California Divorce and Family Law

Postnuptial Agreements

In February, the TV-talk-show psychologist Dr. Phil introduced his viewers to a new twist in domestic drama: a husband asking his wife to sign a postnuptial agreement. A postnup? Like a prenup, a postnup is a contract that divides a family’s assets between spouses — only this time it comes after the marriage vows have been spoken.      

Postnups are fast becoming a familiar part of the marriage-law landscape. A poll published this year by the American Academy of Matrimonial Lawyers found that almost half its members had seen an increase in the practice. Most states now recognize postnups (though many still place significant restrictions on them).

One reason couples use postnups, according to Stuart S. Greenfeig, a Maryland attorney who specializes in them, is to try to shore up rocky marriages. “They generally arise when there’s concern about the stability of the marriage — for example, when one spouse has committed adultery,” he says. Some clients wanting a divorce may end up reconciled through a postnup that guarantees more assets to the aggrieved spouse. Postnups also arise from simple economics: when a couple goes through a major financial change — the wife gets a major promotion and a significant income increase, for example — they may want to renegotiate their original terms. (Many postnup couples already have prenups.)

But why so many of these agreements now? One factor is that hedge funds and other high-value equity partnerships increasingly urge new partners to get postnups. It’s a phenomenon of the new gilded age: postnups assure such firms that a divorcing partner won’t be giving away part-ownership.

Thanks to the New York Times.

New to Marriage: the Postnup

Some Already Wed Couples Agree to Disagree

It may not be romantic, but a number of couples are using postnuptial agreements to avoid future fights over finances.

The postnup, which is neither as popular nor as tested in the courts as its big sister, the prenup, is an agreement signed during marriage. The voluntary contract could be used to decide such matters as the division of assets and income in a death or a divorce. But it also has limits: Postnups can't be used, for instance, to determine child custody and support issues, which need to be determined by a court.

"Financial issues often cause people to get divorced, and one way to try to avoid that is by writing a postnup," says Gaetano Ferro, president of the American Academy of Matrimonial Lawyers, a trade association. He says the use of postnups is growing; in a recent poll of AAML members, 49% said they had seen an increase in postnups during the past five years.

While the actual postnup document could be drafted by one lawyer, both parties need legal representation during the process, which could cost anywhere from $5,000 to $25,000 depending on the complexity of the case, says Leon Finkel, a matrimonial lawyer in Chicago. To complete a postnup, people need to fully disclose their financial assets and liabilities including salary and other sources of income. Tax returns and financial statements are needed.

Most states recognize postnuptial agreements as long as everything has been fully disclosed, and the parties were represented by independent legal counsel, Mr. Finkel says. Still, prenuptial agreements have been around a lot longer and have legal precedent. "They've been tested, and there's more law that governs them," says Mr. Finkel.

When postnups come up in legal disputes, courts are asking "does it smell coercive or does it smell reasonable?" says Brian Bix, a law and philosophy professor at the University of Minnesota. "There isn't that much case law" with regards to postnups. His advice: Check with a lawyer in your state.

Raising the idea of a postnup isn't easy, says Mr. Finkel. He suggests to clients who want to bring it up with their spouse to say: "I want to put our financial cards on the table, and we want to plan in case something happens to us." Another possibility, he says, is to bring it up during a session with the marriage counselor, if you are seeing one. A growing number of financial advisers also are recommending it to clients, especially if they haven't planned for important life events.

Some people use a postnup because they think their marriage is on the rocks, but it isn't unusual to write one to update a prenup, legal experts say. Indeed, more couples are using both prenups and postnups, especially in a second marriage.

While a postnup "suggests a lack of trust in one another," says Debbie Cox, a wealth adviser with J.P. Morgan Private Bank in Dallas, "it's really about prudent management of assets."

Eric Cramer, a financial consultant in Alpharetta, Ga., for Charles Schwab Corp., says more women are using postnups when they step off the career track to raise children. They like the idea of knowing they will have some financial security if something happens to their marriage.

Laura Morgan, a family-law attorney in Charlottesville, Va., and the co-author of "Attacking and Defending Marital Agreements," says couples also use postnups "to do something nice." Someone might want to give a spouse a gift of stock, for instance. "It's a way of making a gift during marriage," she says.

From The Wall Street Journal (subscription required).

America's Top Divorce Lawyers Cite Postnuptial Agreements as Growing Trend

Agreements Most Often Requested by Both Parties

In a recent poll of American Academy of Matrimonial Lawyer (AAML) members, 49% of the divorce attorneys cited an increase in postnuptial agreements during the past five years. Interestingly enough, 58% of the respondents most frequently draw up the agreements as a result of a request made by both parties, rather than it coming from either a husband or wife individually.

Rising in popularity throughout recent years, postnuptial agreements are voluntary marriage contracts between couples who are already married. The terms of postnuptial agreements can cover a wide variety of issues within a marriage, including disputes over potential finances, assets, children, and household chores. Couples can also seek a postnuptial agreement if the financial status of one or both partners changes dramatically after the marriage. The overall goal of the agreements is to help stop any potential conflicts and promote a stronger relationship.

