What is a Postnup Agreement?
A Postnuptial Agreement is a legal contract between a husband and wife after they get married. Generally, a postnuptial agreement will address the division of assets as well as other important issues relating to the marriage, including but not limited to spousal support, health care, insurance, estate planning, and debt.
A well drafted post-nuptial agreement can provide both spouses with ambivalence and certainty during a period of adjustment in their relationship, including when one spouse may have major career changes or where there are struggles with substance abuse.
Post-nuptial agreements are often signed when the couple has been married for some period of time, but they desire to have some agreed upon plan as it relates to the earning of income and debt. The concept is similar to a prenuptial agreement, which typically provides protections for spouses based on their premarital property, whether that conclusion is common law , equitable or community property, depending on the state. However, prenuptial agreements are signed prior to marriage, while post-nuptial agreements are signed after the marriage has begun.
Situations may arise where a couple contemplates entering into a post-nuptial agreement after a marriage because their relationship with each other may be vulnerable or in crisis. It is highly recommended that both spouses retain independent counsel to advise them on the rights and responsibilities they are giving up by entering into the agreement. This is critical to the enforceability of the agreement.
The enforceability of the Post-Nuptial Agreement will also require that the parties exchange specific financial information. In fact, Wisconsin requires the parties to provide complete financial disclosure to each other, and provide a full, honest and open disclosure of all income, assets and debts that each party possesses.
Wisconsin Legal Requirements
Wisconsin follows the Uniform Premarital Agreement Act, which governs both prenuptial and postnuptial agreements. Wisconsin Statutes section 766.58 details the limitations and legal requirements specific to postnuptial agreements.
A postnuptial agreement is a valid contract under Wisconsin law. The contract requires consideration, which means that at least one party must benefit from the agreement – such as retaining ownership of specific property or assets. It does not require that one spouse give up something or that both spouses benefit equally to be considered valid.
Wisconsin requires that the agreement fulfill the traditional elements of a valid contract: The agreement must be in writing and signed by both parties. Parties can enter into a postnuptial agreement without the benefit or recommendation of counsel, however, each party must be aware of the rights that they are waiving by signing the agreement and agree to do so voluntarily. To be enforced by Wisconsin courts, the underlying agreement must be conscionable, meaning that neither party was coerced into signing or that the agreement is grossly unfair to one or the other. If one party goes into the agreement with what the law calls "unconscionable" conduct, the agreement fails.
Advantages of Having a Postnup
While some may view them as obsolete vestiges of a less enlightened past, postnuptial marital agreements can be very valuable. The presence of such an agreement may help to facilitate an amicable divorce, or at least reduce the acrimony between parties. They also have many practical uses for people who are already married.
Many issues may be addressed in a postmarital agreement, including:
A practical use for a postnuptial marital agreement involves an entrepreneur’s business. A husband may have a thriving lawn care business when he marries. However, if the business flourishes over the next several years, his wife may have a disproportionate claim to its value added during marriage in divorce.
Postnuptial marital agreements can also be useful for couples who have recently endured a job loss, significant income reduction or other life event with potential economic impact that could result in a divorce.
Some couples believe that they should have entered into a prenuptial marital agreement, but were put off by the prospect of negotiating a contract about the distribution of assets once the marriage was quite likely over.
Typical Terms and Conditions
Common provisions included in a postnuptial agreement typically relate to the division of joint property, financial resources, spousal support or maintenance, and debt responsibility. Providing for the event of a divorce is an excellent reason for a married couple to enter into a postnuptial agreement. Postnuptial agreements also provide for the length of alimony and define various provisions that would be relevant in a divorce action in Wisconsin.
A provision with regard to property division will specify the parties agreement with regard to how property will be divided in the event of a divorce. Wisconsin is a marital property jurisdiction. Marital Property means any property of the spouses which is acquired during the marriage and before legal separation, regardless of who holds title. Theoretically, this means that any property either spouse acquires during the marriage is marital and subject to division. All property of spouses during the marriage is presumed to be marital property even if only one of the parties obtained the property during the marriage. This includes:
Payments received during a marriage for personal injury, workers compensation, and other similar type claims.
Inheritances are typically not marital property. If a spouse receives an inheritance, that property belongs to the spouse who received it. This is true even if it was received during the marriage. However, if a gift or inheritance was given directly to the parties’ child it may not be subject to division between spouses. Any property acquired during marriage by the exchange of gift or by inheritance is considered separate property. Also any property that was a gift from one spouse to the other during marriage is separate property. Additionally, any property obtained in exchange for separate property is considered separate property.
