While not as well known as their cousin the prenuptial agreement, postnuptial agreements are more difficult to craft, but are a potential solution for couples with financial problems.

While not as well known as their cousin the prenuptial agreement, postnuptial agreements are more difficult to craft, but are a potential solution for couples with financial problems. That’s because both parties in a postnuptial agreement must receive some type of concrete compensation that will hold up in court, according to Silvana Raso, a partner and family law attorney with Schepisi and McLaughlin, PA in Englewood Cliffs, NJ.

In some cases where one partner in a couple who is getting married is reluctant to broach the subject of a prenuptial agreement, the subject of a possible postnuptial agreement surfaces after the wedding, she says. “It’s not a pleasant or romantic subject to think, ‘what happens if we get divorced?’ so some people don’t pursue a prenuptial,” she says. “Then it might come up later.”

Consideration

She strongly encourages financial advisors who are dealing with clients who are planning to marry to go ahead and discuss a prenuptial before the wedding, because postnuptials are much more difficult to craft and potentially difficult to enforce, due to a legal concept known as consideration.

In order for a contract – which both a prenuptial and a postnuptial qualify as – to be legally enforceable, each party must receive something of value. In a prenuptial, that consideration is marriage. In a postnuptial, staying married is not valid consideration, Raso notes, so that something else must be given in exchange for whatever the husband or wife is giving up.

Typically, it makes sense for each party to receive something, such as title to a particular asset, to make the postnuptial enforceable, she adds. So one party might receive, say, title to a piece of valuable art and another party may get title to some financial assets or another tangible asset like a piece of land, a bank account or another valuable collectible.

“Postnuptials require a lot more planning and a lot more strategizing to make sure they are enforceable,” Raso notes. “Also, if you wait until after the wedding, there is no guarantee that your spouse will sign the postnuptial. What will you do if he or she won’t sign it? You don’t have many options at that point.”

That’s because the assets or asset that your client wants to protect could be considered a marital asset from the time of the marriage forward and it’s at risk if a divorce happens in the future, she says. So it’s much better to deal with financial issues in a prenuptial than a postnuptial.

Josh Forman, a partner with Chemtob Moss Forman & Talbert in New York, NY, agrees. Sometimes, however, issues don’t come up until a marriage is well underway and then a postnuptial is the only way to deal with it.

Post-marital issues

“You can do a postnuptial for many reasons,” he notes. “Sometimes the non-moneyed spouse says the prenuptial isn’t fair because the marriage has gone on for a number of years and the other spouse is agreeable, so they come in and take care of it that way. In other cases, there may be a new issue that crops up, such as a gambling problem and one spouse wants to be protected financially.”

Another situation that can crop up that may merit a postnuptial agreement is when the husband or wife wants to start a new business or acquire an additional asset and the other spouse isn’t so sure that’s a good idea. “If there’s a concern that the business might not work out or lack of agreement that purchasing an asset is a good idea, a postnuptial can take care of those concerns,” Raso says.

“If there is a concern that the marriage might fall apart in the future, one spouse can allay concerns associated with whatever the issue is – acquisition of a new asset or starting a business or whatever – by agreeing to take on all the debt for that asset and giving the other spouse title to another asset,” she adds.

In that case, one spouse would give up title to that asset in the future in exchange for another asset, she explains. “That type of postnuptial is considered enforceable by the courts,” she adds.

The most famous example of a postnuptial gone awry is the Dodgers baseball team, where a postnuptial agreement was drafted and signed between Frank and Jamie McCourt. However, that agreement was thrown out of court due to technical flaws in the drafting of the agreement, not due to the substance of the agreement, Raso notes.

Forman says that it’s important that an experienced attorney draft the postnuptial agreement, so financial advisors with clients who are interested in such an agreement should refer those clients to a competent family law attorney. Raso agrees, saying that any divorce, marital law or family law attorney is conversant with these issues because they all apply to marriage and divorce.

The financial chaos that has resulted from the Dodgers postnuptial agreement should be enough to convince anyone seeking a postnuptial agreement to not only ensure that the substance of it is enforceable but that all the details surrounding it are properly executed, Raso says.