21 Apr Why Do I Need A Postnup When I Have A Prenup?
The primary differences between a prenup and a postnup are in the alternatives if an agreement is not made. A prenup is put together prior to marriage, and a postnup handles the details after the vows have been made.
If no agreement is made on a Prenup, each fiancé may walk away without a divorce or community property to divide. After marriage, the alternatives to reaching agreement are divorce or stay married with no enforceable marital agreement. After marriage, it’s not as clear how assets and debts should be allocated. Each spouse may feel entitled to an asset acquired jointly, or might want the other to be responsible for a joint debt.
Postnups allow couples to deal with the important, difficult-to-talk-about issues after the wedding is out of the way, and once the couple has settled into its new routine. It may not sound like a fairy tale, but addressing the tough money and property concerns this way can ensure the charged up, pre-marital emotions don’t get in the way.
Marriage isn’t getting easier for U.S. couples. Almost half (44 percent) of first marriages end in divorce. The picture is even more dire for couples entering their second marriage, as up to 80 percent of those fail. Clearly, there is a place for nuptial agreements, whether they come before or after the ceremony.
What is a postnuptial agreement?
In short, it’s much like a prenuptial agreement, only it happens after the wedding. In Texas law a postnup is called a partition and exchange agreement. 4.102 of the Texas Family Code refers to partitioning and exchanging community property into the separate property of each spouse. It is the same as a postnup, a postnuptial, or post-marital agreement.
Many couples don’t consider the complex entanglement of financial assets that occurs as soon as both people say “I do.” That’s not to say that postnuptial agreements are only concerned with money and assets, but that is what they primarily address. In some cases, both parties can come up with some creative additions to an agreement, like a penalty if one commits infidelity.
The only thing that postnuptial agreements may not cover are specifics regarding child custody or limiting child support. A postnuptial agreement can’t force a spouse to commit a crime either, but that should go without saying. As for children, courts have decided, wisely, that it’s more important to determine what is in the child’s best interest at the time the decision is made, rather than just following a contract when a child’s well-being is at stake. This same thought process governs child support as well, except that minimum levels of support are enforceable. The agreement cannot limit the amount of support that might be required.
A postnuptial agreement must meet a set of criteria to be considered valid. They include:
- Must be written – Courts will not enforce anything other than a written agreement.
- Must be signed – Both spouses will need to sign the agreement, and it should be notarized, but that is not required by law.
- Must be agreed upon voluntarily – If one spouse coerces, threatens or deceives the other party to sign the agreement, it will not be recognized by the court. Texas courts have not defined voluntary, but have set the bar high. Threatening to exercise a legal right is not coercion or duress. Telling a spouse to sign a postnup or a divorce will happen does not mean the agreement was signed involuntarily. It is enforceable because a person has the right to seek a divorce.
- Must be largely fair – A postnup needs to be (mostly) fair, but Texas law makes it hard to defeat an unfair agreement. To defeat the agreement, it must be both unconscionable when it was signed and there was no disclosure of finances, or a waiver of such disclosure, before signing. “Unconscionable” is undefined. It means the agreement was so bad when it was signed that a judge’s conscience will not allow enforcement of it. While this seems subjective, courts will not overturn a marital agreement just because it’s unfair.
- Must disclose everything – This is the point that is often overlooked. When people enter into marriage, they have a right to know the other spouse’s assets, to an extremely fine degree. If every asset is not accounted for, it can jeopardize the agreement’s status. Texas law allows the spouses to waive disclosure, but this must be done BEFORE the agreement is signed.
Who should consider a postnuptial agreement?
There are plenty of people who could benefit from a postnuptial agreement, including:
- Spouses that are entering the marriage with major assets – This is usually the reason for putting together a prenup or a postnup. Without a postnup, a divorce can potentially become a withering, and costly, experience for a spouse holding significant assets. In the absence of an agreement, a Texas judge must divide the estate “in a just and right manner,” which doesn’t necessarily mean equally. Perceptions of fairness differ, so a division one spouse, or a judge, thinks is fair, might seem unjust to the other spouse. A postnup can enumerate which assets belong to whom, so if a divorce does happen, those assets will be granted to the person to whom they are allocated in the postnup. When a spouse dies, the separate assets allocated to that spouse in a postnup will be disposed according to that spouse’s Will.
- There are children from previous marriages involved – As complicated as marriage makes asset handling, it gets even more complicated when children from previous marriages are present. A postnup can help define which assets are to be left to the children, and which are to be left to the spouse. Otherwise, the spouse may receive assets and parts of the estate that were intended for the children.
- An inheritance or retirement benefits are in play – Not all assets are brought into the relationship. If either spouse expects they will eventually be in line for an inheritance or for retirement benefits, then it is best to produce an agreement beforehand. Otherwise, they might become community assets, and not the sole property of the named beneficiary.
- Either spouse owns a business – Businesses are also assets, and if a spouse owns one that is or becomes profitable, it also has to be protected. Without a postnup, part of the business or its earnings will likely be given to the other party if a divorce occurs.
- Debts and Taxes – A postnup can ensure that the debts or tax liabilities of one spouse are not paid from community funds. Debts and unpaid taxes existing before marriage can be paid by attaching a joint account, or even an individual account of the other spouse if the funds are community. If a spouse wants to start a business during the marriage, and there is risk the business might fail and owe debts or taxes, a postnup can ensure those debts and taxes are paid only by the spouse starting the business. Keep in mind, this would mean that spouse also owns 100% of the business if it is successful.
When determining why you need a postnup when you have a prenup, it’s important to understand that the point of a postnup is to clearly define what both sides are entitled to, and to protect those assets in the unfortunate event that a divorce is necessary, or on the death of a spouse. With a postnup each spouse is free to bequeath separate property in a Will without interference. This can help protect children of a prior marriage, or family assets.
Discussing a postnup is not the most romantic topic, but it offers stability and peace of mind, and that’s never a bad thing.
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