What Is a Post Marital Agreement?
A post marital agreement can be a good way to refine or modify the financial arrangements made with your spouse in the event of a divorce or death. Many people think that they have supplied for all of the possible scenarios in their prenuptial agreement that was executed prior to the marriage. In many instances they have not. The post marital agreement can be a good option to fill in the gaps. Additionally, there are many marriages in which the couple did not enter into a prenuptial agreement at all. In these instances, a post marital agreement may fill the void of what they might have agreed to before they were married.
A post marital agreement is very similar to a prenuptial agreement but is entered into after a couple has been married. It is a contractual agreement entered into in order to "modify" prior agreements; reduce your marital rights; or accomplish new ones. A post marital agreement can be a great way to ensure that each side has what they want/need out of the marriage , particularly if one party has more assets than the other at the time of marriage, and/or you haven’t thought out how you will handle money in the event that you separate after a number of years of marriage, but you have children. There are many people who cannot make a decision now as to what they want out of a divorce, i.e., they want to preserve the status quo. A post marital agreement can be an optimal way to stipulate to a plan that will allow the couple the ability to remain in their current circumstances without having to make a quick decision.
These circumstances may include a couple buying a new residence; a business; engaging in a new enterprise; moving out of state; or making investments.
Elements of a Post Marital Agreement
Like any other type of marital agreement, post marital agreements – also known as postnuptial agreements – contain a number of key components. Generally, these components specify how a married couple’s assets and debts are to be divided in the event of divorce. While there is no required "legal formula" for determining how property is to be allocated in a post marital agreement, most agreements will separate each spouse’s marital property into three broadly defined categories: joint, separate (or premarital) and separate acquired during the marriage.
Separate Premarital Assets
At least some of a married couple’s assets are likely to be defined as separate, or premarital property. This is property that was owned by just one spouse prior to the marriage, or property received by one spouse before the established date of the marriage. If an asset can be proven to belong to just one spouse, it will typically not be divided between the spouses upon divorce; instead, it will be given solely to the asset’s current owner.
Separate Marital Assets
In addition to assets that are owned by one spouse prior to the marriage, marital assets generally include any acquired by either spouse during the marriage. Marital assets have no bearing over whether or not a couple is legally separated or living together – as long as the couple is legally married, assets acquired by either spouse can fall under the marital category. Unless separated in a post marital agreement, these assets are typically divided between both spouses if the marriage should end.
In many cases, marital assets are divided 50/50. However, this division is not necessarily mandatory; it is simply a common method. When deciding how marital property will be allocated, both spouses should consider factors including the following:
Assets with No Separate Owner
It is quite common for assets that have been acquired by either spouse or the couple to be held jointly. If an asset is jointly held – for example by both spouses – its ownership cannot be clearly assigned to just one spouse prior to the end of the marriage, and is typically considered a marital asset. Again, unless separated by a post marital agreement, the asset is usually divided between both spouses if the marriage should end.
Debt Liability
In addition to dividing assets, post marital agreements often assign liability for debt responsibility. While assets are typically divided equally between spouses, the same does not occur with debt liabilities. A post marital agreement can include the preemptive allocation of debt liability to one spouse, or can define whether debt acquired during the marriage is separate or joint with regard to liability. Keeping assets and liabilities clearly separated in your agreement can help clarify which spouse is responsible for which debts, thereby eliminating future disputes concerning what may or may not constitute marital debt.
Depending on the couple’s unique financial situation, debt obligations could be separated in a number of ways:
While some of the components of a post marital agreement do have standard legal requirements, there is a lot of flexibility when it comes to customizing components to fit a couple’s unique needs. A good attorney is essential in developing a customized agreement that meets your specific needs.
Executing a Post Marital Agreement: What You Need to Know
A specific contract formation procedure is required to create a post marital agreement. To be valid, a post marital agreement must be in writing and signed by both spouses. Neither spouse can be under duress, fraud or undue influence. Both spouses must provide the other with a full and fair disclosure of their financial circumstances before signing the marital agreement. This means that each spouse must know the other spouse’s income, debts and assets before signing the agreement. Failure to make this disclosure could lead to one or both of the spouses contesting the marital agreement in the future. If the court discovers that one or both of the spouses failed to disclose their income, debts or assets the court may set aside the marital agreement. It is important for both spouses to have independent legal advice before signing the post marital agreement. When both spouses do not have independent legal advice, the court may presume that duress was used to benefit the spouse who was provided the legal advice. In addition, the court may set aside the marital agreement if both spouses fail to provide each other with full financial disclosure.
