Postnups becoming ‘new’ prenups

By Lisa Shidler

Jun 18, 2007 @ 8:19 am (Updated 8:19 am) EST

CHICAGO — Postnuptial agreements are gaining popularity as an estate-planning tool, and some hedge funds and private-equity firms have asked their top executives to sign them to protect their companies in case of a messy divorce, according to attorneys and financial advisers.

A recent poll of members of the Chicago-based American Academy of Matrimonial Lawyers found that 49% were writing more postnup agreements than they were five years ago, and just 1% said they were writing fewer.

Postnup agreements are similar to prenuptial agreements, but they are crafted and signed after a couple is married. Attorneys say that the agreements actually can strengthen marriages, because the couple is able to resolve disputes about money and then focus on the marriage itself.

Rocky marriages

“A lot of couples whose marriages are in trouble are worried about what happens if they get a divorce,” said John Fiske, an attorney with Healy Fiske & Richmond in Boston. “If they can agree to what will happen if they get a divorce, then they don’t have to argue about money anymore.”

For instance, Tim Wesling, president of Wesling Financial Planning Services Corp. in Alexandria, Va., said he is working with a client who might be divorcing her husband, but they are crafting a postnup agreement to iron out the financial details.

He said that his client is the breadwinner in the family and wants to protect her individual retirement account without losing any of those assets. Mr. Wesling advised her to agree not to seek any money from her husband’s pension — to protect her own IRA account.

Each spouse also agreed to pay for life insurance policies covering the other person, but naming themselves as the beneficiary, he said.

Attorneys said they even have seen postnup agreements that are put in place to deal with absurd personal situations.

For instance, Mr. Fiske said, one couple couldn’t agree on when to leave cocktail parties and actually wrote an agreement for alternating which spouse would choose when to leave a gathering. Finally, the couple agreed to attend parties in separate cars, though the marriage ultimately ended in divorce.

But Mr. Fiske and other attorneys said that most postnup-agreement issues center on finances and, more specifically, estate-

planning issues. That is true particularly with second marriages.

On several occasions, postnup agreements have helped a couple stay together, said Alton Abramowitz, an attorney with Mayerson Stutman Abramowitz Royer LLP in New York.

One of his clients sued her second husband for divorce, but the couple ultimately wanted to stay together. They fought about money, and the husband guaranteed the wife $2 million at his death. They did, in fact, agree to remain together.

“This way, she’s not in a fight with his children from his first marriage. That’s one

of the estate-planning issues,” Mr. Abramowitz said.

Although postnup agreements often are used when a marriage is on the rocks, they also are drafted when there aren’t any marital problems, said Arlene Dubin, a partner at Moses & Singer LLP in New York and the author of “Prenups for Lovers” (Villard Books, 2001). She and her husband have a prenup agreement. More businesses, for instance, are starting to insist that their partners sign postnup agreements, Ms. Dubin said.

One U.S. hedge fund is refusing to take on new partners until they sign postnup agreements barring their spouses from making claims on the fund, according to a recent report in the Financial Times, which didn’t identify the firm.

“This pertains to all closely held businesses where people don’t want to embroil all of the partners in a matrimonial dispute. You can’t value a firm’s assets without going through all of the firm’s books,” Ms. Dubin said.

The issue arises most frequently when companies require new executives to get their spouses to sign a postnup agreement, said Patricia Ferrari, a New York-based attorney with Fox Rothschild LLP of Philadelphia. She said she handles more postnups now than in the past.

“Years ago, these were unheard of,” Ms. Ferrari said. “Now, people are doing them more frequently and under different circumstances.”

Often, couples opt for a postnup agreement because they don’t want to leave their fate in a judge’s hands, said Gaetano “Guy” Ferro, president of the American Academy of Matrimonial Lawyers. “I think most people don’t want the uncertainty of what a judge might do in the future,” said Mr. Ferro, who also is an attorney with Marvin Ferro Barndollar & Roberts LLC in New Canaan, Conn.

Another use of the postnup agreement has been as an estate-planning tool for older parents who ask their married children to sign such agreements, said Susan Elser, a certified financial planner for Indianapolis-based Elser Financial Planning. “What the parents say is, ‘We want to make sure this stays in the family bloodlines,’” she said. “I really think a postnup is an easier sell than a prenup.”

Conversely, baby boomer children sometimes ask parents who have remarried to sign a postnup agreement, observers say. In cases where children learn after the fact that their parents have remarried, a postnup can help sort out health-care and estate-planning issues.

Such estate protection tools aren’t limited to postnup agreements, which, after all, can be awkward for families, said Lili A. Vasileff, president of the Association of Divorce Financial Planners. Alternatives include crafting an ironclad will and setting up a trust naming only specific family members as recipients of assets, said Ms. Vasileff, who also is a CFP and president and owner of Money Matters! in Woodbridge, Conn.

“I think that someone should examine the whole range of planning tools, and I don’t think it should only be considered in isolation,” said Ms. Vasileff, whose organization has nearly 100 members throughout New England and has no headquarters.