Create a Pain-Free Postnuptial Agreement

Lisa Smith is a freelance writer with a passion for financial journalism, contributing to popular media outlets like Investopedia and Bloomberg BNA.

Only a celebrity would need to protect his or her assets from a spouse, right? Wrong. Prenuptial and postnuptial agreements are increasing in popularity as couples realize although diamonds are forever, a marriage may not be. A postnup, also known as a marital contract, is a legal agreement between spouses that sets forth the division of assets. This includes property, debts, jewelry, spousal support, etc. A postnuptial agreement is similar to a prenuptial agreement, except it is signed after marriage. But if you didn't want one before you married, why would you consider getting one after? Keep reading to find out.

Why Couples Make Contracts

There are a wide variety of reasons why couples enact postnuptial agreements, and they aren't all because they think their spouse will get more than his or her fair share of assets in a divorce. In fact, people often use a postnuptial agreement to update an existing prenuptial agreement. A major change in the financial status of a spouse may also prompt a couple to enter such a contract.

A few situations can increase the need for a postnup.

• Stay-at-home spouse: A postnuptial agreement can bring peace of mind to a spouse who quits working to raise children. While giving up a career for the sake of the family may be viewed as the "right thing to do," it also puts the person at a huge financial disadvantage if the marriage fails. The protection of a postnuptial agreement can alleviate concerns about how to recover from years or even decades out of the workforce.
• Wealth change: A sudden increase in finances is another consideration. For example, if one spouse inherits a family business, it may be important for business continuity that the assets stay in the family. Likewise, if one spouse rises to an important position in a family business, a postnuptial agreement can provide a solid settlement for the other spouse, while safeguarding the family business for the rest of the family members who may be relying on its income.
• Business Success: Similarly, a spouse who starts a business and watches it grow to success may want to protect outside partners and/or the business itself from the potential divorce of any of the partners. Losing half of a business to a spouse who is out for revenge could be devastating to a business that took a lifetime to build. Some private firms are even requiring that their senior executives enter into such agreements as a condition of employment. (For related reading, see: 5 Signs You Need a Postnup.)
• Second Marriage: The increasing number of second marriages also brings a host of potential complications. Childcare, care for elderly family members and care for disabled family members are issues that must be taken into consideration. If the death of one spouse would place the burden of care on the remaining spouse, a postnup could not only protect the deceased's dependents, but could free the surviving spouse to move forward with his or her life knowing that all previous obligations have been properly addressed. Spelling out the division of assets in a postnuptial agreement can also avoid difficulties when it comes to splitting the estate with adult children from a prior marriage.
• End Disagreements: Postnuptial agreements can also end arguments about money and bring peace to a troubled marriage. If the two of you simply can't agree on financial priorities, a division of assets can solve smoldering problems and save the day. Separated couples that reunite can also use postnuptial agreements to foster a sense of financial security.

Some couples are choosing to view postnuptial agreements as a way to make sure that both parties are taken care of in the event of a divorce. Rather than looking at the agreement as a form of protection, many view postnuptial agreements as a way to do the right thing when times are good, ensuring the person they love will be protected in the event that the relationship fails. At the other end of the spectrum, a postnuptial agreement can be used to lay the groundwork for a less contentious and drawn-out divorce. (For related reading, see: Marriage, Divorce and the Dotted Line.)

How to Broach the Topic

Talking about money is always a challenge. "Honey, I love you. Let's get a postnuptial agreement," is not going to get the conversation started on a positive note. You need to approach the subject carefully. Start by choosing an appropriate location. A quiet place where you will not be interrupted and both people feel comfortable is ideal. Perhaps most important is timing. Asking for a postnuptial agreement in the middle of an argument or on an anniversary is not going to set the right tone for this sensitive discussion. (For related reading, see: The No.1 Reason Why Couples Fight.)

If you aren't comfortable approaching this subject by yourself, consider enlisting help. A financial advisor or an attorney may be able present the issue from a third-party perspective. Viewing the situation as an addendum to a contract is a perspective that may make the process less emotionally challenging.

The Bottom Line

Rather than an ending, a postnuptial agreement can be a new beginning, enabling you to put the past to rest and eliminating fights about money. To create an agreement that will stand up in court, it must be fair and based on full disclosure. Both parties should consider separate legal counsel when creating the agreement. Postnuptial agreements are not yet fully recognized in all 50 states, so you will need to review the laws of your state before entering into an agreement. (For related reading, see: Postnuptial Agreements: More Couples Signing Them, Are They Enforceable?)