postnuptial agreement

On March 23, 2023, Ohio Senate Bill 210 will become law.  Prior to this new legislation, Ohio was one of only two states (Iowa) that did not allow for postnuptial agreements.  This new law will allow married couples to modify or terminate their existing prenuptial agreement or enter into a new postnuptial agreement.  This needed change to Ohio law will allow married couples to adapt to changes with their assets, families and goals.

Ohio prenuptial agreements have long been available to Ohio married couples.  A prenuptial agreement, in basic terms, identifies what assets are to be considered marital assets and which assets are non-marital assets.  In the event of divorce or death, the other spouse is not entitled to the non-marital assets.  Prenuptial agreements are entered into prior to marriage.

Prenuptial agreements can become outdated, especially when marriages last many years.  A married couple who enters into a prenuptial agreement when they are 25 may have very different assets and goals when they are 65.  Until now, married couples were stuck with their prenuptial agreement regardless of how unfair or obsolete the agreement had become.

A postnuptial agreement is similar to a prenuptial agreement in that it identifies which assets are to remain outside of the marriage and what assets are considered joint, marital assets.  A postnuptial agreement is signed sometime after marriage begins.  There are no term requirements for a postnuptial agreement – it can be entered into shortly after marriage or many years after marriage.

For a prenuptial agreement to be terminated or amended or for a postnuptial agreement to valid, the new law requires the following:

1. The agreement be in writing and signed by both spouses,
2. The agreement is entered into freely without fraud, duress, coercion or overreaching,
3. There was full disclosure, or full knowledge, and understanding of the nature, value and extent of the property of both spouses,
4. The terms do not promote or encourage divorce or profiteering from divorce.

Special notice should be given to the third requirement.  It is important for each spouse to fully declare the assets that they own and the value of those assets.  Failure to inform the other spouse of their assets and the extent of those assets is another way to invalidate a prenuptial or postnuptial agreement.  If one spouse is unaware of the extent of the other spouse’s assets and/or wealth, they may unknowingly enter into a prenuptial or postnuptial agreement that is unfair.  It is best to include an inventory of both spouses’ assets with values in the prenuptial or postnuptial agreement and clearly identify which assets are to be considered marital assets and which are to be non-martial assets.

This new legislation has ramifications for farm planning.  Before now, if a prenuptial was not already in place, there were risks to bringing in family members to the farming operation.  After someone comes into the farming operation, their ownership in the farming operation may become a marital asset subject to a divorce.  This concern sometimes causes parents or grandparents to be hesitant to bring a child/grandchild into the farming operation.

Now, the parents/grandparents can require a postnuptial agreement before admitting a family member into the farming operation.  While this requirement can cause friction with family relationships and may be an awkward issue to raise, it is something to consider.

Consider the following example:

Father would like to bring Daughter into Farming LLC.  Daughter is recently married but does not have a prenuptial agreement.  Father is considering gifting a 25% ownership interest in Farming LLC to Daughter valued at $500,000.  Father is concerned that if Daughter’s marriage fails, he may have to buy back some of the 25% ownership from Daughter’s ex-husband.

The first thing to consider in the example is the nature of gifted assets.  Under Ohio law, gifted assets are not marital assets.  However, appreciation in the value of the gifted asset can become a marital asset.  So, Father’s concern is justified.  On the day that Daughter receives the 25% ownership gift, her husband has no marital rights in the ownership.  However, after the ownership has appreciated in value, particularly if the appreciation can be attributed to Daughter’s labor or management, Daughter’s husband may have marital rights in some of the ownership.

With the new legislation, Father can require Daughter to enter into a postnuptial agreement making her ownership in Farming LLC, including future appreciation, a non-marital asset.  If Daughter and her husband divorce, Daughter’s ownership in the LLC will be protected.  Father is now more likely to bring Daughter into the farming operation due to the postnuptial agreement.

Like many farm transition legal issues, family dynamics are involved.  It may be difficult for Father to ask Daughter to enter into a postnuptial agreement or the request may upset Daughter.  Perhaps Daughter’s husband refuses to enter into a postnuptial agreement.   While a postnuptial agreement can help protect the financial viability of a farming operation, the toll it may take on family relationships must also be considered.

Senate Bill 210 is a positive change to Ohio law.  While postnuptial agreements are not a solution in all situations, it is another tool in the farm transition toolbox.  Like most legal agreements, an attorney should be consulted before entering into a postnuptial agreement and each spouse should have their own, independent legal counsel.