Arizona Postnuptial Agreement Defined
Postnuptial agreements are also entered into by spouses after they have already been married. Generally speaking, postnuptial agreements are similar to prenuptial agreements. In Arizona, the Uniform Premarital Agreement Act governs both premarital agreements and postnuptial agreements. The legislative purpose in passing the Uniform Premarital Agreement Act was to ensure that spouses are "free to contract with each other with the understanding that the terms of their agreement will be enforceable under law and not subject to extensive court scrutiny . "
A postnuptial agreement is basically a marital agreement that takes effect after the marriage. Unlike a premarital agreement that is signed before the marriage, a postnuptial agreement is typically one that has some time that passes before it needs to be enforced. Such agreements may provide for several different events, including a divorce, financial events or even incapacitation.
Arizona Legal Requirements for a Postnuptial Agreement
Postnuptial Agreements, also known as post-marital agreements, are different from prenups in Arizona in that they are entered into after marriage. Nevertheless, the same legal requirements apply to postnuptial agreements as pertains to prenups. The uniform law governing premarital agreements in Arizona is found in ARS §25-201 through §25-205 and relevant to postnuptial agreements in ARS §25-312 through §25-317. The exclusive remedy now exists in ARS §25-316, which requires that even if a postnuptial agreement terminates on divorce, the terms must still be enforced for spousal support.
Usually, in a postnuptial agreement, one spouse is the drafter and changes the terms of the prior agreement or provides greater terms to be governed by. Like a prenup, a postnuptial agreement is based upon disclosure. If a postnuptial agreement is entered into during litigation, it needs to meet the same requirements as a premarital agreement whereby the evidentiary requirement must be satisfied.
Advantages of a Postnuptial Agreement
A primary benefit of postnuptial agreements is they can delineate the division of property and alimony in the unfortunate event of a divorce. It can also clarify issues such as the payment of debts, the title to particular properties, and whether one spouse will be entitled to the proceeds of life insurance policies in the event of a spouse’s death.
Arizona is a community property state, meaning that both spouses share equally in property acquired during the marriage. But even in a community property state, spouses may still decide how they want property to be divided in the event of divorce, and a postnuptial agreement is the best way to make sure that decision is recognized by the courts.
For an agreement to be enforceable it must be in writing, signed by both parties, voluntarily entered into, and be not unfair when made. Courts are reluctant to allow enforcement of agreements that are grossly unfair.
Major Terms in Arizona Postnuptial Agreements
Although every postnuptial agreement is customized to the specific needs of the spouses, there are common provisions that Arizona attorneys include in their agreements, including:
Separate Property.
As separate property can continue to grow through the efforts of the spouse or spouse’s, the agreement should also contain a provision about how separate property will be treated. Many agree that if a spouse receives an inheritance, personal injury settlement or gift, during the marriage, it will be their separate property. This provision is especially important if the spouses have no children prior to marrying and either the husband or wife has children from a previous marriage. It may be very important that that parent can protect his or her separate property so it will be available for children from a previous marriage, regardless of their marital status.
Debt.
Another area that is commonly addressed in a postnuptial agreement is debt. If spouses file for bankruptcy prior to the marriage, either spouse may be able to keep the other spouse from having to share in the debt. To avoid the possibility of debt being a "surprise" after the marriage, many postnuptial agreements will clearly define what debts the parties are bringing into the marriage and any debts the parties are taking on during the marriage.
Professional Practice.
For health care professionals and other professionals, a postnuptial agreement provides the opportunity to address how the professional practice will be divided if the marriage ends. In states where community property laws apply, much of the value of a professional practice is considered part of the community property and split 50/50 at the end of the marriage. There are ways to reduce the value of the community property interest, such as through stock buyouts or corporate or partnership agreements. However, the spouses have to agree on those issues, and a postnuptial agreement provides that opportunity. While the agreement alone may not be enough to fully protect the value of the practice for the health care professional, they may be able to include this language in a complete estate plan to fully protect the health care practice.
