Defining the Postnuptial Agreement
A postnuptial agreement, somewhat like a prenuptial agreement, is a contract between two parties, often a husband and wife. The core idea is that they agree to certain terms about the disposition of their property in the future. Just like other contracts, a postnuptial agreement becomes active when both parties sign it, therefore setting its terms into motion.
Many people confuse postnuptial agreements with prenuptial agreements. A postnuptial agreement is very similar to a prenuptional agreement , only occurring after the marriage has already occurred. The advantage to this is the opportunity to put legal agreements in place during an otherwise tumultuous time, such as after the birth of a child or when the parties begin to have relationship issues. The way a postnuptial agreement functions is that it becomes legally binding once it is signed by both parties. Thus, it can be the answer to some complicated situations that need immediate resolution.
Requirements in Michigan
In Michigan, there is no well-defined statutory framework governing the creation of postnuptial agreements. However, common law principles and decisional law guide their enforceability. The standard for enforceability of such agreements in Michigan is if they are "voluntary", "entered into fairly", and "not unconscionable."
A resulting framework in Michigan follows the guidelines derived from the case law that postnuptial agreements should contain certain characteristics for them to be considered enforceable by the Court. These include:
• Several cases suggest that a party to such an agreement should have separated from the other spouse or considered divorce before entering into the postnuptial agreement.
• These agreements should be executed at arm’s length.
• Separate counsel should be obtained by the parties to the postnuptial agreement. However, several courts have enforced postnuptial agreements even when the parties to the agreement did not have separate counsel.
• In general, postnuptial provisions pertaining to spousal support and even property division have been upheld by Michigan courts.
• However, some courts have found it inappropriate to restrict the right of a court to award spousal support in a divorce proceeding.
Advantages of a Postnuptial Agreement
When a postnuptial agreement is created without undue influence, fraud, or duress and gives full and honest disclosure of income and assets, the agreement can save costs, reduce stress, and provide for family harmony. A well drafted postnuptial agreement provides for financial security for the family, especially when there is a significant asset increase during the marriage.
The parties agree to be bound and to structure their assets and debts. As with a prenuptial agreement, asset protection involves the following:
- Confirming that the spouse has full knowledge of the source of funds to be used to make a gift or devise of assets.
- Excluding certain non-marital assets, such as inheritance or premarital assets, created by one or both parties.
- Addressing how those assets will be treated during the marriage.
- Specifying the separation of those assets when issued.
Typical Provisions of a Postnuptial Agreement
One of the most common provisions in postnuptial agreements concerns property division. Both separate property and marital property need to be clearly addressed. While a postnuptial agreement is not legally required to prove the status of property in a divorce, it can be very helpful to provide the judge and lawyers with evidence that the property has already been designated by the parties. This is especially true in cases where the parties agree that certain property acquired during the marriage is to be considered separate property regardless of the source of income used to acquire it. In addition to property division, the parties can address the division of debts and liabilities as well. This is important because if the divorce goes forward and the debt is in the name of one spouse, the other spouse could be stuck with 100% of the debt with no way to get the funds back from their spouse.
The parties may also agree to provisions with respect to spousal support/maintenance. The terms of those payments can be designated to last for a specific period of time, or can be tied to a specific event, such as the birth of a child or until a specific goal is accomplished, like graduation from college. Because many couples do not want their marital status brought up in the future, they may also include a provision in which they agree to use a specific term, such as former partners or former spouses rather than spouse or ex-spouse.
Because each family has a different situation, each postnuptial agreement may include very unique provisions that fit their particular needs. The specific facts and circumstances about the couple discussing the agreement should be addressed in decision making. Having an attorney help draft the agreement is always helpful to make sure that all bases are covered.
Legal Process and Fees
The legal process for drafting and executing a Michigan postnuptial agreement generally begins with a consultation between the spouses and their attorney to discuss the proposed agreement’s terms. Once an attorney is engaged, they will work with the spouses to draft the postnuptial agreement. The attorney can issue a retainer (a kind of initial deposit) so that they can begin billing clients a specific hourly rate. However, certain postnuptial agreements are more basic than others, and there are a few certified websites that can allow for the creation of template postnuptial agreements. In these cases, it would be a do-it-yourself affair (if you will) . However, only a person with legal expertise can really assist you with a postnuptial agreement.
A postnuptial agreement drafted by an attorney usually takes about four to ten hours. Because of the significant amount of time that attorneys have to spend on this process, you will also incur attorney’s fees during the drafting stage of your postnuptial agreement. As stated previously, attorney fees for drafting postnuptial agreements are typically billed at an hourly rate between $250 to $500. Depending on factors such as its complexity and how much information the attorney has to gather, the total cost of the postnuptial agreement can range from $2,500 to $12,500 (at an hourly rate of $250 to $500).
Postnuptial Agreement Traps to Avoid
It is also crucial to be sufficiently transparent about the timing of a postnuptial agreement. If you attempt to draft new terms of your marriage on the eve of your spouse filing for legal separation or divorce, no judge will view that as a sign of good faith. You will never have a better chance of being on equal footing with your spouse than the period when you both freely choose to enter into a postnuptial agreement. Moreover, each spouse needs to voluntarily consult an independent attorney to receive impartial advice about the circumstances surrounding the proposed agreement in addition to explaining the provisions of their new contract.
One last key to avoiding pitfalls that could affect the enforceability of the postnuptial agreement is making sure that your spouse is on an even playing field with regard to property valuation methods and income valuation methods. Even though it is not required for purposes of the economic provisions of a divorce proceeding, an expert valuing a business for purposes of determining how to divide that business at the time of divorce should utilize the same valuation methods in a postnuptial agreement that are utilized in connection with a divorce action. Depending on the industry, the industry standard regarding how to value a company may be to capitalize the earnings of the company, whereas other industries might call for valuing the physical equipment of the company and calculating depreciation rates. If one spouse overvalues the company and the other spouse utilizes proper valuation methods your spouse will be entitled to more than she or he would receive in divorce or dissolution proceedings. As with all other pieces of marital property, the key is having all evidence of what a piece of property is worth being evaluated by an impartial third party.
Enlisting the Help of a Family Law Attorney
While postnuptial agreements can be drafted without actual legal representation, representing the immediate and long-term interests of both spouses is vital for ensuring the accuracy and enforceability of your agreement. Even in situations where representation is not possible, seeking a consultation with a qualified Michigan family law attorney allows you to gain valuable insight about the terms of your postnup and how these terms could affect your best interests. Before starting work on a postnup, your attorney will evaluate whether a valid premarital agreement exists, since the enforceability and validity of a postnuptial agreement may be contingent on the existence of a valid prior agreement . Specifically, your attorney may explain that your postnuptial agreement is unenforceable if it is similar in content to a premarital agreement that you seek not to be enforceable. The complexity of Michigan’s rules with regard to premarital and postnuptial agreements makes it all the more vital to consult a qualified family law attorney before negotiating more favorable terms in your proposed agreement. The hiring of your family lawyer is one of the most important decisions you can make when pursuing a postnuptial agreement. As your lawyer will be privy to the full contents of your postnuptial agreement, including any potential or perceived weaknesses, he or she should be able to negotiate the terms of your agreement in a way that maximizes your individual and joint best interests.