Did you know that if your spouse takes out debt that you have no idea about, in some states, you can still be on the hook for 50% of that debt? Scary, right? No worries–a postnup can help. You can address debt in a postnuptial agreement (an agreement that you sign while married and planning on staying married). You can make sure all debt stays with the person who took out the debt or which debt is tied to certain properties. Or you can even split all debt 50-50. Whatever makes sense for you. With that said, let’s dive into the details of addressing debt in your postnup.
Why address debt in a postnup?
When you get married, in many states, especially community property states, any debt accrued during the marriage is considered marital debt. Even if both parties’ names are not on the debt itself. Yes, that’s right. In certain states, if your partner (unbeknownst to you) takes out debt, you could be on the hook for that debt. In addition, sometimes, debt that they incurred prior to the marriage can also become joint debts. Scary, right? Enter: The postnup.
Still need convincing? Here are some additional reasons why you should address debt in your postnuptial agreement:
- Protection from pre-marital or marital debts
- Clarity on financial obligations
- Protecting your assets
- Planning for your shared financial future
- Reducing conflict in the event of a divorce
As you can see, it’s more than just saving yourself some coin. Addressing debt in a postnup is also about planning, financial transparency, and conflict resolution.
How to address debt in a postnup
Now, let’s turn to the “how.” How does one address debt in a postnup? Here are ways to ensure that you address your pre-marital and marital debt properly.
Full financial disclosure
The first key to addressing debt in a postnup is to share what debts each person has. Not only does this help address how you will deal with debts, but it’s also a legal requirement in pretty much every state. Having complete transparency with your spouse about how much debt you have is crucial to an enforceable agreement. You should list the exact balance on your most recent loan statement, whose name it is under, and categorize the debt as pre-marital debt and/or marital debt based on when it was incurred.
Strategies for debt allocation in a divorce
Next, you’ll need to determine who is responsible for what debt. This includes what existing debt there is, what debt was incurred prior to the marriage, what debt was incurred during the marriage, and whatever future debt is taken on. You can do this by splitting things 50/50, making things separate based on the separate property people own or making it separate based on whose name it is under.
Marital debt management plans
Another aspect you should address regarding debt in your postnup is who is responsible for paying certain debts during the marriage. For example, if John owns a separate property rental unit that has a mortgage, who should be responsible for paying down the mortgage of that rental unit? It should likely be John if he is going to reap the benefits of the rental property income and equity of the unit in a divorce.
Requirements for an enforceable postnup
You can’t address debt in a postnup without actually having a valid and enforceable agreement. So, step one in addressing debt in a postnup is to actually create a legally binding agreement.
Every state has its own laws regarding what is required of a valid postnup but here are some general requirements to keep in mind:
- Must be in writing (no oral agreements)
- Must be signed by both spouses
- Some states require witnesses
- Some states require notarization
- Some states require independent legal counsel
- Each party must receive at least one benefit out of the agreement (this is sometimes referred to as consideration)
- Both spouses must provide full financial disclosure to one another
- The postnup must be entered into voluntarily without duress or coercion
- The agreement must be reasonable (nothing egregiously one-sided)
Again, the specific requirements will vary by state, but this is generally what you can expect when creating a postnup.
The importance of consulting with an attorney
While most states do not require an attorney to create a valid postnuptial agreement, it is highly, HIGHLY recommended that you both hire one. Having an attorney can help combat any arguments that the agreement is unfair, was entered into involuntarily, or that either person didn’t know what they were signing. In addition, postnuptial agreements are a relatively newer legal concept, and they require stricter scrutiny by judges when analyzing them. Your best bet at an enforceable agreement (and thereby enforceable debt provisions) is to hire an attorney when signing a postnup.
Bottom line on addressing debts in a postnuptial agreement
Whether you keep everything separate, split stuff 50/50, or assign debt according to title, you can make sure any pre-existing or future debt is handled in the way you want it to be. You can also address who pays what debt while still married. And don’t forget about the financial disclosure aspect–each spouse must share what debt they even have before addressing how to deal with it. Addressing debt in a postnup can provide clarity and help curate shared financial goals within a marriage. Don’t forget to follow the laws of your state and seek independent legal advice to create an agreement that stands up in court!
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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