Did you know that one-third of spouses don’t know their spouse’s salary? This can create disconnects within marriages and, ultimately, a breakdown in marital communication. The good news? With a postnup, you are legally required to include financial disclosure, which mandates that you provide the value of your assets, how much income you take in, any debts you owe, and any potential inheritances you might receive. Financial disclosure is required to ensure each spouse understands what rights they are giving up in the agreement. But it also creates a stronger marriage by facilitating financial transparency. Let’s get into everything you need to know about financial disclosure requirements in postnups.
What is financial disclosure?
Financial disclosure is the sharing of values of assets, debts, income, and future inheritances between spouses during the creation of a postnup. The couple will typically write down all of the values on something called a financial schedule that is attached to the postnup.
Remember—postnup requirements are dictated by state law. The exact requirements for financial disclosure vary by state, even though all states require some level of financial disclosure. Most states require full financial disclosure, but some states allow you to waive your right to financial disclosure or will accept “adequate knowledge” of finances between spouses. Regardless, the safest and most reliable route is to execute full financial disclosure to increase the enforceability of the agreement.
Why is financial disclosure important?
Financial disclosure is crucial to ensuring your postnup is fair and holds up in court. Without financial disclosure, either spouse can argue that they weren’t aware of the impact of the rights they waived in their agreement. For example, if two spouses sign a postnup without financial disclosure, and the agreement waives spousal support and right to one another’s property, but one spouse was actually raking in millions (unbeknownst to the other spouse), that’s an unfair agreement because the other spouse wasn’t aware of what they were waiving. If an agreement is deemed unfair due to a lack of proper financial disclosure, it’s not likely going to hold up in court.
What to disclose
Now, let’s get into the nitty-gritty of how to execute financial disclosure. Each spouse needs to disclose everything. If anything is omitted, the postnup is at risk of being thrown out. Here’s what to disclose in your postnup:
Income and Employment
- Earned Income: This includes your salary, bonuses, commissions, overtime, and tips. You can utilize your recent pay stubs and tax returns. If self-employed, you’ll want to refer to your business tax returns and financial statements.
- Unearned Income: This covers sources like Social Security, public assistance, rental income, dividends, and retirement plan distributions. You can refer to benefit statements, tax forms (like 1099s and Schedule E), and brokerage statements to obtain values for this type of income.
Assets
- Real Estate: List all properties you own, including your primary residence, vacation homes, and rental properties. You can look for recent appraisals or market analyses to establish their value.
- Tangible Property: This includes vehicles, jewelry, art, and other valuables. You can use resources like Kelley Blue Book to estimate vehicle values. For other items, appraisals or recent sales data may be necessary.
- Bank Accounts: You will need to disclose all checking, savings, and money market accounts, utilizing the most recent statements.
- Investment Accounts: List all brokerage accounts, retirement plans (401(k), IRA, etc.), and education accounts. Detail out the values based on your most recent statements.
- Digital Assets: Include cryptocurrencies, NFTs, and online accounts like PayPal. Provide current valuations from exchanges or platforms.
- Business Interests: If you own a business, provide a business valuation or recent financial statements.
- Equity Compensation: Disclose any stock options or RSUs, including vesting schedules.
- Insurance Policies: If you have life insurance with cash value, provide the values of the death benefit.
- Other Assets: Include any other assets, such as loans to others, pending legal settlements, lottery winnings, credit card points, funds in escrow, prepaid expenses, or anything else with current or future value.
Liabilities
- Debt: List all outstanding debts, including mortgages, car loans, credit card debt, and student loans. You can find values of debt on loan statements and current balances.
- Child support payments: List out all of the child support owed to another partner outside of the marriage. You can find this information in your divorce settlement agreement/amendments.
Inheritances
- If you know you are going to receive an inheritance from someone (Mom and Dad, Grandpa, Aunt Jo, etc.), you need to speak with them to get an estimate on what that number might look like.
Remember, be thorough and accurate. Do not omit anything, even if you aren’t concerned about protecting said asset in the agreement. It is important for each spouse to get the full financial picture.
Do you need to provide backup documentation to support your disclosure?
Including supporting documentation for your postnup is a great way to back up the values you provide on your financial schedule. This deters any arguments that you were acting in bad faith or purposely omitted information. It can also be extra evidence to show that both partners truly understood one another’s financial landscape. People will often attach the documentation to the document itself.
But what type of financial documentation do you need to provide? Anything that backs up your claim in the financial schedule. For example, if you disclose that you make $150,000 per year in salary, you can attach recent pay stubs and/or recent years’ tax returns. For real estate, you may want to include recent appraisals or tax filings. For accounts, you can include recent statements.
When to exchange financial information?
The timing of financial disclosure is important because you wouldn’t want to disclose finances a year before you sign the postnup—things have likely changed since then. Maybe you got a raise or inherited a large sum of money. It’s prudent to exchange financial information close to the signing of the posntup. But remember, it must be exchanged before you sign, not after. This allows each person to be put on notice about the other’s financial situation and understand what rights they’re potentially giving up.
The marital benefits of financial disclosure
Financial disclosure isn’t all about legal requirements. It’s also about creating transparency in the relationship. A Fidelity survey found that more than one-third of spouses couldn’t pinpoint their spouse’s salary within $25,000 of their actual pay. In addition, more than 50% couldn’t agree on how much was needed for retirement. Crazy, right? Going through the postnuptial agreement and financial disclosure can create transparency within your relationship and facilitate those tough conversations, ultimately making your relationship stronger.
The bottom line on financial disclosure in postnups
There you have it, folks. Financial disclosure in postnups is super important. Without it, you risk your postnup getting thrown out. Make sure you include everything. Even omitting one or two things could land your postnup in the trash. It is important for each spouse to understand the full scope of each person’s financial situation. This allows them to make informed decisions while negotiating the agreement. Ultimately, transparency in your finances builds a stronger foundation for both your postnup and your marriage.
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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