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Prenuptial and Postnuptial Agreements: Tips

Prenuptial and Postnuptial Agreements: Tips

Originally published in October 2019

Marital Property

As a general rule, all of the money earned and property and debts accumulated during a marriage are considered “marital property” and are subject to division in the event of a divorce.

Even an unrealized gain (but not a loss) on non-marital property is marital property.

Pennsylvania is an equitable distribution state, which means the court will distribute the marital property in a manner it considers to be fair, not necessarily 50/50.

As an alternative, prenuptial and postnuptial agreements (“marital agreements”) allow the parties to determine for themselves how marital property will be divided, and to address other issues. The primary difference between prenuptial and postnuptial agreements is that the former is entered into before marriage and the latter after marriage.

Marital Agreements are Legally Binding Contracts

Marital agreements determine how spouses will divide marital property (including financial assets, personal property, real estate, business interests, investments, retirement benefits, and debts) in the event of a divorce. They also can exclude assets from marital property subject to division.

In addition to the division of marital property, marital agreements can address almost anything of interest to the spouses, including health and/or life insurance continuation, but not issues of child custody or child support, as those issues are determined by the court based on the best interests of the child at that time, regardless of any agreement between the spouses.

Marital agreements are treated similarly to private business contracts. In Pennsylvania, they are generally enforceable as long as there is no fraud, misrepresentation or duress (defined narrowly), full financial disclosure is made by each spouse, and each party has had an opportunity to seek advice from their own attorney.

When to Use Prenuptial Agreements

Having A prenuptial agreement should be given serious consideration in the following circumstances:

One individual is much wealthier and/or earns a much higher income than the other;
Either individual owns real estate that they want to keep separate;
One individual has substantially more debt than the other;
Either individual has children from a previous relationship;
Either individual owns a business or is part of a family business;
Either individual stands to inherit a significant sum of money in the future; and/or
A dissimilar contribution to the marriage is contemplated.

Validity of Marital Agreements

Certain criteria should be met to ensure the validity of a Marital agreement. At a minimum, the agreement should be:

In writing;
Signed by both parties;
Notarized; and
Accompanied by a complete and full disclosure of the assets and liabilities of both parties, including estimated net worth – or be “fair.” It is possible to waive the requirement for full disclosure of financial information if the waiver is voluntary and in writing. But, doing so adds significant risk of non-enforceability.

It also must be clear that the parties fully understood and voluntarily accepted the terms and conditions of the agreement, the agreement is not the result of fraud or duress, and the parties had an opportunity to consult with their own attorneys before signing the agreement. Proof of consultation with counsel should be attached to the agreement.

Enforcement & Portability of Marital Agreements

In general, marital agreements will be enforced in accordance with the laws of the state in which they were prepared and executed. However, because divorce law varies among states, it is impossible to be absolutely certain of the enforceability of an agreement across state lines.

The inclusion of a broadly drafted “choice of law” provision that addresses the application of both substantive and procedural law may be effective when it comes to enforcing the agreement in accordance with the laws of the place of its execution, as long as the terms of the agreement are not contrary to the public policy of the state in which it ultimately is enforced. This is a serious concern for mobile couples.

Author: Mark J. Kuhar