"Postnuptial agreements, where valid, can be a good tool for addressing and solving problems spouses might be experiencing in their marriage," said Gaetano "Guy" Ferro, president of the AAML. "Having a written document with expectations and obligations clearly set forth reduces the areas of disagreement for spouses and can remove a good amount of stress from everyday married life."

Among the strangest items included in some postnuptial agreements, AAML members have noted: limits of the future number of children, provisions for pet visitation and care, and the dividing up of cemetery plots in the event of divorce.

From Yahoo Finance.

Duress & Undue Influence in Post-Nuptial Agreements

The California Court of Appeals addresses the burdens of proof and standards for establishing the defenses of undue influence and duress when seeking to make a marital agreement regarding property unenforceable.  The case involved a couple who had executed a premarital agreement giving Husband all his business property.  Eleven years later, while Husband and Wife were staying at an inn, he executed a document transferring to Wife as her separate property 20% of the stock in his business and the family home.  The couple separated a few months later and Husband soon thereafter filed for divorce.  The trial court found that this document was unenforceable due to undue influence and duress, as Husband had provided credible evidence that he had signed the document after Wife had screamed at him, struck him, and threatened to divorce him and alienate him from their children if he did not provide her with this security.  The court of appeals affirmed.

In regards to the undue influence argument, the court began with the presumption that, because married couples are in a confidential relationship with one another, "if one spouse secures an advantage from [an interspousal] transaction, a statutory presumption arises under section 721 that the advantaged spouse exercised undue influence and the transaction will be set aside."   Since Wife gained an advantage from the transaction, she then had the burden of rebutting the presumption of undue influence by proving that Husband's signature was "freely and voluntarily made, with full knowledge of all the facts, and with a complete understanding of its effect."  The court found that the trial court's decision that Wife had not met this burden was supported by the evidence.  The court agreed Husband had "executed the document as a reaction to [Wife's] continued yelling and screaming and out of fear that she would otherwise block him from having a continued relationship with his children" and therefore the agreement was not freely and voluntarily made.

The court also found that the alternative grounds of duress was supported by the evidence.

The court of appeals, found that duress does not require proof of illegal acts but rather "includes whatever destroys one's free agency" and may be proven by "threats, importunity or any species of mental coercion"'    

In this case, Ralph's free will was constrained by Kathleen's threats to deny him access to his children. Kathleen disagrees, saying that any threat to deny Ralph access to the children could hardly constitute duress, inasmuch as child custody and visitation matters are resolved by the courts. She emphasizes that Ralph, as a successful businessman, had access to lawyers and should have known better than to be frightened at the suggestion that she somehow could have thwarted his rights to see his children. However, as Ralph testified, he did not discuss Kathleen's threats with legal counsel until after the date he was constrained to execute the October 1999 writing. Moreover, it is not unheard of for one parent to fail to comply with court custody or visitation orders or to engage in efforts to scuttle the relationship between the children and the other parent. As a practical matter, the courts are ill-equipped to undo the damage done by infighting parents....    

It is also true, as Kathleen states, that Ralph admitted he was not actually afraid for his physical safety on account of Kathleen's physical abuse of him. The fact that he did not expect to wind up in the hospital the next time she struck him does not, however, mean that her abuse did not have a cumulative and real effect on his mental state.

In re Marriage of Balcof, 2006 Cal. App. LEXIS 1252 (August 15, 2006)

See the Family Law Prof Blog.

No Presumption of Undue Influence in Post Marital Agreements Absent Proof of Unfair Advantage

Wife file for divorce.  The couple then decided to try to reconcile and, as part of their resolution, they drafted a post nuptial agreement to settle their financial affairs. Four years later when Wife again filed for divorce, she challenged the validity of the agreement that she contends is nothing more than a "pre-packaged divorce."

The California Court of Appeals affirmed the trial court's order finding the agreement valid and enforceable.  Relying in part on precedent drawn from the trustee-beneficiary context, Wife argued that the agreement should have been presumed the product of undue influence because husbands and wives are in a fiduciary capacity toward one another.  The court rejected this approach. It found the better analogy to be toward the fiduciary relationship of partners.    

"the precedents construing statutory requirements applicable to transactions between trustees and their beneficiaries are not controlling in interspousal transactions. Interspousal transactions are expressly governed by Family Code section 721, which prohibits a spouse from taking "any unfair advantage of the other," and treats the fiduciary duties of spouses like those of business partners. The distinction between the two types of fiduciary relationship - trustee-beneficiary on the one hand, and spouses or business partners on the other - is entirely reasonable, because in the latter fiduciary duties run in both directions. Indeed, just as it would be patently irrational to presume undue influence in a contract between business partners, it would likewise be unreasonable to presume undue influence in a contract between spouses, unless one of the spouses has obtained an unfair advantage. For these reasons, we conclude that a contract between spouses that "advantages one spouse"..., and therefore raises a presumption the transaction was induced by undue influence, is a transaction in which one spouse obtains an unfair advantage over the other."

The court likewise rejected Wifes arguments that the agreement was based on fraud because husband did not provide wife with written information about the mergers in progress during the negotiation of the post-marital agreement.  The court concluded that wife was aware of the negotiations and failed to investigate their significance or effect and thus was bound by the terms of the marital agreement.

In re Marriage of Burkle, 2006 Cal. App. LEXIS 732 (May 18, 2006)

Big thanks to Family Law Prof Blog.