Postnups – An Alternative to Divorce

Many think divorce is the only alternative to never being able to save or get out of debt because of a spouse’s spending habits. Some couples would like to stay married but without the financial stress. Occasionally, a money issue becomes so divisive that divorce is contemplated. It can be over different spending habits, attitudes about debt, taxes, or operation of a business. One spouse may fear the other will lead them to poverty. By mid-life, a spouse might think more should have been accumulated and blame the other. A postnup agreement can be a better solution as an alternative to divorce.

In Texas, a marital property agreement signed during marriage is called a Partition and Exchange Agreement. It partitions and exchanges the community estate into two separate estates. The formalities of a Texas marital property agreement are simple and when written and executed correctly, a postnup partition and exchange agreement is binding and enforceable.

Advantages of a Postnup Partition and Exchange Agreements

• Independent control of your separate property
  One advantage of a postnup partition and exchange agreement is that each spouse may manage his or her separate estate independently of the other. A saver may save. 401(K) contributions may be increased, or even stopped. As long as joint credit cards are replaced with individual ones, a spouse may increase individual debt without obligating the other.
• Control the outcome of divorce
  If a divorce occurs, a properly written and executed postnup partition and exchange agreement will control the disposition of property. Each spouse will keep his or her separate property and be solely responsible for individual debts.

What happens without a Postnup Partition and Exchange Agreement?

• Everything is divided
  Without a marital property agreement, the community estate will be divided in a just and right division. This does not necessarily mean 50/50. It means that the “spending” spouse will benefit from whatever the “thrifty” one set aside. This can frustrate the spouse who feels that any wealth was accumulated not as a joint effort, but despite the other.
• Unfairness to the “thrifty” spouse
  If the only wealth is the equity in the house and the 401(K) of the thrifty spouse, without a marital property agreement those will be divided. When the house equity was accumulated because there was no choice but to ay the mortgage, and the 401(K) contributions were only possible because they were deducted before the paycheck was received, this feels unfair to the thrifty spouse.

Will a Postnup Partition and Exchange Agreement Make a Difference in the Marriage:

Usually, there have been prior incidents, e.g. a spouse secretly accumulated excessive credit card debt. When it was no longer manageable, the spouse requested the other’s assistance. This normally involves and agreement that it will bever happen again. When it does, the options are acceptance or divorce. When considering a postnup, think about what will happen next time. Even though the estates are legally separate, what will the “thrifty” spouse tell the other who is buried in debt and receiving creditor calls, or facing repossession of a vehicle or bankruptcy?

Marital agreements may change ownership, but not attitudes about money. Even with an agreement, when a spouse cries to the other about the debt hole he or she is in, what is the “thrifty” one to do? When retirement comes, what does the “thrifty” spouse do when the other has not prepared and cannot pay his or her individual bills?

Postnups can be effective in dealing with marital debt, including taxes, and debt of a business operated by one spouse. The effectiveness of a marital agreement on unpaid business taxes will be affected by whether joint returns were filed. A partition and exchange to deal with taxes should be carefully discussed with a tax expert.

Decisions about children are based no the child’s best interest at the time the decision is made, not in advance. Any reference to children in a prenup or postnup is unenforceable.