- What is a Post-Nup Agreement?
- September 1, 2016
- Law Firm: RIGHT Lawyers - Las Vegas Office
Post-nup agreements, sometimes referred to as “postnuptial agreements”, “postmarital agreements” or simply “marital agreements,” are contracts made between couples after the wedding date. Although less common and not as well-known as prenuptial agreements, which are signed before the wedding, they are gaining in popularity.
While prenuptial agreements are the most frequent avenue by which couples attempt to address property issues, if the couple did not make a prenuptial agreement, or if the prenuptial agreement is no longer satisfactory due to changes in circumstances then a post-nup agreement may be desirable.
Postnuptial agreements can address a range of issues: how property acquired by the couple after marriage should be allocated, who should have what degree of ownership or control of a business, spousal support, or how infidelity should be handled. There are a few issues which cannot be addressed by a post-nup agreement, such as child custody arrangements, nor child support.
Common Use of Post-Nups
Probably the biggest unsung reason spouses enter into postnuptial agreements is to protect marital assets from the reach of creditors. Property acquired by each spouse after the wedding becomes, in the absence of an agreement, community property. Even property acquired before marriage can become community property if it is “commingled” with community property or put into joint accounts.
Both spouses have one-half interest in any and all community property. This one-half interest is where credits can reap havoc. A creditor who is entitled to recover a debt generally “steps into the shoes” of the debtor, or, in other words, has the same rights as the debtor. This means the creditor “steps into the shoes” of the spouse who originally incurred the debt, and has the right to satisfy the debt using their interest in community property. Thus, the creditor can theoretically recover up to one-half of the value of community property to satisfy the debt of one spouse.
Under Nevada law, the separate property of a spouse is a not reachable by creditors. With a post-nup, a couple may agree in writing that certain assets are the separate property of one spouse instead of community property. By agreeing to make some assets separate assets of the partner who is not in debt, rather than community property, the couple can prevent creditors from being able to “go after” those assets. This is especially important if one of the marriage partners is more “debt-prone” than the other; for example, if the husband is starting a business, a community property home can be assigned as separate property of the wife, thus insulating it from the husband’s business creditors.
Besides protecting assets, couples can set aside property acquired after marriage as the separate property of one spouse simply to protect the position of the spouse in the case of a divorce, or if the property has special value to one spouse. Couples can also make the reverse agreement that separate property become community property. Unlike couples in prenuptial agreements, a spouse may, in a postnuptial agreement, waive their right to retirement and survivorship benefits under Federal law.
As mentioned above, premarital property which would ordinarily remain the separate property of a spouse can, when commingled with community property, be regarded as community property. For example, a business started by one spouse before a marriage may become community property if the business become operated by both spouses. A postnuptial agreement can clarify that this business remains the separate property of the original spouse.
Business Control & Valuation
The example of a spouse owning a business is becoming a common occurrence. More and more one spouse brings with them ownership of a family business, or starts a business. In such cases, it may be important that ownership and control stay in the family, or not be changed by a divorce. With a pre-nup an arrangement can be made on who will own or control the business, how the community property portion of the business will be valued, and how the other spouse will be compensated for the business value in a divorce.
Valuing a business, and agreeing on a compensation terms is an excellent use of a post-nup. We have seen hundreds of couples’ business sink during a divorce. They couple are too emotional charged and not able to agree on who will run the business, how to value the business, and what are the terms of buying out the spouse. Without an agreement the business become scaught in a divorce tug-of-war. Most businesses cannot survive.
If infidelity by a spouse has occurred in the marriage, or couples would like to dissuade any such infidelity, the couple can agree to financial penalties to be imposed on the party who has cheated. Thus a cheating spouse may agree to turn over some particular personal or real property to the other spouse, or set up a trust for him or her, as a token of their regret for the infidelity, and of their commitment to their spouse and the continuation of the marriage. A postnuptial agreement can also provide for such measures if a party is unfaithful in the future, again showing the dedication of a spouse to the marriage. These clauses will be enforceable if they impose penalties for infidelity during the marriage.
Legality of Post-Nups
Post-nups are enforceable. Under NRS 123.070 a couple may enter into any agreement with each other with regard to property that they could enter into with anyone else, and NRS 123.220 gives authority for a couple to enter into a marital agreement making property acquired after the wedding separate property, as we will discuss in depth. Other Nevada laws grant authority for other terms in a postnuptial agreement, including allocating a spouse’s earnings, granting to one spouse complete management and control of community property under, and allocating income and resources when a spouse has been disabled.
Some post-nup agreements are required to be in writing, including those making some postmarital property separate instead of community property. However, oral postnuptial agreements on other subjects have been enforced, and Nevada courts have even found that couples have altered their property relations by their conduct, without an “express” contract, written or oral. In view of this, it is advisable that couples formalize any “understandings” they arrive at with regard to property, finances and business in a written agreement, so that their intentions may not be misconstrued later by a court.
Postnuptial contracts cannot eliminate or alter the legal duties of a spouse for the maintenance of the other during the marriage, Cord v. Neuhoff, 1978. Further, such agreements cannot deal with issues of child custody or child support, either during the marriage or upon divorce. Including provisions on these subjects in an agreement is dangerous, because, upon legal challenge, if a court finds that the agreement was intended to be “integrated”, that is, “all or nothing”, then the presence of invalid provisions will invalid the entire agreement.
Postnuptial agreements are subject to the same conditions for enforceability as other contracts. These contracts are subjected to a higher level of scrutiny than ordinary contracts; duress, lack of capacity, unconscionability, and misrepresentation. Thus, the spouses owe each other a “fiduciary duty” requiring them to disclose all relevant information to each other in making an agreement.
Postnuptial agreements can be challenged on the grounds they were made under duress, although some of the circumstances which often give rise to allegations of duress in prenuptial agreements, such as the pressure of an impending wedding, are obviously not present in a postnuptial context.
The agreement cannot be “unconscionable,” that is, so lopsided in its results as to be unfair to one party. To prevent challenges on any of these grounds, both parties should be represented by attorneys and have adequate time to consider the agreement.
Postnuptial agreements can correct defects in prenuptial agreements or achieve the same ends where one was not made. By clarifying property rights upon a divorce, a well-made postnuptial can potentially save a couple much time and energy and attorney’s fees which would be spent in a contentious divorce. Perhaps most importantly, a good postnuptial can preserve the hard-won assets of a couple from creditors.