Drafting Your Postnuptial Agreement
The first step in securing a postnuptial agreement is for a couple to determine if such an agreement is appropriate. Once the parties have made the decision to draft a postnuptial agreement, the drafters must first consider the parties existing agreements and the doctrine of "incorporation by reference." Arizona law recognizes a marital contract which is written or oral but if a couple wants to be certain that the agreement takes precedence, each party must sign two copies of the agreement and have it notarized. Once the Notary Public has witnessed both parties signing the agreement, it is incumbent on one of the parties to provide a fully executed agreement to the other party and retain and file a second signed agreement with a notary seal. In the event a dispute arises, the party retaining the executed and notarized copy can prove that the couple entered into the Agreement. Maassen v. Maassen, 174 Ariz. 492 (App. 1993) . In Arizona, if a postnuptial agreement concerns expectations or changes in the parties’ business interests or financial arrangements, those terms must be set forth in a separate, signed and notarized waiver statement. A piece of separate paper needs to be prepared and signed by both parties to cover the changes in the earlier agreements. The postnuptial agreement must be signed by each party in front of its own notary public (as opposed to having both parties sign their names in front of a single notary public). This is per ARFLP 69(d) which is the rule that governs all family law filings. Currently, under Arizona law, a lawyer is not required to review a postnuptial agreement, but strongly encouraged. (Until recently that was not the case). A lawyer’s duty to their client requires them to advise their client regarding the financial implications of the postnuptial agreement. If an attorney-review is not requested, an affidavit should be signed by the parties certifying that no attorney reviewed the agreement. Baker v. Baker, 174 Ariz. 144 (App. 1993).
Enforcement Issues and Litigation
While enforceability of postnuptial agreements in Arizona has been established by case law, it does not mean that your agreement cannot be contested at a later time. However, the fact that your agreement meets the legal test for formation tends to make it more resistant to challenge. Essentially, as long as both parties gave their informed and voluntary agreement their postnuptial agreement is generally enforceable by Arizona courts. However, there are several potential reasons why an agreement might be challenged or not enforced. Some of these include:
- Agreement not entered into voluntarily
- Financial disclosures not accurate
- No full financial disclosure made
- Party did not receive independent legal representation
- Agreement was unconscionable (arising from one party’s unfair advantage)
- Agreement was created immediately before divorce action or once one party was already in the process of divorce and the other was not informed
It is important to remember that a postnuptial agreement in Arizona can only be enforced as to the rights of each party in relation to each other. In other words, a postnuptial agreement cannot dictate the rights of third parties, even if they are referenced in the asset distribution language. A postnuptial agreement does not limit rights that third parties may have (primarily typically creditors).
Modifications and Invalidations of Postnuptial Agreements
The law affords opportunities for postnuptial agreements to be modified or voided. Either spouse has the right to request that the marital settlement agreement be modified or voided in several situations:
A postnuptial agreement may be modified or voided, on the request of either spouse, by the court for good cause if the fundamental fairness of the agreement is seriously questioned as a result of substantial and continuing (or permanent) changed circumstances.
The rules of court provide that a motion to modify a postnuptial must be filed with the court, and be served on the other party by either:
The parties have 60 days from service of the motion to provide affidavits and documentation with their responses. A hearing will then be scheduled by the court. In the event the court determines that substantial and continuing conditions have arisen , it may grant the modification on conditions as it deems just, and may impose any additional terms on the parties consistent with the court’s final property division.
Typically, though obtaining a modification or voided order will require the moving party to show the trial court some evidence of exactly how the circumstances have changed since the agreement was made, if evidence or allegations are sufficiently serious, the case will normally go to a hearing. The courts do have the ability to not schedule the hearing within those 60 days (or 60 days from any amended or response filed) if the requested relief requires more time to prepare.