A postnuptial agreement can set forth what property is to remain separate and what property will be shared as marital property. It can also set forth a method for determining the value of the property at the time of marriage as well as the date the property was acquired by the parties or when it becomes subject to division.
Other provisions of a postnuptial agreement can include alimony and the date on which it will end. Other provisions may include debt responsibility to cover amounts incurred prior to the time of the divorce. There are almost an unlimited number of provisions that could be included in a postnuptial agreement. Whether you should enter into a postnuptial agreement really depends on the circumstances of the particular couple.
How to Prepare a Postnup
The drafting of a postnuptial agreement is similar to the steps needed to draft a prenuptial agreement, with one major caveat: both parties must have independent legal counsel. This is imperative. In addition, there are a few important pointers to keep in mind when moving forward.
First, in order to be valid, the postnuptial agreement must be in writing. Parties cannot verbally agree on the division of assets in the event of a separation. It must be in writing and signed by both spouses.
Second, disclosure of assets is critical when entering into a postnuptial agreement. Each spouse should be forthcoming with their current assets and plan on fully disclosing the same in the written agreement . There is no need to have a forensic accountant involved right off the bat, but you should not be withholding information when moving forward to draft the agreement.
If an agreement is not clear, and one party is unclear on the intention of a certain provision, there is a chance that that clause can be found invalid. For example, if the parties agree that the husband will take control of the wife’s business as long as the wife is still married, after the decision to separate, the language would be subject to scrutiny. There is a likelihood that a court may determine that the provision is invalid because at the time it was drafted, it was possible that the parties intended for the business to be a marital asset in the event of a divorce.
Issues and Limitations
Despite the protections afforded by postnuptial agreements, there have been growing criticisms against their enforceability, particularly in high asset divorce cases. Critics attach complications to the formulation of the agreement and question whether these documents create more problems than they solve in the context of estate planning.
First, relative to prenuptial agreements, there are additional complexities involved in the creation of postnuptial agreements. While prenuptial agreements must be fair, postnuptial agreements must often be fair and reasonable. This requires that both parties have full and fair disclosure of financial assets, and they must have voluntarily entered the agreement free of duress, fraud, or mistake. In this light, it is recommended that postnuptial agreements be reviewed and vetted by a divorce attorney, as they often need to comply with specific requirements under the law.
Second, postnuptial agreements are subject to being challenged in court on many grounds. Recently, Wisconsin law was amended to state that an agreement can be voided if it does not make reasonable provision for the support of a child of the marriage (this explicitly includes children of prior marriages, often referred to as "children of the heart.") For example, an agreement that strips an ex-spouse of all marital property could arguably leave a child of the marriage without adequate support, especially if said child was found to be in need of support according to the child support guidelines.
Wealthy individuals and families frequently create trusts and other mechanisms to provide some level of protection from creditors. If you own a business or capital in a trust, your ability to adequately provide support may be limited if these resources are tied up.
Finally, postnuptial agreements have limited applicability to existing divorces. It’s a common misunderstanding that a party can essentially liquidate all assets and then pass them back and forth because of an agreement. Unfortunately, this is rarely possible, because a divorce court or family court can only address property acquired up to the date of the court’s order, so any contract to divide property must be valid only as of that date.
There have been cases in which the court, in defining the property rights, referred to the postnuptial agreement, but the effect was to merely adopt the terms of the agreement into the court’s decree and make it enforceable as part of the decree. This is often the best way to accomplish this goal, but consult your lawyer to ensure you understand what you can accomplish with tools like this.
How to Modify or Terminate a Postnup
While the original parties to a postnuptial agreement are obviously bound by its terms, the law in Wisconsin is not so constrained, and thus a postnuptial agreement is subject to the same modification standards as a premarital agreement, as follows: (1) the modification agreement is in writing; (2) signed by each party; (3) voluntarily entered into by each party, done in exchange for fair value. However, in terms of sufficient consideration for an amendment, the addition of a child to the marriage is deemed to be sufficient consideration. In addition, a postnuptial agreement can be revoked without formalities if it lacks the requisite consideration to make it binding . In addition, either party can petition for a judicial determination of its validity when either the postnuptial agreement (1) violates a statute of this state, (2) was unconscionable when executed, or (3) not voluntarily entered into by both parties. Once a postnuptial agreement fails to satisfy the modifying criteria, the modifying party is no longer bound by its terms, but the other party still may be able to enforce it. The court however can allow parties to enforce a portion of the postnuptial agreement that is no longer valid under the modification standards.