A postnuptial agreement (post-nup) is a legal contract between spouses who intend to stay together that spells out what happens if their marriage ends. There are many different reasons that couples may want to consider entering into a post-nup.
Some couples may enter into a post-nup simply because they may have ran out of time before their wedding to get a customized pre-nuptial agreement (pre-nup) in place. While this is certainly a valid reason to enter into a post-nup, we always advise clients that a pre-nup is always a better option and more likely to be enforced. Therefore, if your intention is to enter into a pre-nup, please seek legal advice well in advance of the wedding. Reasons for entering into a pre-nup may include preserving large pre-marital estates, protecting business endeavors, and addressing the needs of children from previous marriages.
The second most common reason that couples enter into a post-nup is that the couple is estranged but are willing to work on reconciliation. If reconciliation fails, they need protection. For example, one spouse cheats and the other spouse wants a divorce. The cheating spouse wants to try to reconcile and the other spouse agrees if the cheating spouse agrees to enter into a post-nup resolving financial issues. In these types of cases, even if the post-nup only delays the eventual divorce, it can still be worthwhile if an expensive divorce is avoided.
The third common reason that couples enter into a post-nup is to modify an existing pre-nup that, over time, has become outdated or even unfair. This is more common when marriages are long-lasting or when a spouse becomes a larger contributor to a business endeavor than what was initially contemplated.
The fourth common reason that couples enter into a post-nup is third party obligations. For example, many owners of family-owned private companies may require their children and their children’s spouses to enter into a post-nup before transferring any ownership of the business to that next generation. Parents may require children and children’s spouses to enter into post-nups before including specific bequest in a will.
The fifth common reason that couples enter into a post-nup is due to an unexpected inheritance. While inheritances are considered the inheriting spouse’s separate property, sometimes the way a couple mingles their money can expose assets to “transmutation.” Transmutation is when something you own converts from separate property to marital property. For example, the family home that’s been in the family for generations is separate property the day you inherit it. But if you use marital property for upkeep or for mortgage payments, some portion of that home can become marital property or at lease require the spouse to reimburse the marital estate for monies used on the house. A post-nup could avoid these results.
Common issues that can be addressed in a post-nup include:
- Division of marital property.
- Division of separate property if marital assets are used to maintain the property.
- Handling of marital debt.
- Allocation of earnings.
- Spousal roles in business ventures.
- Disposition of business interests in the event of divorce, disability or death.
- Goals and priorities for the future, including funding for children’s education, retirement, or other items.
- Division of assets in a blended family.
- Solutions if spouse becomes ill, disabled or dies.
- Resolution of spousal maintenance in amount and duration.
Post-nups can address these and other financial and legal issues.
It is important to note when entering into a post-nup is that enforceability differs from state to state. For example, in New Jersey the courts have held that post-nups must be “fair and just” to both spouses, both at the time the agreement is signed and at the time of divorce. New York, on the other hand, requires that post-nups not be “unconscionable.” In California, post-nups are widely accepted for property issues, but not for spousal support. Ohio is an example of an extreme state that may only recognize post-nups in limited circumstances. A consistent theme across jurisdictions is that in order for a post-nup to be enforceable, that it must be in writing, voluntarily entered into, that the parties made full disclosure of assets, liabilities and income, that the agreement is not unconscionable and that both parties were represented by counsel.
In Illinois, post-ups are governed by the Illinois Marriage and Dissolution of Marriage Act, the same Act that governs marital settlement agreements. Section 502(b) of the Illinois Marriage and Dissolution of Marriage Act (Dissolution Act) provides that a marital settlement agreement is not binding upon a trial court if “it finds, after considering the economic circumstances of the parties and other relevant evidence produced by the parties, on their own motion or on request of the court, that the agreement is unconscionable.” 750 ILCS 5/502(b). A finding that an agreement is unconscionable may be based on either procedural or substantive unconscionability, or a combination of both.
If you are thinking about entering into a post-nuptial agreement, wanting to challenge a post-nuptial agreement, or need to defend a post-nuptial agreement, the attorneys at Allison & Mosby-Scott can help. Please call us at 309-662-5084.