Postnuptial Agreements in New Jersey

1. What is a postnuptial agreement?

A postnuptial agreement is a contract between spouses. It is similar to a prenuptial agreement except it is signed during marriage. A postnuptial agreement is entered into in contemplation of an ongoing, viable marriage. As with prenuptial agreements, one or both of the parties usually is seeking to protect assets or income in the event of divorce or death.

A married couple may seek to enter into a postnuptial agreement after a significant financial change or a period of marital conflict. The law regarding the validity and enforcement of postnuptial agreements is not well developed in New Jersey. This is an emerging area of the law.

The legal standard for the enforcement of postnuptial agreements is very similar to the one used to assess whether a prenuptial agreement is valid. The key criteria for the validity of these agreements include: full disclosure of assets, absence of duress, and fairness.

When a man and woman are married (instead of just contemplating marriage), they may be held to a very high standard of fairness when dealing with each other on financial issues – perhaps a higher standard than would be the case if they were entering into a premarital agreement.

When entering into a postnuptial, it would be a good idea for the parties to articulate in writing why they are entering into the agreement and to be sure the agreement is fair for both parties. There are two basic rules that should be followed to safeguard your agreement: (1) full and fair disclosure; and (2) separate and independent counsel.
     

2. Is there any difference between a prenuptial agreement and a postnuptial agreement?
 
Yes. A prenuptial agreement is entered into before marriage, and a postnuptial agreement is entered into after marriage. How the law views the parties is much different. Before marriage, the parties are entering into an agreement much like two business persons entering into a contract. After a marriage, they are in a fiduciary relationship with each other, and any transactions made between them are viewed with caution.

Many people don’t know that there is a significant difference between a prenuptial agreement and a postnuptial agreement. Although some think both are equally valid and offer the same amount of protection, that is not the case. Most New Jersey family courts view a postnuptial agreement with some degree of suspicion. It may be that a wife is under a tremendous amount of pressure from her husband to sign a postnuptial agreement. Meanwhile, the opportunity to argue the legal concepts of undue influence and duress are not as convincing in litigation to void a prenuptial agreement. Certainly, a postnuptial agreement is better than no agreement at all, but many individuals are under the misconception that they are as “covered” with a postnuptial as with a prenuptial agreement.

The harsh reality is that the family courts tend to assume that a prenuptial agreement is always valid. However, most family courts have the opposite reaction when they review a postnuptial agreement. A postnuptial agreement is hard to enforce simply because once married, a couple has a fiduciary duty to care for one another in all ways.

3. What are the typical reasons a postnuptial agreement is made?

As with prenuptial agreements, postnuptial agreements are made for many reasons and entail a variety of postnuptial issues including divorce settlements, division of property, and property settlements. The typical reasons include:

a. One spouse believes that the marriage is rocky and wants protection.

b. Long-married couples who intended to draft a prenuptial agreement but never got around to it.
 
c. Use as an estate planning tool (for example, individuals needing to secure a steady income for a specified length of time).
 
d. People hoping to limit specific provisions in a divorce agreement.

4. Why should I have a postnuptial agreement?

Prenuptial agreements between Hollywood’s rich and famous often make headlines, but they have a less glamorous cousin: the postnuptial agreement. Average Americans are increasingly turning to this post-wedding paperwork to salvage shaky marriages. Like the prenuptial agreement, the primary purpose of a postnuptial agreement is to stipulate ownership and the equitable distribution of financial assets in the event a married couple divorces.

A couple might enter a postnuptial agreement for several reasons:

a. They didn’t define their financial relationship in a prenuptial agreement.

b. They want to change the terms of their prenuptial agreement.

c. One party’s financial circumstances have changed, perhaps through inheritance, promotion, stock options, or sale of a business.

d. Financial insecurity is now undermining the marriage.

e. They want to provide for children from a prior marriage(s).

f. They want to specify the equitable distribution of their assets rather than leaving it to the divorce laws of New Jersey.

5. How may a postnuptial agreement be beneficial to your marriage?

Even if you have been married for many years, it’s never too late to enter into an agreement that promotes domestic harmony and protects your marriage. The number of mid-marriage agreements has exploded in the past five years. There are many negative connotations attached to the word “postnup,” as if it is admitting your relationship’s defeat. It is less intimidating to look at the process as a communication tool and as a “seatbelt” for your relationship in the case of death or divorce.

Bringing up the subject of a postnuptial agreement can be a great way to resolve underlying financial and communication issues that could be causing undue stress in your marriage. By opening up this line of discussion, you are well on your way to solving festering problems, which could strengthen your marriage.

Here are a few reasons why a postnuptial agreement may be beneficial for your marriage:

a. You may have overlooked a prenuptial agreement and want to legally define your relationship in an agreement. Many couples got married in a time and place where discussion of marriage contracts was discouraged. Today this process is more common. New Jersey’s laws that apply to the distribution of property in the case of death and divorce are very vague. The most responsible way to manage your marriage is to take control and make your own decisions.
 
b. You may want to change a prenuptial agreement that you signed before the marriage. Your financial circumstances may have changed through inheritance, receipt of stock options, sale of a business, etc. Perhaps one, or both of you, began your own business. Or one of you has children from a previous marriage to whom you want to allocate funds or property.

c. You or your spouse has an emotional need for security. Creating a postnuptial agreement can be used for reconciliation purposes. If you have had marital difficulties and decide to “give it another shot,” a postnuptial agreement can be used as a security blanket.

