley Madison. While the woman wanted to reconcile with him, she was also troubled to discover that he had refinanced their home and siphoned off $400,000 in equity, says Ms. Adams, in Manhattan Beach, Calif.

The post-nup was drafted so that in the event of a divorce, the wife would get the house and the husband would assume full liability for the home-equity line of credit and credit-card debt he had taken on without her knowledge.

A post-nup can have a good effect on a marriage as it clarifies a couple’s financial information and what each person is entitled to, according to Maggie Baker, a Wynnewood, Pa., psychologist who helps couples with money issues. It can also be a good idea in families where one or both spouses have children from prior relationships and the children have financial expectations of their parents, she says.

However, “to suggest a post-nup in an insecure relationship may be experienced as a breach of trust and do irreparable damage to the marriage,” Ms. Baker says.

To update the prenup

As more couples sign prenups, more are likely to sign post-nups later on, attorneys say.

When a client of Austin Frye got married, his fiancée decided she liked a thinner version of him. Their prenup provided that the wife was entitled to an extra $150,000 property settlement if the husband weighed over 220 pounds at the time of her divorce petition, the Miami attorney and certified financial planner says.

“Ten years later the clause didn’t seem so cute anymore to the husband,” Mr. Frye says. The wife agreed to drop it.

Mr. Frye also created a post-nup for a couple in which the husband was insecure about the future of the marriage and agreed to his wife’s purchase of a business only if she agreed that any future debts and liabilities of the business would be solely her responsibility.

Sometimes couples sign post-nups for positive reasons, says certified financial planner Thomas Bentley. He worked with a client who wanted a post-nup to give his wife a more generous share of his net worth than their prenup had provided. His net worth had increased over the years and he attributed his success to her always being there for him, says Mr. Bentley in Cincinnati.

To keep the family happy

In some families, an older generation wants heirs to sign prenups or post-nups to ensure their family’s business stays within the bloodline and isn’t at risk if the child were to get divorced.

For example, a client of Christian Aaron Pickney, a lawyer in Mineola, N.Y., wanted to transfer a partial interest in his multi-million dollar business to his married son. “Even though the happily married son was hesitant to approach his wife, the father made it clear without a post-nup, the son’s name would never go on the business,” Mr. Pickney says.

Brian Cohen’s client didn’t want his son-in-law’s two adult children from a prior marriage to inherit any of his million-dollar wealth. Rather, the Melville, N.Y., wealth adviser’s client wanted only his two biological grandchildren to eventually inherit his money. He required his daughter to sign a post-nup with her husband that said that any inheritance she received wouldn’t be part of a divorce settlement. “The client was reassured the inheritance would go as intended” if his daughter divorced, Mr. Cohen says.

Mr. Pickney says in a post-nup both parties should be represented by independent, separate counsel. Courts have invalidated post-nups where one of the parties was unrepresented or the representation of one of the spouses by an attorney “selected” by the other spouse was found to be lacking.

For a free consultation, please do not hesitate to call the experienced family law and divorce attorneys at Maya Murphy, P.C. in Westport, CT at 203-221-3100. We may also be reached for inquiries by email at JMaya@mayalaw.com

Source: The Wall Street Journal