Postnuptial Agreement

A postnuptial agreement is a contract between people who are already married, settling how property, debts and support will be treated during the marriage and if it ends by separation, divorce or death. In the Uniform Premarital and Marital Agreements Act it is called a marital agreement, defined as "an agreement between spouses who intend to remain married which affirms, modifies, or waives a marital right or obligation during the marriage or at separation, marital dissolution, death of one of the spouses, or the occurrence or nonoccurrence of any other event," and the term includes an amendment, signed after the spouses marry, of a premarital agreement or an earlier marital agreement.

It is a creature of state law, so the formalities, the defenses to enforcement and the subjects it may reach are set by whichever state's law would govern. Some states have enacted the uniform act, and the citations on this page are to North Dakota's enactment as a worked example of the act's structure; others apply their own statutes or common law, and the standards differ.

The line the uniform act draws, and the one most consumer guidance misses. Section 14-03.2-02(3) of North Dakota's enactment puts two agreements outside the act entirely: "an agreement between spouses which affirms, modifies, or waives a marital right or obligation and requires court approval to become effective," and "an agreement between spouses who intend to obtain a marital dissolution or court-decreed separation which resolves their marital rights or obligations and is signed when a proceeding for marital dissolution or court-decreed separation is commenced." Two facts separate a postnuptial agreement from a separation agreement, then: the spouses intend to remain married, and no dissolution proceeding has been commenced. Once a case is filed, the couple is negotiating a settlement, which is a different instrument reviewed under different rules.

What the agreement is allowed to be about. The act defines "marital right or obligation" as any of five things arising between spouses because of their marital status: spousal support; a right to property, including characterization, management and ownership; responsibility for a liability; rights to property and responsibility for liabilities at separation, marital dissolution or death of a spouse; and award and allocation of attorney's fees and costs. Characterization is the item that does the most work in practice, because it lets a couple agree in advance whether a business interest, an inheritance or the appreciation on a premarital asset is separate or marital property, rather than leaving it to be argued later.

Formation is simple; enforcement is where the conditions live. The agreement must be in a record and signed by both parties, and it is enforceable without consideration, which resolves an old objection that a couple already married has nothing new to exchange. It takes effect on signing. Under section 14-03.2-08 it is unenforceable if the party resisting it proves that consent was involuntary or the result of duress; that the party did not have access to independent legal representation; that, absent independent counsel, the agreement lacked either a conspicuous notice of waiver of rights or a plain-language explanation of the rights being modified or waived; or that the party did not receive adequate financial disclosure before signing. The act spells out what each of those means, including a definition of access to counsel that turns on having a reasonable time to find and consult a lawyer and on the other party either being unrepresented or agreeing to pay reasonable fees.

Two backstops survive even a properly formed agreement. If the agreement modifies or eliminates spousal support and that causes a party to become eligible for public assistance at separation or dissolution, the court may require the other party to provide support to the extent necessary to avoid that eligibility. And a court may refuse to enforce a term that was unconscionable when signed, or whose enforcement "would result in substantial hardship for a party because of a material change in circumstances arising after the agreement was signed." Both questions are decided by the court as a matter of law.

Terms that do not bind, whatever the agreement says. Section 14-03.2-09 makes a term unenforceable to the extent it adversely affects a child's right to support, limits a remedy available to a victim of domestic violence, purports to modify the grounds for a separation or dissolution, or penalizes a party for starting a proceeding. A term about parental rights and responsibilities is not binding on the court at all.

The retirement-plan point, which is where a postnup can do something a prenup cannot. A prenuptial agreement cannot waive a spouse's survivor rights in a workplace retirement plan, because federal law requires the consent of a spouse and a fiancé is not one yet. A postnuptial agreement is signed by a spouse, which removes that obstacle but does not by itself satisfy the rule. ERISA section 205, at 29 U.S.C. 1055(c)(2)(A), requires that the spouse consent in writing, that the election designate a beneficiary or a form of benefits that cannot be changed without further consent, and that the consent acknowledge the effect of the election and be "witnessed by a plan representative or a notary public." A waiver buried in a postnuptial agreement that meets none of those formalities is not a plan consent, and the plan will pay the surviving spouse.

Why postnuptial agreements are scrutinized differently from prenuptial ones. A couple negotiating before marriage are legal strangers dealing at arm's length. Spouses already owe each other duties, and in a number of states those duties are described as fiduciary or confidential, which affects how a court reads a bargain struck between them. The uniform act responds by applying the same enforcement section to both instruments; states that have not enacted it may apply a stricter standard to a postnuptial agreement, so the governing state's law is the thing to establish first rather than any general rule.

Spouses who intend to stay married identify the rights they want to fix in advance: which assets are separate, how appreciation and income on those assets will be treated, what happens to a liability one of them brought in, whether spousal support will be limited, and what each will receive at the other's death. Each spouse discloses their property, liabilities and income, or expressly waives further disclosure in a separate signed record. Each has a real opportunity to consult their own lawyer, and if one does not, the agreement carries the conspicuous notice of waiver of rights the act prescribes. Both sign, and the agreement takes effect on signing.

A hypothetical example of what the agreement changes. Ana receives a 25 percent interest in her father's company, worth $600,000 at the time of the transfer. Property received during a marriage by gift or inheritance is generally separate property, but the couple live in a state where a spouse's labor contributing to the growth of a separate business can give the marital estate a claim on the increase. Ana works in the business for the next eight years, and the interest grows to $1,500,000. Without an agreement, the $900,000 of growth is the contested number, and its characterization turns on how much of it a court attributes to her labor rather than to market conditions. A postnuptial agreement characterizing both the interest and its appreciation as separate property, in exchange for whatever the couple negotiate in return, removes the question. The figures are illustrative; whether a court will enforce such a term depends on the governing state's law and on the enforcement conditions above.

Pros

• It answers a question that arises after the wedding, which is when most of the facts worth contracting about actually appear: an inheritance, a business interest, a career change, or a debt one spouse takes on.
• It can characterize property and its appreciation by agreement, which is cheaper and more predictable than litigating the same question years later under state tracing rules.
• It needs no consideration, so the old objection that married spouses have nothing new to exchange does not defeat it.
• Signed by a spouse, it can carry a valid waiver of a workplace plan survivor benefit that a prenuptial agreement cannot, provided the federal consent formalities are satisfied.
• It is a death document as much as a divorce document, which matters in a second marriage where each spouse has children from an earlier relationship.

Cons

• Spouses are not strangers dealing at arm's length, and a court reviewing the bargain knows it. Enforcement standards are state law and are not uniform.
• Several defenses to enforcement turn on process rather than substance: voluntariness, access to independent counsel, the required notice or plain language explanation, and adequate financial disclosure.
• A term can be refused enforcement long after signing if a material change in circumstances would make enforcement a substantial hardship.
• It cannot reduce a child's right to support, cannot bind a court on parental rights, and cannot displace the public-assistance backstop on spousal support.
• Raising it inside a functioning marriage is a hard conversation, and the circumstances in which one spouse most wants one are often the circumstances in which the other is least willing.