A few years ago, Jacqueline Harounian, a partner at Wisselman, Harounian & Associates in Great Neck, N.Y., had an interesting case. The wife had recently discovered her husband’s massive gambling debts, but because they had two young children, she didn’t want to get a divorce. “The solution was a postnuptial agreement,” said Harounian. “This put the assets of the marriage in her name, the debts in his name, and gave her control over the family income.”
Most people are aware of prenuptial agreements, but postnuptial agreements are discussed less frequently. “When the postnup conversation comes up, it is typically triggered by a change of circumstance, such as when one of the spouses receives an unexpected large inheritance,” said Melissa Transier, managing director and private wealth advisor with Merrill Lynch. Here’s what you should know about this lesser examined marriage contract.
What is a postnuptial agreement?
The postnuptial agreement — or postnup — is actually identical to a prenup, it’s just signed after the wedding. “Postnups can be done decades into a marriage to resolve financial disputes or protect inheritances,” Harounian said. “Postnups can actually save a marriage that is fraught with conflict over money issues.”
In fact, Harounian says that each year, her firm is doing more and more of both prenups and postnups, with both men and women asking about them. “There are several reasons why the agreements are more prevalent,” she said. “Mainly it’s the fact that couples are marrying later and, in many cases, they have separate assets or income they want to protect.” Whether or not you’ve already combined your assets and debts (like your student loans, for example), a postnup can ensure you’re both on the same page with what happens to your finances in the case of a split.
4 reasons to get a postnup
While it may seem like an unromantic concept, the idea of putting a system in place to secure your financial assets during marriage actually isn’t such a crazy idea. While Harounian says her firm often negotiates postnups for parties that initiated a marital separation but then decide to reconcile, there are other reasons that married couples might want to get one, as well. For example, consider the following:
- You borrow a large sum of money from your parents to put toward your down payment or renovations on a home. It’s not uncommon for young, married couples to borrow money from their parents these days in order to purchase their first home or renovate a fixer-upper. A postnup can help here, says Harounian. If you borrowed $50,000 from your parents to renovate your marital residence, a postnup can make it very clear that those funds belong to your family in the event of a divorce.
- You and your spouse both used to work, but after having kids, one parent decides to stay home. Once a baby is in the picture, a couple may decide that one parent should stay home to care for the child, in lieu of paying for child care. “Let’s say the parties agree that the husband will work from home, and the wife will take on more projects at her work,” Harounian said. “They could then sign a postnup where the husband agrees that he will not seek spousal support in the event of a divorce.” This could help allay the wife’s fears of being vulnerable to a spousal support demand later on from an ex who elects to stay home for a certain time, but who otherwise has a strong history of earnings.
- Your husband leaves his job to work for the family business. In this case, your husband’s father could become concerned about financial claims you might make against the family business in the event of a divorce. If a postnup agreement were drafted, however, you could waive claims to the existing value of the family business, but agree that any increase in value in the business is subject to claim.Ordinarily, even without a postnup, assets owned before the marriage by a spouse or his family — i.e., a family business — are off the table in a divorce. “But the growth in value, if due to contributions of a spouse after the marriage, can be considered marital property,” Harounian said. “If the husband is going to put his time and effort into his family business, it is only fair that some of that value is deemed marital property and shared with the wife.”
- One spouse has significant premarital assets, or expects to inherit or recently did inherit significant assets. In these types of situations, a postnup can ensure that in the event of a divorce, each spouse leaves the marriage with the assets he or she brought into the marriage, or keeps the bequest or gift that was intended for them if left as an inheritance.
How to file for a postnup
Hire a lawyer: Any type of marital agreement — whether drafted before or after marrying — is a written contract that will need to be notarized, and you should get a lawyer. “Each side should have separate counsel, and full financial disclosure is necessary,” Harounian said. “Generally, couples who enter into postnups are looking to save or improve their marriage, so the negotiations usually are amicable.”
One thing that’s important to remember: Prenups and postnups cannot address issues of child custody or child support — those must be handled separately. Also be sure to consult with an attorney regarding the applicable state laws where you reside, as some states don’t even recognize postnups.
Prepare to pay: Harounian says costs to draft a prenup can range from $1,500 to $3,500, depending on how complicated it gets and how much counseling is needed. And it can take anywhere from a few weeks to a few months to get it done. Considering how expensive divorce can get (and the fact that student loan borrowers tend to have it worse than people without student loans when it comes to divorce stats), it might be worth paying that money now to alleviate any stress about finances down the road.
The bottom line
Overall, Harounian says that prenups and postnups are highly recommended for couples with any degree of assets. “The prenup and postnup process requires disclosure of each party’s assets, debts, income and expenses,” she said. “It compels the parties to share information, discuss concerns and expectations, and resolve them.”
After all, isn’t that what good marriages should be about?
— Cheryl Lock
This story originally appeared on Student Loan Hero.