Sample Post Marital Agreement Template
Below is a sample template that parties can consider as a starting point:
POST MARRIAGE AGREEMENT
THIS AGREEMENT made and entered into this ___ day of _____, 201___ by and between:
_______________ (the "First Spouse")
AND
_______________ (the "Second Spouse")
WHEREAS, First Spouse and Second Spouse (collectively, the "Parties") have each legally married or intend to lawfully marry each other on the ______ day of ________ 201___; and
WHEREAS, the Parties have been previously married and have children of those marriages; and
WHEREAS, the Parties recognize that their respective assets and marital rights may be subject to division by a court should they ever divorce; and
WHEREAS, the Parties wish to negotiate in advance a plan for the division of their property and set other standards for their relationship and thereby preserve their independence and freedom to act during their lives and after their deaths;
WHEREAS, the Parties understand that this Agreement becomes an official, legally binding contract or agreement upon being signed by both Parties;
NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the Parties agree as follows:
- Entire Agreement. This Agreement constitutes the entire and sole Agreement between the Parties. All prior understandings or agreements with respect to the subject matter hereof are superseded.
- Marital Pot. The Premarital Property of the First Spouse shall remain that spouse’s separate property and shall not be divided in the event of a divorce. The same applies to the Second Spouse’s Premarital Property.
- Alimony. The Parties hereby waive any right or interest that either may have to alimony from the other in the event of a divorce.
- Future Property. Should the Parties acquire property subsequent to their marriage, through inheritance or gift, or if either or both Parties receive a final judgment in a personal injury or workers compensation action, the future property owned or acquired by either or both of them shall be their separate property and that of their respective children from any prior marriage.
- Provisions Relating to Children. It is understood that the Parties cannot, by agreement, deprive or limit any of the former spouses’ rights to support or visitation with their prior children. This Agreement is not intended, and shall not be construed, to limit or deprive the Parties’ former spouses of their rights with respect to their former children.
- Death benefits. The Parties each shall have the right to name whomever they wish as beneficiaries under their respective insurance and retirement plans.
- Property Division Upon Divorce. In the event of the Parties’ divorce, all assets and properties jointly held by the Parties shall be divided equally unless the Parties mutually agree upon another different type of division.
- Modification. This Agreement may be amended or modified by a written document signed by both of the Parties. Any such amendment would be considered necessary by the Parties so long as it does not reduce the other Party’s rights as set forth in this Agreement.
- Governing Law. This Agreement shall be governed by the laws of the State of __________.
- Severability. If any agreement, clause, or provision contained in this Agreement is deemed to be invalid or against the public policy of ______________, then the same shall be severed and the remaining provisions shall continue in full force and effect.
- Binding Effect. This Agreement shall be binding upon the Parties and each of their heirs, assigns, executors, administrators, and personal representatives.
IN WITNESS WHEREOF, the Parties have executed this Agreement the day and year first above written.
__________________
Signature
_________________
Type or Print Name
___________________
Date
___________________
Signature
____________________
Type or Print Name
Pros and Cons Of Post Marital Agreements
The Benefits and Drawbacks of a Post Marital Agreement
Owning property individually versus as spouses is a common concern when one spouse has accumulated a substantial share of the couple’s assets prior to marriage. Clarifying these assets in what is called a post marital agreement is a smart, proactive way of establishing and preserving financial security during the course of a marriage. A post marital agreement has the potential of having a sizeable effect on the marital relationship. For example, in an agreement it is possible for a spouse to forego the presumption of marital property that occurs when one spouse contributes time and labor to the building up of the other’s pre-marital assets. Making that provision in an agreement also gives the spouse less to lose should the couple’s relationship end in divorce. On the other hand, a post marital agreement could be the first step on the path to divorce. If the spouse who owns the pre-marital assets views the agreement as a license to spend money freely, the other spouse might feel pressured to exert pressure for more frugal living – or worse, lose respect for that spouse which sets the stage for divorce. Similarly, stipulating in the agreement that there will be no spousal maintenance can mitigate the financial burden of a divorce. However , if one spouse earns considerably more than the other spouse, as can happen when one spouse has entered a high earning profession while the other has not (or when one spouse takes on most of the child care, allowing the other to seek career advancement), foreclosing the option of spousal maintenance could turn out to have negative consequences. It is a good idea for each spouse to weigh in with all the possible outcomes of their choice. Each scenario should be discussed in detail and understood before the decision is made to include either provision in the written agreement.
Perhaps the best benefit of a post marital agreement is that it serves to lower the uncertainty and stress of the unknown that so often accompanies potential divorce. It lays out parameters so that neither spouse is surprised by the efforts that will need to be made to settle the marriage in the event of divorce. It can specify such things as: The possibilities for a post marital agreement are many. What matters is that both spouses have a say in setting the terms. To do that, each needs to understand every aspect of the agreement and how it will affect the marriage in both normal and unusual situations. Only then is an agreement effective in the long run.
Common Mistakes When Drafting a Post Marital Agreement
Post marital agreements can be a great tool to help a relationship establish guidelines for financial and legal issues that may arise during the marriage. However, these agreements can also lead to greater discord between the parties if not carefully drafted. Below is a list of common mistakes couples make when drafting a post marital agreement.
