Home > Personal Finance > Prenup vs. Postnup: Which Is Better?

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Hearts, flowers, love, prenuptial agreement. Remember the old Sesame Street song that went “One of these things is not like the others, one of these things just doesn’t belong.” That’s the feeling of dread that often accompanies a discussion about a prenuptial agreement. But what if you wait? Maybe have that nasty talk after you get married? Is there a difference between having a prenuptial agreement (which is negotiated and signed before marriage) or a postnuptial agreement (which is negotiated and signed during marriage)?

With a good deal of first marriages ending in divorce (and the rate is even worse for subsequent marriages), having the financial details of your marriage worked out can be a blessing. Divorce is often included as one of the top most traumatic events in a person’s life. Being able to quickly handle the financial details once you have decided to part ways can often be a godsend.

A prenuptial agreement must be accompanied by full financial disclosure. This ideally not only means a financial statement, but all of the bank statements, tax returns and deeds to support the information on the financial statement. In a perfect world, the signed document is then placed into a binder along with the financial statement and the support documentation and is stored like that until it may be needed. If one spouse later finds out that the other spouse failed to properly disclose financial information, the agreement could be found invalid and unenforceable, meaning it could be totally set aside. The divorce would then be treated as if there was never an agreement in place. Other ways that the prenuptial agreement could be set aside is if the court would find that one party entered into the agreement under duress. To alleviate this issue, it is recommended that the agreement not be presented to the soon-to-spouse at the church just before the ceremony. That might end badly. The further in advance that the agreement is signed the better.

Want to protect your future income? Retirement account contributions? Appreciation on your non-marital business? Then a prenuptial agreement is the only way to get that done. Without that document, all of the above becomes marital the day you say “I do.”

When You’re Already Married

Postnuptial agreements require many of the same elements that prenuptial agreements do. Courts generally like to see full financial disclosure (or, sometimes with postnuptial agreements the spouse can demonstrate a “general and proximate knowledge” simply because they had been married and in a position to “know,” but that can be risky so full financial disclosure is best), and that the agreement was entered into freely and voluntarily.

The main thing to remember with postnuptial agreements is that because there wasn’t a prenuptial agreement to begin with, many of the assets that may have been acquired during the marriage have already become “marital,” such as retirement assets, stock options that have vested and been earned during the marriage, or real estate that was purchased with earnings during the marriage. Thus, the agreement will have to address what’s going to happen with these already marital assets.

Both types of agreements should be as specific as possible. Spell out exactly what’s happening with assets, earnings, appreciation (active and passive) and real estate. Be clear about who is paying which bills and how. Be precise about future alimony payments – how much will they be, when will they be paid, and for how long? Or is there a waiver of support? Also, include a provision for attorney fees. Will there be a clause providing that if either party challenges the agreement unsuccessfully that person is now on the hook for both parties’ fees?

So what can’t be handled by either type of agreement? Anything to do with children – present or future. Courts have a duty to determine what is in the “best interests of the children,” so any predetermination of children’s issues will likely to be found unenforceable.

In conclusion, both types of agreements can be found valid and enforceable and both types of agreements can simplify a potentially traumatic divorce situation, but prenuptial agreements are a bit “cleaner” because they can prevent the accumulation of any “marital” assets before they even begin to be acquired. In the long run though, a solid agreement streamlines a divorce and that’s better than no agreement at all.

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