Q: What is a postnuptial agreement and why do people enter into them?
A: A postnuptial agreement (sometimes referred to as a post-marital agreement) is a private contract between a couple who already is married that may define the rights and obligations between the parties concerning how to handle debt, certain assets, future spousal support obligations and property division, as well as certain provisions in the event of a spouse’s death.
The same reasons that cause people to enter into prenuptial agreements are what causes them to contemplate entering into a postnuptial agreement. In addition, there are unique circumstances which may arise after marriage that cause people to consider entering into postnuptial agreements. In particular, when one spouse is entering into a risky business venture, the other spouse may wish to protect his or her share of the assets, or the family home, from possible loss to a business failure. Couples may agree through a postnuptial agreement that the spouse who is taking the risk should be solely responsible for the debts incurred as a result of the business.
If a marrying couple does not have a legally binding prenuptial or postnuptial agreement, later on, if there is a divorce, the Family Code will control what will happen to parties’ assets and debts. On the other hand, a couple who has a valid prenuptial, or postnuptial agreement, can preset the distribution of their assets and debts in the event of divorce. In short, prenuptial and postnuptial agreements permit a couple to “opt out” of the Family Code, and adopt a plan that personally suits their own needs.
The most significant difference between prenuptial agreements and postnuptial agreements concerns the fiduciary and confidential relationship which spouses have to one another, created by the marriage under Sections 721(b) and 1100(c) of the California Family Code.
After marriage both spouses stand as “fiduciaries” to the other. As a result, each spouse has the duty of highest good faith and fair dealing with the other spouse, and neither spouse can take any unfair advantage of the other. Included in this fiduciary relationship is the requirement that both spouses provide the other with full disclosure of any and all information pertaining to issues contained in the agreement. Marital agreements, if challenged at a later date, impose on the spouse defending the agreement a greater burden of proof that the agreement is not unfair to the other spouse. By contrast, there is no fiduciary relationship presumed between prospective spouses, and accordingly, there is no presumption of undue influence created by a fiduciary relationship if a prenuptial agreement is later challenged.
As a result of the legal obligations imposed on married people under the Family Code, postnuptial agreements are more difficult to enforce. The disclosure requirements are more strict, and it’s against public policy to encourage divorce. Thus, a party to a postnuptial agreement is likely to challenge it on the grounds that he or she was coerced into signing it upon threat of divorce. While having a postnuptial agreement is most likely better than having no agreement at all in the event of divorce, they are much more susceptible to being successfully challenged than a prenuptial agreement. While Family Courts are prone to enforce prenuptial agreements (especially well-drafted balanced agreements in which both parties were represented by counsel), they are inherently skeptical of postnuptial agreements.
Transmutation Agreements: One common example of a postnuptial agreement is a “transmutation” agreement, where spouses agree to change the character of a property from community to separate or separate to community. For instance, if the husband owned a house before marriage, (his separate property) and after the marriage he wants to make the house a community asset, (he and his wife own the house jointly), an agreement to effect the change from separate to community is called a transmutation agreement. The statutory obligations governing transmutation agreements under the Family Code are very specific and rigid, and unless all the conditions are met, an agreement can be set aside at a later time.
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