- Any parties entering into a post marital agreement should have independent legal representation. A post marital agreement is legally binding, and the courts will likely enforce it. Couples should be aware of what rights they are giving up, and an experienced attorney can help with that. With that being said, some attorneys can focus on the wrong aspects of an agreement. This can lead to a conflict of interest when negotiating both parties interests in the drafting of a post marital agreement. The key term to keep in mind here is independent legal representation. When drafting your own post marital agreement, or hiring a lawyer to do so, it is important to focus on what is important to you, not necessarily your perceived needs or wants of your spouse.
- The majority of post marital agreements only cover issues of finances and property. Parties may incorrectly assume that these agreements can also cover issues of child custody, visitation and parenting time. While a post marital agreement can address issues such as who gets the house in the event of death or divorce, the general child custody and visitation laws will apply, and therefore should not be addressed in your post marital agreement.
- Many post marital agreements can be too vague, or contain certain language that voids the entire agreement. If the purpose of a post marital agreement is to legally protect each party, then the content and wording of the agreement must be clear and precise. Ambiguous clauses within a post marital agreement can open the door for a court to invalidate the entire agreement.
- If a post marital agreement is drafted after the marriage has commenced, then one party may be under duress during the negotiation process. The need to sign the agreement out of fear of losing the partner or fear of losing the marital assets can lead to an unfair agreement. Therefore a post marital agreement should be signed with 6 months to a year of being together.
- Many post marital agreements may include time frames, leaving the spouse with no option after the time frame has expired. For example, say a post marital agreement states that if the partner travels out of the country once a month, he/she will lose custody of the children. If the spouse stops traveling out of the country for a few months, the agreement provides him/her the right to visit his/her children again. For this reason, clear time frames should be established for any clauses that need to be reviewed by the court after a certain period of time.
- The majority of post marital agreements include confidentiality clauses; however, these clauses may not always be valid in a court proceeding. If one of the parties is still dealing with childhood trauma, healthcare problems, mental health, etc. those issues must be laid out in court.
Examples of How Post Marital Agreements Could Work
A few years ago, a couple came to see me regarding the potential for a post marital agreement. John and Jane were a young couple in their mid-thirties with two daughters. John was a physician and Jane was a successful interior designer. They came to see me regarding their net worth. We valued the account balances in their 401(k) and retirement accounts, bank accounts, business interests, and other assets as well as reviewed their individual debts. Their net worth was similar prior to the marriage. After a review of their assets, we talked through various issues they had and how one another would like to address those issues and any concerns. The parties agreed that John’s medical practice would be his separate property. Jane would like to keep her specialized design business separate. They both discussed with me what they would be fair to one another and come up with an agreement. We prepared a post marital agreement and easily worked through any potential issues. The agreement was signed and a few weeks later, they came back to see me. They had decided to buy a new home together and they wanted to know how to deal with the issue of a house. It was agreed and understood that if they were to separate or divorce, if the house or any equity in the house were to be sold, they would each receive down payment back as well as 50 percent of the appreciation in value. Now that they had an agreement, they felt comfortable moving forward and buying the house.
About six months later, the parties came to see me again. They had decided to sell the house in a dispute over the management of another one of their properties that was being rented and they figured it was best to move out of state with one child in college and one at home so they sold the property. They came to see me regarding how the other property should be divided. They had decided to make the house with value a rental property and had already been receiving monthly income. They decided that the entities would be owned as joint tenants and as a result, if they were to separate and/or divorce , they would split the rent and sell the property and obtain current appraisals to determine the existing value with each party receiving one-half of the profits. The parties decided it made sense to draft an additional agreement and for me to prepare a quit claim deed to complete the transaction and finalize the agreement.
Fast forward three years, and the parties decided that they wished to move back to the North East. Once again they came to see me. After seeing the properties and hearing more about the location, I agreed with their plan to have the North Carolina property become the vacation home and they would list their other rental for sale. Most of the trial court judges in these cases are deciding that two homes is unreasonable and that the parties have become accustomed to living beyond their means. Once again the parties were happy with the plan and with my advice.
I have also had a recent hypothetical scenario come through my office. Joe and Molly came to see me regarding a post marital agreement. The husband was a business owner and was prior married. The husband had had one owner spouse buy-out agreement that he had set up for his LLC interests. The agreement was signed by all of the owners. At that time, he had a divorce attorney who drafted the first post marital agreement. The agreement created an internal buy-out agreement and a full valuation with discounts for a minority ownership interest. Fast forward five years with Joe and Molly, and Joe was now married to Molly; the business agreement and valuation needed to be revised. The partnership agreement needed to be re-evaluated and a new agreement for a buy-out agreement and valuation was created. The parties drafted new escrow agreement and agreement as to whether or not Joe would be able to sell the stock and/or equity an appreciation for succession planning. I think these are two good examples for readers to understand how a post marital agreement can work. Often, people use them for legal protection, but the real benefit is often to mitigate the conflict. It is a form of preventive medicine for relationships.