Prenuptial and Postnuptial agreements serve similar functions, but have some key differences. We help you understand each and determine which is right for your situation.
You’ve heard of prenups and postnups, and probably know that one comes before the wedding, and the other comes after. What’s tricker is knowing how else they differ, and which is right for you. According to Investopedia, the American Academy of Matrimonial Lawyers found that both types of agreements have increased in recent years. Between 2009 and 2011, 63% of responding attorneys reported an increase in prenups, and 51% saw an increase in postnups. You should never rush into a legal agreement, especially not one that involves your finances and your marriage. Here’s what you need to know about both prenuptial and postnupial agreements.
Prenuptial Agreement Basics
A prenuptial agreement is an agreement made between future spouses before their wedding day. It outlines how they will handle finances, debts, assets and other money-related issues during the marriage, as well as what will happen to those finances should they get divorced. In some cases, it also includes personal clauses in addition to financial details: some couples lay out what will happen if one spouse cheats, set ground rules for gaining weight, specify who will take care of pets, and so on. The terms of the prenuptial agreement go into effect once the couple is married.
While prenups are often set up to provide protection in the event of divorce, they can also be useful after one spouse’s death. If one spouse has a large estate or children from a previous marriage, a prenuptial agreement can detail how much of their estate goes to their spouse, and how much goes to their children.
Though they’re set up ahead of time, prenups can protect income earned during the marriage, and can also help eliminate alimony payments. Neither prenups nor postnups cover what happens to children; that is always left to courts in the case of divorce.
Postnuptial Agreement Basics
A postnuptial agreement is very similar to a prenuptial agreement. The main difference is that it is drawn up after a couple is married. Couples skip arranging prenuptial agreements for many reasons: sometimes, in the run-up to a wedding, couples get so busy they don’t have time to arrange an agreement, or they may feel the conversation will ruin the romance of their wedding day, so they handle it after they say “I do.”
As with a prenup, spouses specify in a postnuptial agreement what will happen to property and finances in the case of a divorce. They help determine what is joint property, and what is separate. An arranged postnup is useful in divorce cases because it saves money and the emotional stress of going through divorce litigation.
Postnuptial agreements are usually used if both spouses wanted a prenup, but didn’t have time to execute one before the marriage; if they are thinking about divorce and want to determine how property would be divided, saving time and sanity later on in the divorce process; if, after the wedding, a couple realizes they have different ideas of how to handle money; or if one spouse acquires a new asset or debt and wants it to be kept as separate property. The last case is common if one spouse receives a large inheritance, decides to go back to school, or opens a business.
Who Needs A Prenup or Postnup?
It used to be that young couples with few assets had little need for these types of agreements; then in January 2016, changes to Illinois law made them more important for everyone.
Previously, when couples received marriage gifts or bought items for their new home, even if they weren’t married yet, those gifts and items were considered “purchased in contemplation of marriage,” and were joint property. Whether it was a house or a doormat, the assets were divided fairly during divorce. Under the new law, gifts, assets, and debts acquired before marriage are non-marital property. The law reads:
For purposes of this Act, "marital property means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage . . . .
. . .
Property acquired prior to a marriage that would otherwise be non-marital property shall not be deemed to be marital property solely because the property was acquired in contemplation of the marriage.
Prenups are important now to determine whether property acquired before the marriage is marital or independent property.
Both types of agreements are also useful when it comes to debt. Young couples today often have large student loans, and when they marry, that debt is joint—even though it’s technically non-marital. However, if they have a pre- or postnup, the estate can be paid back for money paid against non-marital debt. The agreement can specify the exact amount that must be paid back.
They are also useful in the case of second marriages to set aside wealth for existing children, or to simply give spouses peace of mind. Divorce can be costly and unpleasant. After going through it once, many people don’t want to enter into a second marriage without a guarantee that, should things change in the relationship, their financial interests will still be protected.
“Prenuptial agreements, on the other hand, provide such people with the opportunity to ensure predictability, plan their future with more security, and, most importantly, decide their own destiny,” reads Supreme Court of Alaska case Brooks v. Brooks, discussing the issue.
Which is Right for You?
If you know ahead of your marriage that you would like to protect your assets and guarantee certain outcomes in the event of divorce, a prenuptial agreement is right for you. If you’re married, and you and your spouse handle money differently; if one of you wants to take a financial risk like investing or starting a business, or one of you inherits a large amount of wealth, then a postnuptial agreement is a better option.
Either way, remember that these are legal agreements that cannot be simply reworked if one partner changes their mind. It is important to think about what you want the document to detail and understand it fully before signing. Each spouse should have an independent lawyer examine the agreement to make sure both parties’ rights are represented. Remember that discussing finances in the case of divorce is a touchy issue, and these types of legal agreements should be approached with caution and consideration.
An experienced and compassionate attorney is a vital resource in navigating these agreements amicably. Mike Schiffman has decades of experience navigating all aspects of marital asset litigation. Contact Schiffman Family Law today to learn more about how our firm can help you.