Pros and Cons of a Postnuptial Agreement

Getting married is a special time in the lives of many people. However, not all marriages end up in wedded bliss. To protect themselves in case of a divorce, some couples create a prenuptial agreement that spells out financial obligations in case they split up. A postnuptial agreement, on the other hand, is written after marriage to outline protections and ownership of assets in case the marriage dissolves. You can speak to a financial advisor if you’re not sure how to financially prepare for marriage, whether you’re currently married or not.

What Is a Postnuptial Agreement?

A postnuptial agreement is an agreement between spouses about protecting each other’s interest in community assets in case of divorce. These agreements can dictate how to distribute assets, provide ongoing financial support, determine who’s responsible for debts and address other similar issues.

Postnuptial agreements are becoming increasingly popular in recent years. People’s lives change considerably over time as lives, careers and financial assets and obligations evolve throughout a marriage. If you have a prenup, it could be outdated or not adequately address today’s circumstances. And, if you don’t have one, a postnuptial agreement provides assurances of how each spouse will be treated in case of divorce.

How It Differs From a Prenuptial Agreement

A prenuptial agreement and a postnuptial agreement are almost the same documents. However, there are distinct differences between a prenup and a postnup agreement. A prenuptial agreement is created and finalized before a couple gets married. In some cases, the couples didn’t think about getting one or simply ran out of time to finalize it before their big day. While a postnuptial agreement happens days, months or even years later.

Both documents describe how a couple’s financials will be split in the event of a divorce. It can describe how assets are distributed if there will be alimony and who will assume the couple’s debts. The agreement can even spell out how an inheritance will be divided and make provisions for potential child support payments. However, most courts will want to review the child support provisions to protect the rights of the child.

Current vs. Future Finances

While prenuptial agreements address the current financial condition of both parties, their general focus is on the future growth of the couple’s finances. By comparison, a postnuptial agreement typically occurs after the couple has been married for a while. In some cases, it may be used as a roadmap for what happens if a struggling couple cannot salvage their marriage. Therefore, it generally is more focused on the current income and assets of the couple and what happens if they get divorced.

Court Involvement

In most cases, a prenuptial agreement is accepted as valid upon entering a marriage. The court assumes that both spouses had adequate legal representation and that they entered into the agreement willingly. And, if one spouse doesn’t like the terms of the agreement, the wedding can be canceled or postponed.

However, a postnuptial agreement is often scrutinized more heavily by the courts. Because the couple is already married, one spouse may be in a weaker position to negotiate the contract and could be taken advantage of.

There are many pros and cons to getting a postnuptial agreement and it shouldn’t be something that you take lightly. These can create a lot of legal and emotional scrutiny and you should only use them to protect both parties financially in the event that the marriage does not work out. Here are the biggest pros and cons of creating a postnuptial agreement.

Pros

Provides more time to assess financials: After a couple is married, they can have a deeper conversation about finances and see how each person acts with money.
Couples are more mature: Couples who are married young may not be ready to have adequate money conversations necessary for a prenuptial agreement. As they age, spouses often feel more confident in their opinions about money.
Factors in changes of income and assets: Prenuptial agreements try to predict the future. Postnuptial agreements focus on how income and assets have grown throughout the marriage, including starting or growing a business, inheritances and investing success.
Protecting beneficiaries: Couples who have children from previous relationships can protect their children’s interests in specific assets, such as family heirlooms, that have been bought or inherited throughout the marriage.

Cons

Assumption of divorce: Some spouses may feel that signing a prenup or postnuptial agreement means that a divorce is more likely. It helps to have honest conversations with each other or to involve a therapist to minimize hurt feelings.
Lack of agreement: If both spouses do not agree to certain provisions of the postnuptial agreement, it can stall the process or lead to resentment. In some cases, these can lead to a divorce when it wouldn’t have happened otherwise.
Unequal bargaining position: When one spouse is the breadwinner or has more assets, negotiations may not be a level playing field. This can lead to coercion or the erosion of rights for the other spouse.
Enforceability: Because a postnuptial agreement happens after marriage, it receives a higher level of scrutiny in divorce court. The judge may change or eliminate certain provisions if they feel that the agreement isn’t fair.

The Bottom Line

A postnuptial agreement is a contract between married spouses. Similar to a prenuptial agreement, it details how a couple’s income and assets will be distributed if they get divorced. Postnuptial agreements are often used when financial circumstances change significantly during the marriage or to prepare financially if you didn’t take the chance to do so before marriage. In either situation, these contracts are scrutinized more heavily in divorce court to ensure that one spouse was not taken advantage of.

Tips for Protecting Your Assets

Creating a postnuptial agreement can be a challenge for couples. Involving a financial advisor can reduce this stress by having an impartial third party who is looking out for the interests of both spouses. If you don’t already have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When creating a prenuptial or postnuptial agreement to protect your assets, it helps to understand how your current assets may grow over time. Our investment calculator forecasts the growth of your portfolio using your current balance, ongoing contributions and expected rate of return.