COA clears way for broader use of postnuptial agreements

By Jim Reed and Michael Kohlhaas
 

Kohlhaas

Reed

A February decision by the Indiana Court of Appeals makes postnuptial agreements a more attractive option for married couples who, considering divorce, decide instead to reconcile.

Premarital agreements have been recognized in Indiana for decades as a valid contract to determine property rights in the event of a dissolution of marriage. In 1985, the Indiana Supreme Court, recognizing an evolution of both marriage laws and marriage as an institution, first held that a premarital agreement could be valid to determine spouses’ respective rights upon a dissolution of their marriage (In re Boren, 475 N.E. 2d 690 (Ind. 1985)). Prior to Boren, premarital agreements were recognized in Indiana only to determine rights if the marriage ended as a result of the death of one of the parties.

Then, in 1995, Indiana adopted its version of the Uniform Premarital Agreement Act, See Ind. Code § 31-11-3-1 et seq. The UPAA statutorily recognized premarital agreements, and codified many of the requirements for a valid and enforceable premarital agreement that had developed in case law (e.g., the agreement must be executed voluntarily, free from fraud or duress, the terms must not be unconscionable, etc.).

However, with no corresponding statute addressing postnuptial agreements – substantively similar to a premarital agreement, but instead entered into during the marriage – the potential validity and enforceability of postnuptial agreements has existed under a cloud of uncertainty. For years, the only explicitly recognized basis for a valid postnuptial agreement could be found in Flansburg v. Flansburg, 581 N.E.2d 430 (Ind. Ct. App. 1992), trans. denied. Flansburg held that the dismissal of a then-pending dissolution of marriage action constituted adequate consideration to render an otherwise fairly entered postnuptial agreement valid. The court reasoned that dismissing a dissolution proceeding and resuming a marriage was substantially identical to getting married in the first place. But, the question left unanswered by Flansburg was critical: Could a postnuptial agreement entered into without the dismissal of a then-pending divorce also be valid?

Because of this lingering uncertainty, most matrimonial lawyers have been reluctant to advise clients to enter into a postnuptial agreement in the absence of a pending dissolution matter being dismissed as consideration. The passing of the UPAA three years after Flansburg raised even more questions, especially whether the Legislature’s express, statutory recognition of premarital agreements was an implied rejection of postnuptial agreements. After all, Indiana’s UPAA could have easily included additional language recognizing postnuptial agreements. But it did not.

The cloud of uncertainty since Flansburg has partly lifted with the decision earlier this year in Hall v. Hall, 27 N.E.3d 281 (Ind. Ct. App. 2015). In the Hall case, the Indiana Court of Appeals broadened Flansburg by holding that postnuptial agreements are valid and enforceable contracts if they are entered into for the purpose of extending a marriage that was otherwise facing divorce. Unlike in Flansburg, in Hall no petition for dissolution of marriage had been filed; thus, no dismissal of dissolution proceedings served as consideration for the postnuptial agreement.

In Hall, the husband and wife married in 2004 without a premarital agreement. Not long thereafter, the wife learned various information about the husband’s finances and criminal history, which led her to seek counsel and consider filing for divorce. The husband did not want a divorce, and he suggested to the wife that they enter into a postnuptial agreement to give the wife reassurance for their future. The parties eventually executed a postnuptial agreement that would keep their respective property (and liabilities) separate from each other, and only jointly titled property would be subject to a claim by the other in the event of a future dissolution. After executing the agreement in 2005, the parties reconciled. During the reconciliation, the parties led their financial lives consistent with the terms of the postnuptial agreement.

Years later, in 2013, the wife filed for divorce, and in the dissolution proceedings the husband argued the postnuptial agreement was invalid and unenforceable. The divorce court disagreed and applied the terms of the postnuptial agreement in fashioning its divorce decree. The husband appealed, but the Indiana Court of Appeals also sided with the wife. Even though postnuptial agreements are not recognized by having their own statute on the books, when one is entered into as part of a reconciliation of the marriage, without which the parties would have divorced, the postnuptial agreement is valid and enforceable in the event of a later divorce.

In light of Hall, a married couple facing divorce now has an important new tool available to save their marriage, and they are no longer forced to decide between the two options of divorce or remaining married on their original terms.

However, even with the benefit of the clarification provided by Hall, some uncertainty remains in this area. Suppose, for example, a couple is happily married and not considering a divorce, but they wish to enter into a postnuptial agreement during their first year of marriage, simply because they did not make time to enter into a premarital agreement prior to their marriage. Neither Flansburg nor Hall resolves the question, so it remains an area of caution pending further development in the case law, or, better still, a decision by the Legislature to codify postnuptial agreements.•

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James A. Reed and Michael Kohlhaas are partners at Bingham Greenebaum Doll LLP. Reed focuses his practice on the legal aspects of relationship transitions of all types and is a fellow of the American Academy of Matrimonial Lawyers. Kohlhaas concentrates his practice in a variety of personal representations, including the areas of matrimonial law and wealth transfer planning. The opinions expressed are those of the authors.