Postnuptial agreements: Who needs one and why

When Justin Bieber and Hailey Baldwin got married without a prenup in 2018, fans voiced concerns over social media, but the young couple opted for the lesser-known postnuptial agreement as reported by TMZ.

A postnup helps couples divide assets in case of a future divorce, but unlike a prenup, it can be signed after marriage – which is helpful for couples who have grown or acquired assets they didn't have before tying the knot. Postnups require full disclosure of finances from both parties to be enforceable, and it's not an agreement that's reserved for the rich and famous.

FOX Business consulted legal experts to find out who needs a postnup and why it is worth looking into.

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If You Suddenly Get Rich

People tend to opt for a postnup when their financial situation has suddenly changed in a dramatic way, according to Morris Armstrong, the founder and owner of tax preparation and representation agency Morris Armstrong EA.

"That widget which you have been working on has become the greatest thing since sliced bread, or your novel has become a bestseller and people are clamoring for more of your works, could make one think about attempting to limit one's exposure in the event of a divorce," Armstrong suggested as feasible examples.

"It might be better to give up 60 percent of 10 million now, than 40 percent of a future 100 million," he remarked to illustrate how a postnup is beneficial for the breadwinner.

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If You Own Community Property

Couples who are real estate power duos are increasingly looking toward postnuptial agreements to protect and segregate their property from each other, according to Shann Chaudhry, an attorney at SMC Esquire. Though, he noted that this has become common in community property jurisdictions.

"For example, in a community property state such as Texas, if you inherited real property like a residence, it would be your separate property. However, if you converted it into a rental property, the income of the property would be community property," Chaudhry explained. "The expenditure of community property funds on the rental property upkeep, repairs, insurance, and taxes would create a contribution claim by the community against the separate property estate."

He continued, "To prevent this, inherited assets are put into asset protection trusts or entities, to insulate the asset from liability and segregate the income and cost of the asset. A key part of this process is the postnuptial agreement."

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If You Want To Pass Down an Inheritance

In some circumstances, postnups have been used to ensure certain possessions get passed down to rightful descendants, according to attorney Barry Janay.

In his own words, "There's a lot of interplay between estate planning and postnuptial agreements if someone has children outside of the marriage and one spouse wants to make sure that marital assets pass to the children of that marriage only and not to the other children or dependents outside of that marriage."

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You Want To Protect Your Retirement

Postnups are helpful tools that can protect retirement funds, according to Cassandra Toroian, the founder of Bell Rock Capital.

"Bottom line, many more couples are divorcing as they retire. That means generationally the odds are these couples did not enter marriage with a prenup and even if they did, it would be considered stale by the courts," Toroian explained.

In her line of work, Toroian said she has seen "plenty of men and women" at age 50 and above become financially strained after a divorce "because suddenly their retirement funds have been cut in half." She noted that this occurrence is prevalent among couples that have no children or have children that are grown and uninvolved.

She added, "To protect both people in a couple, their trust advisors, lawyers, accountants and/or financial advisors should at least bring up a postnup in order for them both to protect what they have worked so hard for presumably during their married life."

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In Case You Want a Separation

Postnups can be helpful for married couples who are considering separation but are not ready to commit to divorce, according to Laurie Itkin, a financial advisor and wealth manager at Coastwise Capital Group.

"When getting divorced, there are typically three buckets of assets and debts: separate, marital and a combination of separate and marital," Itkin explained. "Trying to unravel the third bucket and define what is marital and what is separate during the divorce process can be time-consuming and expensive as financial and legal experts may be required."

She added, "A postnup allows couples who are still on speaking terms to define what separate and marital property is and can make a divorce – if it even happens – less expensive and horrible."