6. How can the use of an effective postnuptial agreement help you avoid a potentially messy divorce?

A postnuptial agreement is essentially the same as a prenuptial agreement, but it is signed after a couple is married. Why should a person sign such an agreement after marriage? Well, there are several good reasons:

a. Prenuptial agreements sometimes contain “sunset” provisions, meaning that the agreement expires a certain number of years after it is signed. Some couples want to renew their prenuptial agreement, and a postnuptial agreement can be used to do this.

b. One spouse may have experienced a change in financial circumstances, thus prompting the need for a postnuptial agreement.

c. Some couples don’t agree on major investment or debt decisions. If, for example, one spouse is a saver and the other enjoys racking up credit card debt, the postnuptial agreement can be used to separate assets and debts.

d. A postnuptial agreement can be used to set the dollar amount that one spouse will receive if the marriage turns into a disaster. That way, the couple can exclude any future increase in assets and/or income from the divorce proceedings.

e. Postnuptial agreements can also be used to replace restrictive prenuptial agreements with a more liberal and giving agreement. That way, once a couple realizes that they will be together forever, they can alter their prior agreement with a postnuptial agreement.    

7. What are some important considerations of a postnuptial agreement?

Even though postnuptial agreements often serve the same purpose as prenuptial agreements, the family courts scrutinize postnuptial agreements much more carefully than prenuptial agreements. Postnuptial agreements are held to a higher legal standard of fairness. The theory behind this is that the parties have less leverage when they negotiate a postnuptial agreement as compared to a prenuptial agreement. Unlike prenuptial agreements, there is no uniform act that applies to postnuptial agreements. The general rule in this quickly emerging area of law, however, is to apply the same rules for all marriage contracts. Both you and your spouse should be represented by separate and independent legal counsel. In addition, you must provide full financial disclosure to each other.

8. I was recently married and will be purchasing a home with my new wife. We both have similar incomes and will be sharing the mortgage payments. She plans to pay $20,000 toward the purchase of the marital home, and I plan to pay $100,000. Am I entitled to receive my full share of the purchase monies if we should get a divorce and sell the house?
 
You should certainly obtain a postnuptial agreement by consulting with an experienced family law attorney. Don’t try to draft your own postnuptial agreement, as one mistake could invalidate the entire agreement. In the postnuptial agreement, you can specify that you will receive your entire $100,000 payment upon resale. The postnuptial agreement can specify that the $100,000 is deemed to be a premarital asset and thus is not subject to New Jersey’s laws of equitable distribution. The postnuptial agreement can even address how the $100,000 will be used if you should die. Perhaps you have relatives that you need to support.

It is essential in this type of scenario to obtain a carefully crafted postnuptial agreement. Otherwise, you could essentially be making a gift of $40,000 to your wife. The bottom line is this: don’t overlook your finances just because you are married.

9. Are postnuptial agreements valid in New Jersey?

In New Jersey, postnuptial agreements are considered the same as any other contract that parties may enter into and, therefore, are presumed to be valid and enforceable. This presumption can be overcome only if clear and convincing evidence is presented by the spouse seeking to set aside the agreement that the agreement was not entered into voluntarily, or that there was not a full and fair disclosure of assets and liabilities.

Like a prenuptial agreement, a postnup will be evaluated under the same legal criteria applicable to contracts between individuals who stand in a confidential relationship to each other. They are also subject to the same rules of contract construction and will not be enforced if they are too vague. Consequently, the party against whom enforcement is sought must have entered into the agreement voluntarily, free of circumstances involving fraud, duress, or undue influence, and the agreement must appear fair and reasonable on its face. There must be full and fair disclosure as well. Thus, it is the burden of the person seeking enforcement of the postnuptial agreement to prove by clear and convincing evidence that the agreement was not fraudulent or coerced and that it is fair and equitable. 

10. What is the main New Jersey case on the validity of postnuptial agreements?

The major case on the enforcement of postnuptial agreements is Pacelli v. Pacelli, 319 N.J. Super. 185 (App. Div. 1999). Here, husband and wife battled over the validity of their postnuptial agreement. They had been married for 10 years in 1985, when, she asserted, he told her to choose between divorce and signing a postnuptial agreement. Under the agreement, she was to be awarded $500,000 and half of a $1 million summer home if they divorced. But when the husband, a developer, filed for divorce in 1996, his wife argued that she was entitled to more of his fortune, which had increased from $5 million to $11 million.

The trial court held that the agreement was enforceable, as it was not the result of coercion or duress and was fair as measured in 1985. The wife appealed to the Appellate Division. The Appellate Division reversed and held that the postnuptial agreement was invalid. The Appellate Division held that the agreement was made under duress and that it was not fair and equitable when made.
           
The Appellate Division also went to great lengths to highlight the stark differences between a prenuptial agreement and a postnuptial agreement. The court held that the dynamics and pressures in negotiating a mid-marriage agreement are entirely different as compared to a prenuptial agreement. Moreover, the Appellate Division held that the terms of the postnuptial agreement did not provide the wife with a fair share of the marital assets. The court noted that she would receive a far greater share of the marital assets if there was a full divorce trial.

11. Can a postnuptial agreement be used as part of my estate plan?
 
Yes. Postnuptial agreements are often used to effectuate an estate plan when there is a second marriage. In New Jersey, a spouse has a right to take an elective one-third share against the will of the deceased spouse. An effective way to prevent a spouse from taking against the will is to execute an agreement in which the partners voluntarily give up the right to a statutory share of each other’s estate, and agree on how much – or how little – of the other’s estate each will inherit. These agreements can be made before the marriage (prenuptial) or after the marriage (postnuptial). If a prenuptial or postnuptial agreement is made, then the surviving spouse will not automatically receive one third of the deceased spouse’s estate.