Mueller: A case study: Postnuptial agreements in estate planning

I recently met with new estate planning clients who moved to Indiana from New Mexico about two years ago. It started as a straightforward consultation for a married couple in their mid-70s: A first marriage for both spouses (going on 50 years!), they had two children together, and they have one grandchild. As we began a more in-depth discussion about their assets, I learned that most of their net worth was titled in their individual names — not jointly. For a long-existing first marriage hailing originally from the Corn Belt, this circumstance is a cultural outlier. Practice tip: the most prudent practice when you encounter any outlier is to ask, “Why?” and document the client’s answer.

In this instance, Wife answered that she was raised to be fiercely independent and takes pride in her ability to provide for herself. Husband chimed in that he has always admired and supported Wife’s independence. These character traits also serve as the basis for both clients’ desire to leave their individually titled assets to their children upon their death, effectively disinheriting the surviving spouse.

Of course, this couple’s wishes are inconsistent with certain rights provided to a surviving spouse in the deceased spouse’s estate. After exploring the client’s reasoning for limiting any bequest to the surviving spouse, I described the rights provided to the surviving spouse under Indiana law.

First, a surviving spouse is entitled to an allowance of $25,000 from the estate. Indiana Code § 29-1-4-1. The Probate Code grants further protection to a surviving spouse by categorizing the allowance as a priority expense over other creditors of the deceased spouse’s estate. See I.C. 29-1-14-9.

Second, a surviving spouse is guaranteed a minimum share of the deceased spouse’s probate property via the right to elect against the will of the deceased spouse. I.C. 29-1-3-1(a). This right to elect acts to prohibit a person from disinheriting their surviving spouse, and Indiana courts have strengthened this right by extending the election’s reach to assets transferred to a trust in certain circumstances. See In re Est. of Weitzman, 724 N.E.2d 1120, 1123 (Ind. Ct. App. 2000) (“When a testator executes a trust in contemplation of his impending death and does so in order to defeat the surviving spouse’s statutory share, the trust will be considered testamentary in nature and will not defeat the spouse’s share.”). However, with the increasing complexity of nonprobate transfers, more of a person’s assets are beyond the reach of the surviving spouse’s right to elect. See Estate of Bricker v. Estate of Bricker, 212 N.E.3d 712, 715 (Ind. Ct. App. 2023), trans. denied 2023 Ind. Lexis 677 (Ind. Nov. 8, 2023) (holding that, because transfer-on-death transfers are not considered testamentary in nature under I.C. 32-17-14-5, such transfers are not subject to the surviving spouse’s right to elect under the Weitzman rule).

In this instance, both clients have a level of sophistication above the average estate planning client, likely as a result of their education and successful professional careers. We had a lively discussion about the paternalistic nature of and policy considerations driving these rights that ended with them saying they would “sign whatever necessary” to avoid these rights being enforced. Because no one can predict what the surviving spouse would do (or be influenced into doing) after the first client dies, a “trust and hope” approach was not an option for these clients.

The allowance granted to a surviving spouse “may be waived at any time by a written contract, agreement, or waiver signed by the party waiving” the allowance. I.C. 29-1-2-13(a); accord Boetsma v. Boetsma, 768 N.E.2d 1016, 1020 (Ind. Ct. App. 2002). Similarly, the surviving spouse’s right to elect against the will may be waived “before or after marriage by a written contract, [or] agreement signed by the party waiving the right of election.” I.C. 29-1-3-6(a). In both circumstances, however, the waiver is only enforceable if the waiving party has received “full disclosure of the nature and extent of [the] right” being waived and “if the thing or promise given to such party is a fair consideration under all the circumstances.” I.C. 29-1-2-13(a); I.C. 29-1-3-6(a).

While the waivers of these rights are commonplace in pre- or postnuptial agreements, it’s fair to say they are rarely the primary force driving the parties to enter such agreements. If anything, the waiver is a natural extension of the parties’ desire to maintain ownership and control of their separate property during the marriage and in the event of dissolution of the marriage.

Generally, postnuptial agreements are enforceable “so long as they are entered into freely and without fraud, duress, or misrepresentation and are not, under the particular circumstances of the case, unconscionable.” Flansburg v. Flansburg, 581 N.E.2d 430, 436 (Ind. Ct. App. 1991). However, the varying terminology used and the standard to determine their enforceability is less than clear. See Pond v. Pond, 700 N.E.2d 1130 (Ind. 1998) (distinguishing “reconciliation agreements” and “dissolution settlements”); Hall v. Hall, 27 N.E.3d 281 (Ind. Ct. App. 2015) (determining initiation of dissolution proceedings is not a “condition precedent to a valid and enforceable reconciliation agreement,” thereby expanding Pond enforceability standard).

While wading into the quagmire of postnuptial agreement law causes this probate attorney a little hesitation, the circumstances presented by these clients are distinguishable from the agreements reviewed by Indiana courts. This particular “postnuptial agreement” is unique because: (1) it is not entered into in contemplation or continuation of marriage, (2) there is no dissolution proceeding pending, (3) neither client is contemplating a dissolution proceeding, and (4) the parties are not negotiating the division of assets (whether acquired before or during the marriage) in the event of dissolution. Rather, the only material term of this agreement will be each spouse waiving their rights under I.C. 29-1-4-1 and I.C. 29-1-3-1, which is explicitly permissible under I.C. 29-1-2-13(a) and I.C. 29-1-3-6(a) and is entirely separate from Title 31 of the Indiana Code. Even though this agreement does not include the classic “continuation of marriage” as the contract’s consideration, relinquishment of rights has been held to constitute sufficient consideration. Buskirk v. Buskirk, 86 N.E.3d 217, 224 (Ind. Ct. App. 2017).

Notwithstanding these differences, these clients’ agreement will share many features of a typical prenuptial agreement, including: (1) a complete itemization of each spouse’s assets and liabilities, (2) a thorough description of the spousal allowance and right of election to ensure a complete disclosure of the rights being waived, and (3) ideally, each client retaining independent counsel.

While this circumstance may not arise frequently in an estate planning practice, family law attorneys are not the only ones that would benefit from long-overdue clarity on postnuptial agreements from the General Assembly. In the meantime, I think I’ll title this agreement something to the effect of “(Definitely-Not-A-Postnuptial) Agreement Waiving Statutory Rights in Spouse’s Estate.”•

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Christopher J. Mueller is a partner at Lewis Wagner LLP, practicing primarily in the area of estate, trust and guardianship litigation. Opinions expressed are those of the author.