What’s the difference between a prenup and a postnup? Do you need one? And if so, which is the right fit for your marriage?
You may feel as if you and your new spouse are destined for eternal bliss, and it’s true that divorce rates are dropping in the U.S., with just 14.9 out of every 1,000 marriages ending in divorce in 2019, the lowest rate in 50 years. Still, a 2018 report in Time magazine said that 39% of all U.S. marriages end in divorce. That’s down from nearly 50% in 2010, but the odds on that eternal bliss still aren’t the greatest.
Here is the reality: If you or your spouse is wealthy, expecting a large inheritance, or entering your second, third, or fourth marriage, divorce or death wouldn’t just mean heartbreak. Either one could also lead to some serious financial ramifications. In the case of a death, these are magnified if your spouse leaves children from a previous marriage. This is why more and more couples are opting to sign a prenuptial or postnuptial agreement. Here’s a look at both—and why one or the other may make sense for you.
- Prenuptial (before marriage) and postnuptial (after marriage) agreements spell out how a couple will divide their assets in the event their marriage dissolves.
- Prenups are important when one member of a couple has significant assets, a large estate, children from a previous marriage, or expects to receive a large inheritance or distribution from a family trust.
- Neither prenups nor postnups can address plans for a couple’s existing or future children.
- It can be helpful to use an attorney to draw up one of these agreements, as tax law can complicate the financial picture.
What Is a Prenup?
As the name suggests, a prenuptial agreement is made before the marriage. In this type of contract, the couple determines how they will divide their assets should the marriage ever come to an end. In that sense it is a financial tool. Prenups are accepted in all 50 states, though the states may vary on how they interpret them.
Many critics argue that negotiating a prenuptial agreement before your wedding is wildly unromantic, and the uncomfortable process can doom a marriage before it begins. However, proponents of prenups point out that these agreements can save a lot of heartache, not to mention money, in the event of divorce—especially if it’s not their first marriage. When a couple decides to split, prenups can prevent nasty, drawn-out, excessively expensive court battles. Because everything is already spelled out in the agreement, everyone knows exactly who gets what, and there’s no room for argument.
Similarly, these agreements also spell out financial distributions in case of a spouse’s death. This is particularly important for couples with children from previous marriages.
What Is a Postnup?
Postnuptial agreements have become increasingly common in recent years and in many ways are almost identical to prenups. The biggest difference is that postnuptial agreements are made after the wedding. However, unlike prenups, which are generally considered valid upon marriage, a postnup will be scrutinized by the courts before deciding whether or not it is enforceable.
If you’re considering a postnup, it’s important to understand that many of your assets become marital property the moment you utter, “I do.” These might include retirement assets, stock options earned during the marriage, and real estate purchased since your marriage. Therefore, you’ll need to determine how to divide these marital assets, as well as any future earnings, in your postnuptial agreement.
Who Needs a Prenup?
Prenups aren’t for everyone. Divorce attorneys generally agree that a young couple getting married for the first time—and bringing few or no assets to the union—has no need for such a contract. The main exception: if one spouse (or both) expects to receive a large inheritance or distribution from a family trust. However, most attorneys say prenups are absolutely essential for couples entering a marriage with significant assets of their own or a large estate.
A prenuptial agreement can help protect each spouse’s premarital assets, ensuring they don’t become community property, even if commingled in some way afterward.
In a prenup you can also determine what (if any) share your spouse will receive of your estate should you get divorced or die. This is especially important if you have a significant estate and children from a previous marriage to whom you want to leave a portion, if not all, of that estate. If you do not sign a prenuptial agreement that spells out these details, most states will automatically give your surviving spouse a share of your estate upon your death.
A prenup can also protect any income or assets you earn during the marriage, as well as unearned income from a bequest or a trust distribution. Without a prenup, you may be required to pay alimony to your ex-spouse. However, with a prenup, you can predetermine a specific alimony amount or even eliminate it altogether.
In addition to financial considerations and asset division, couples often include personal clauses in a prenup. However, given that a prenup is designed to address financial issues, inserting unenforceable items—such as limits on a spouse’s weight gain or who gets custody of the dog or cat—may lead the courts to consider the document frivolous; better to put those pledges in a separate document.
The one thing that cannot be handled by a prenup (or a postnup, for that matter) is anything dealing with the couple’s existing or future children. In the event of a divorce, courts are left to decide what is in the offspring’s best interests, and prenup provisions of this nature are generally found to be unenforceable.
Who Needs a Postnup?
Many couples who opt for postnups simply ran out of time to sign a prenup. In all the chaos and excitement of planning a wedding, they didn’t get around to sitting down and discussing the division of assets in the event of divorce (or they lacked the desire to do so). Others see the procedure as an awkward, overwrought process that is better put off until after the nuptials.
However, it's often couples who have already been married for five, 10, or even 20 years who decide to sign a postnup. In some cases the couple is giving their struggling marriage one last college try, and they’re using the postnup as an ultimatum. In other situations one of the spouses might have recently received a large inheritance or gift, such as a family home, and wants to clarify that it is theirs.
The Bottom Line
Divorce is often said to be one of the most traumatic events in a person’s life. Being able to quickly and amicably handle the financial details after you’ve decided to part ways can remove some of the pain from the process.
While both prenups and postnups can be found valid and enforceable during a divorce, some experts claim a prenuptial agreement is often the more straightforward of the two, as it is made before a couple combines assets. Even so, divorce attorneys say a postnuptial agreement is better than no agreement at all, especially for couples in second marriages with sizable assets or large estates. Both documents also clarify issues in the event of the death of a spouse, especially one who brought children into the marriage.
Keep in mind that provisions in the Tax Cuts and Jobs Act have altered the landscape of divorce—through changes in how alimony is treated for tax purposes, for example, and the elimination of the exemption for each dependent. For these reasons it may be wise to use both an attorney and a tax advisor in drawing up a prenup or postnup.