January 2013 Archives

January 17, 2013

Ensuring a Postnuptial Agreement is Enforceable in New York

In Part 1 of our series on postnuptial agreements, we discussed six reasons why postnuptial agreements are gaining popularity; in Part 2, we will identify the most important factors in ensuring your postnuptial agreement is legally enforceable in New York.

Postnuptial agreements are, first and foremost, contracts between married parties. However, they differ from standard contracts in one fundamental way: Unlike traditional business contracts, the parties entering into postnuptial agreements owe a higher duty toward each other - what the New York courts have called "a fiduciary relationship requiring the utmost of good faith" (Petracca v. Petracca). For the court to uphold a postnuptial agreement, there must be a heightened level of fairness to each party. Accordingly, in the event that you decide to draft a postnuptial agreement, or you are presented with one by your spouse, you should make sure the following features are present:

• Consideration - This legal term essentially just means that each party is giving something up (it can be tangible, like real estate or money, or intangible, like a legal right or the value of a graduate degree) in exchange for what that party is receiving. Courts will not uphold an agreement in which one party is required to give up all of his or her expectations in a potential divorce, but the other party makes no concessions.

• Fairness - This is a vague concept, but courts will not uphold an agreement that puts one spouse in a significantly more advantaged position than the other in the event of divorce. If an agreement promotes an unfair outcome, it will not be enforced. It is not necessary for the disparity to be fraudulent or even intentional - even unintentional unevenness may cause the courts to invalidate an agreement.

• At Least Two Attorneys - Each party should consult with an independent attorney of his or her own choosing. If, as a result of an agreement, one party winds up in a financial position that is substantially more secure than the other, and that party's attorney drafted the agreement, courts will find this suspicious and be less likely to enforce the agreement.

• Signatures and Acknowledgments - There are very specific rules regarding signatures on postnuptial agreements; the slightest error will invalidate the whole agreement. It is a good idea to consult an attorney and make sure the document is executed with the required formalities.

• Full Disclosure - Each party must inform the other of each and every asset he or she has or expects to have in the future (business interests, inheritances, etc.). The concealment of assets of one spouse from the other will invalidate a postnuptial agreement.

By consulting with an attorney in the event that you and your spouse decide to separate or divorce, you will be able to ensure that your postnuptial agreement will be enforceable.

January 7, 2013

6 Reasons Postnuptial Agreements Are Gaining Popularity

Requests for postnuptial agreements are on the rise in New York and across the country. According to a recent survey by the American Academy of Matrimonial Lawyers (AAML), more than half of its members have seen an increase in the number of clients requesting postnuptial agreements.

A postnuptial agreement is a contract entered into by married couples that provides terms that will govern in the event of death or divorce, including how to divide assets, the relinquishment of certain property rights that spouses would otherwise be entitled to and the terms of spousal support and child support.

Why Might A Couple Want A Postnuptial Agreement?

Postnuptial agreements are useful in a variety of circumstances and for a variety of couples, regardless of age or wealth. These reasons include:

1. Financial Concerns - A party may learn that his or her spouse has secretly incurred debt that threatens the family's financial stability. Or one spouse may learn that the other has been hiding a gambling addiction. These types of revelations can lead to issues of trust so serious that they can damage the marriage. For couples that wish to stay together despite these circumstances, a postnuptial agreement can lay out the terms of who will be responsible for paying the debt, both during the marriage and in the event that the marriage should end, and can provide terms that require the indebted spouse to indemnify the other spouse against any financial harm resulting from the debt or gambling. The non-indebted spouse thus has the benefit of knowing that he or she will remain financially secure or, at the very least, will not be worse off if he or she agrees to give the marriage more time to repair itself.

2. Unequal Assets - A spouse who has made significantly more money than the other spouse may want to secure a higher proportion of the parties' assets in the event of divorce. Similarly, a spouse who has stepped out of the workforce to raise children, may feel financially insecure due to a lack of retirement savings or reduced earning capacity. In either of these situations, a spouse may need an agreement that provides him or her with an unequal distribution of property in order to feel secure in the marriage.

3. Second (or Third) Marriages - Oftentimes, spouses who have been married before bring to a new marriage assets that they wish to preserve for children, grandchildren or even parents to whom they feel financially obligated. A postnuptial agreement can make clear which resources during the marriage can be used to help support a spouse's other family members and which are off limits. In the event of death, a postnuptial agreement can provide the surviving spouse with financial security by allowing him or her to remain living in the deceased spouse's home and/or using financial resources that may eventually be inherited by the deceased spouse's children or grandchildren.

4. New Inheritance - If one spouse inherits assets during the marriage, those assets will be seen as separate property if they are kept apart from marital funds and remain in the inheriting spouse's own name. But what if the inheriting spouse wishes to use those assets to help buy a new family home or make another investment that will benefit the family? A postnuptial agreement can be used to state exactly what will happen to the funds in the event of death or divorce, thereby helping the spouse who inherited the assets to feel secure and helping the other spouse and the family to benefit from use of the assets during the marriage.

5. Purchases of Property - Similar to deciding what to do with inherited funds, if a couple uses one party's funds earned prior to the marriage to purchase or renovate a home, there may be concerns about who gets credit for providing the funds used to purchase the home, whose name will be on the deed, and what may happen to the home should the marriage fail. If the marriage is already somewhat troubled, these concerns can be even more prominent. A postnuptial agreement can take this particular stress out of purchasing property by laying out terms for what will happen to the property and the assets that went into its purchase or renovation in the event that the marriage fails.

6. Never Signed a Prenuptial Agreement - Some couples plan to enter into a prenuptial agreement, but either run out of time in which to execute the document before the marriage, or back off of the concept because one or both of the parties is uneasy about it or feeling too much pressure. A postnuptial agreement can lay out whatever terms the parties would have included in a prenuptial agreement, and can be entered into at any point after the marriage, when emotions are not as high.

These are just some of the reasons why it might make sense for a couple to enter into a postnuptial agreement. Just as all marriages are different, so are the issues that arise that can be resolved with a prenuptial agreement.

In our upcoming blog posts, we will discuss what terms need to be in a postnuptial agreement to make it enforceable in New York and how to prepare yourself for the negotiation process and choose the right attorney for you.