Wall Street Journal Online
Wednesday, July 25, 2002

"Postnups Can Be a Good Tool For Preventative Planning"
By Terri Cullen

For some it's a sensible way to ensure that family assets will be split up fairly in the event that "happily ever after" never arrives. For others, it's the first step on a slippery slope to divorce court.

No, it's not prenuptial agreements -- those binding contracts that high-net-worth couples undertake before they tie the knot. It's the prenup's lesser-known cousin, the postnuptial agreement.

That's post, as in after-you've-said-I-do. Couples who wait until their 30s and 40s to wed often find themselves entering the union with considerably more assets -- or baggage -- than would a couple just starting their careers. No matter how deep their love runs, sometimes a spouse wants to be sure he or she will retain ownership of, say, an inherited piece of jewelry, part of a family business, or funds set aside for the children of a first marriage.

The postnup can provide that protection and peace of mind. More courts are starting to validate them, says James J. Gross, a divorce attorney in Chevy Chase, Md. And with that acceptance, there's budding interest. Arlene G. Dubin, a family-law attorney and author of "Prenups for Lovers," says inquiries about postnups is beginning to outpace queries about prenups at her New Jersey practice.

"Because they're binding agreements, postnups are a good way to resolve some potential conflicts over finances during your marriage that, if not addressed, may eventually lead to divorce," says Mr. Gross. "Get it down on paper, then move on."

Postnups enable married couples who aren't satisfied with the divorce laws in their state to structure their own settlement, so they can allocate their property and income as they see fit. Most states employ the "equitable distribution" method for splitting up assets in divorce: Assets are split equitably -- not equally -- with courts having the ultimate authority to decide what is fair under the circumstances. In community-property states, such as California and Arizona, assets and income are split 50-50.

Right for You?

Just about any married or soon-to-be-married couple can benefit from sitting down and discussing a property settlement should things go sour. But doing so -- and then putting it in writing -- becomes much more crucial in circumstances where assets and income, or a lack thereof, could potentially become a point of contention in the event of divorce.

Inherited wealth is the catalyst most cited as driving married couples to get a postnup. But postnups can also help when a spouse belongs to a business partnership. A legal agreement with the other spouse may help ensure that the assets of the business will not be split in the event of divorce.

What are your views on post-nups? Write to Terri at terri.cullen@wsj.com.

"I see a lot of that -- family businesses where the family demands an agreement that says the in-law won't get a piece of the company should the couple divorce," says Ginita Wall, a certified financial planner and CPA in San Diego.

Then there's the "blended family" -- where one or both of the spouses had prior marriages and/or children. When there's more than one household to consider, it makes sense for a husband and wife to design their own settlement, so all parties are clear about who gets what. And if husband or wife entered a marriage with a substantial amount of debt or legal entanglements that could result in costly judgments down the road, a postnup may protect a spouse from financial fallout.

For stay-at-home parents, a postnup can emphasize the part he or she plays in contributing to the marriage, and ensure that the role is compensated accordingly in the event of divorce. "A stay-at-home mom or dad can gain a level of financial security by saying 'Look, I'm not contributing financially, but this document shows we're equally vested in our household assets and finances'," says , spokesman for the Equality in Marriage Institute in New York.

The Drawbacks

If you're thinking a postnup might work for you, talk with an attorney about your state's law -- not only how assets are distributed in divorce, but whether a court in your state would even recognize a postnup. In Ohio, family courts don't recognize postnups, while in Louisiana a married couple must jointly petition a court to approve a postnup, and the court must find that it serves the couple's "best interests," according to family law information Web site Divorcenet.com.

"Couples should check with their attorney first before attempting to draft an agreement, to make sure the contract will hold up in court," says divorce lawyer Mr. Gross.

If you're inclined to go ahead, be sure the document has been given the once over by two lawyers -- one for you and one for your spouse. Each should be familiar with family law in your state.

"If you both have your own attorney it's very hard, in the event of a divorce, to say there was coercion on either party's side," says Mr. Knowles of the Equality in Marriage Institute.

"Honey, I Want You to Sign This..."

The toughest part in all this of course is figuring out where emotion fits in the equation.

"'How do I broach the subject with my spouse?' is a question I'm hearing more often from my clients these days," says Ms. Dubin, the New Jersey divorce attorney and author of "Prenups for Lovers."

The knee-jerk reaction to any initial discussion of a postnup will most likely be, "You want a divorce, don't you?!?" So try to start off the conversation by confirming your commitment to the relationship. Mr. Knowles of the Equality in Marriage Institute suggests reassuring your spouse that you feel happy and secure in your marriage. State why you want an agreement -- outlining the potential benefits to both of you. Suggest that you each should consult with an attorney to ensure the agreement is evenhanded. A change of circumstances in your finances is a great time to open up the discussion.

The Tough Call

Would I ever contemplate signing one? A few years ago I probably would have said no, but as my husband and I have accumulated assets over the years I can see how it makes sense.

Here's one example: We recently purchased my husband's family home. I certainly wouldn't feel comfortable living there were we to divorce. I think of the pain of seeing the pantry wall where his mother scratched his growth milestones, or his tiny palm print preserved in the concrete walk. I raised the issue over dinner one evening, and in an eerily casual manner my husband outlined ideas on how we might be able to "split" the asset in such a way that the home would stay in his family. Obviously he'd thought about it too.

Still, we'd never even considered talking to each other about it, let alone put it or any of our other financial wants and needs down in writing. Why? Maybe we're afraid of rocking the boat, or worse jinxing what after 12 years is still a pretty darn good thing. Or maybe we're kidding ourselves that we'd never sink to the shamefully vindictive behavior seen in so many bitter divorce disputes.

Indeed, the risk of postnups is that just chatting about them can disrupt your marriage. That's not constructive. A postnup is meant to be a useful planning tool in case a marriage breaks up. It shouldn't be the cause of a breakup.

But if as a couple you can manage the discussion, then postnups can be a sensible way to guarantee that anger and resentment won't result in an unseemly money grab should a marriage end contentiously. Think of it as preventative financial planning.