Nearly three years ago, John was headed for a divorce he did not want. After more than a decade of marriage—his second and his wife’s first—she filed, John says, “clearly for financial reasons.”

A former senior corporate executive, John earned the good life. He retired in the early 1990s with a stack of low-basis stock from his employer. He borrowed against it for income and, while the stock performed well, the couple lived lavishly. John bought his wife extravagant jewelry—spectacular diamond and ruby necklaces priced at more than $50,000 each. They bought two upscale homes that have since appreciated. But when John’s stock plunged in value a few years ago, the marriage began to plummet as well. Budgeting became a necessity, and, though not in dire financial straits, John had to begin paying back his loans.

John resides in a community-property state, where divorce courts say that all assets acquired during a marriage belong equally to both spouses, unless either one can prove that the property is separate. But when one spouse owns assets that increase in value after the marriage— say, a house that appreciates—this becomes complicated. Without detailed records, a clear distribution of property becomes difficult. “It’s not a simple question,” John laments, adding that his own record keeping left much to be desired.

Because of this, the court would divide all John’s assets if the marriage collapsed. “I realized that if we got a divorce, we each would have less in income and assets,” he explains. Dissolving the marriage would mean “we’d spend a huge amount on legal counsel and would have to sell our assets to pay the debt on the stock.” Given that he and his wife were already living separate lives, and “it was a long time since we’d had a real marriage, we agreed to treat [our marriage] like a business deal.”

TOP VIEW Postnuptial agreements are relatively rare legal contracts that specify a couple’s financial responsibilities and entitlements and override state law regarding spousal rights to inheritance. While conventional wisdom holds that most postnuptials are harbingers of divorce, many of these agreements are signed to provide a level of economic security and to resolve financial issues before they become problematic.

John and his wife cemented the deal with a postnuptial agreement, the rare cousin to the prenuptial agreement. Like the prenup, the postnuptial is a contract that spells out a couple’s financial responsibilities and entitlements, and overrides state law regarding sp spousal rights to inheritance. As a binding contract, a postnuptial is conceptually the same as a prenup, but is signed after the marriage, says Arlene Dubin, partner with Sonnenschein Nath & Rosenthal in New York, and author of the book Prenups for Lovers. “They can cover the waterfront, or they can cover one issue.”

PROFLIGATE PROTECTION
Dubin says postnuptials can be useful in several situations. As in John’s case, a postnup can be a first step in saving a marriage stretched to its limit by financial strain. Other couples simply want to set ground rules for the financial matters that have accumulated during marriage. Postnups are appropriate if one spouse harbors some financial insecurity that could lead to a festering problem in the marriage. “I had a couple where the man was a loose spender, and there was a lien on the apartment.” Dubin says. “The wife couldn’t handle it, and we needed to separate her affairs. We put the apartment in her name so she felt some sense of security. As far as I know, they are still married.”

In another of Dubin’s cases, the husband received an inheritance from his uncle and wanted his wife to quit her job and travel with him. With no legal claim to any part of the inheritance, she was reluctant to give up her income, but a postnuptial agreement provided her enough financial security to leave her job.

Stevie Casteel, a trusts and estates attorney with King & Spalding in Atlanta, says she drafted a postnuptial for a couple who had businesses and liabilities in each of their names. They sought the contract to clarify ownership and responsibilities for the businesses and their separate and joint property. “Divorce was not contemplated at all,” Casteel says. “They just wanted to govern their economic situation.” Casteel says that if a postnuptial is not pursuant to a divorce, she most often drafts one when couples have built separate businesses, or one or the other is involved in an existing family business. “Postnups provide a measure of economic security and resolve economic issues,” she adds.