What Is A Postnuptial Agreement And Why Might You Need One?

When it comes to protecting assets from a divorce settlement — or at the opposite end of the spectrum, insulating your spouse from your debts — the gold standard is what's called a prenuptial agreement. Also known as a premarital agreement, it's a legally binding contract that's created by two people before marriage. In particular, the "prenup" outlines how finances, such as assets, debt, and support like alimony, will be allocated in the unfortunate event the marriage ends in divorce.

In some camps, electing to sign a prenuptial agreement is viewed as starting marriage off on a negative note, as it implies the relationship will ultimately fail. Yet others see a prenup as a healthy step because it opens a greater discussion about important financial topics, such as spending and savings habits, before spending a small fortune on a wedding.

However, did you know that even after marriage, it isn't too late to define how assets should be divided if you break up? Enter the postnuptial agreement. Like a prenup, the postnuptial agreement establishes an equitable — or, at least, agreed upon — division of assets or debt in the event of a divorce, even after you've already been married for a while.

You could reap a windfall after getting married

You might ask yourself why the need for a postnuptial agreement when a couple has already elected not to address the division of assets prior to marriage? The most obvious reason is when the finances of one or both halves of the couple change. This could be the result of receiving a large inheritance (or a gift), growing a successful business, or a liquidity event, such as cashing out that wallet full of bitcoin you purchased 10 years ago for $300 per token.

Obviously, this imbalance of wealth in a relationship can be a source of argument or stress between couples. According to finance expert and bestselling author Jason Tartick, whose most recent work is "Talk Money to Me," that angst can be relieved with a clear discussion surrounding the disposition of the newly found wealth. Said Tartick, "[T]he stressor becomes when there isn't conversation around it — yet, there's assumption around it — and a plan in place isn't put based on what the priorities of both of the individuals in the relationship have. That's where I believe the main issue becomes. When we assume, when there's a gray area, and there aren't clear understandings or expectations."

Suggesting a postnuptial could be awkward, but helpful

Besides protecting a monetary windfall, a postnuptial agreement could also serve to comfort a stay-at-home parent who perhaps sacrificed their career to be more involved with the raising of offspring. As well, prearranged divorce terms set out by a postnuptial that are favorable to a jilted spouse may alleviate tension or anger. For example, if the one spouse has been unfaithful, the sharing of assets in the event of divorce could be viewed as a commitment to making the marriage survive. Of course, we're talking about marital infidelity, not the financial type of infidelity that can exist between couples.

While a postnuptial can provide a clear roadmap of how assets will be divided in divorce, note that it's not a panacea for other messy breakup-related issues, such as the custody and financial support of children. Any mention of such topics in the postnuptial won't be legally valid, demurring to court orders or your state's laws instead.

In summary, broaching the topic of drawing up a postnuptial agreement with your spouse is about as romantic as discussing a prenuptial, but sometimes unpleasant conversations are a necessary part of life. If establishing a plan as to what happens if a marriage goes south serves to comfort or reassure a spouse, that may ultimately strengthen the marriage and remove at least one source of argument-causing stress.