Understanding Premarital and Postnuptial Agreements in Indiana
Without a premarital (or prenuptial) agreement under Indiana law, all property brought into a marriage or acquired during a marriage is part of the ‘marital pot’ and is subject to division in a divorce. Property division starts with a 50/50 presumption. All property is subject to division and there are only certain arguments which support a deviation from this 50/50 presumption. The best way to carve out specific exceptions for property under Indiana’s “one pot” theory is to have a premarital agreement before marriage or by executing a postnuptial agreement in potential contemplation of a divorce.
Premarital agreements can be valid in Indiana under the Uniform Premarital Agreement Act, so long as they are entered into freely and without fraud, duress, or misrepresentation and are not unconscionable. What does this generally mean for the parties? Under Indiana law, contracts are unconscionable if there is a great disparity in bargaining power. In order to counteract this bargaining power issue, it is important for the agreements to seem justified rather than overly one-sided or oppressive. This means that both parties should have attorneys and an agreement addressing all property, i.e. assets and liabilities, with full disclosure by the parties.
When entering into a premarital agreement, each party must assume that the agreement will be challenged. Working with an experienced attorney is imperative for both sides in order to create an agreement that is sufficiently prospective and includes appropriate language to define each individual’s separate property and any marital or joint property.
There are two types of premarital agreements. Title-based premarital agreements define the parties’ separate and joint property based upon how the asset or liability is titled. One benefit of this type of premarital agreement is that it makes any division relatively clear and the parties do not need to trace assets; however, this type of division also requires maintenance by the parties to follow the titling as outlined in the agreement. If the title to an asset or liability changes, so does the division of the property. The second type of premarital agreement is one that specifically defines the marital property. While this type of agreement adds more flexibility, it does require asset tracing for the parties, meaning that as property changes, the funds used or transferred in these exchanges will need to be documented and possibly evaluated in the event of a divorce. Further, there may be unintended confusion when defining the assets and liabilities which are to be determined as separate or marital property at the time of preparing the premarital agreement.
No matter which type of premarital agreement is selected between the parties, it is critical for the agreement to be clear. As with any form of contract, ambiguity is an invitation to disputes and litigation. This is particularly important if a couple is creating a blended family situation, where there are children from a previous relationship for one or both of the parties. Because these agreements deal with prospective property division, it is important to work with an attorney who can spot ambiguities in the agreement and also manage any estate planning or trust issues.
Indiana law continues to evolve as it relates to postnuptial agreements, or agreements that are made after a marriage is entered into. A premarital agreement is enforceable because a marriage occurred after the agreement was made. In a postnuptial agreement, the agreement will likely be enforceable in when a party initiates or furthers a divorce proceeding or, in the alternative, if a divorce is contemplated and the parties reconcile due to the agreement. Indiana Courts have also called these agreements “reconciliation agreements.”
Most frequently, these agreements arise when one party has filed for divorce or is seriously contemplating divorce. Postnuptial agreements also serve to create or define separate property in order to deviate from the “one pot” theory. It is also important that the parties, as with a premarital agreement, continue to abide by the terms of the agreement once a divorce is dismissed or no longer pursued. Again, using an attorney is encouraged to ensure that the terms of the agreement are likely to be enforceable in court and that there is not an unconscionable imbalance of bargaining power. And in such situations the parties must realize that no attorney may represent both parties in the process of creating the agreement. Ideally each party will receive advice in the matter from their own attorney.
While it is impossible to say that a premarital or postnuptial agreement will be 100 percent enforceable, working with an experienced attorney can increase the chances of a court’s finding an agreement to be legally binding. If you would like more information about how working with an attorney can maximize the benefit of a premarital or postnuptial agreement, don’t hesitate to contact us at 317-773-3030.