In the state of New York, parties may enter a postnuptial agreement during their marriage. A postnuptial agreement is very similar to a prenuptial agreement, except it is entered after the date of marriage. A postnuptial agreement delineates how property and assets will be divided in the event of a divorce or the death of a spouse. Specifically, a postnuptial agreement, or “postnup,” can include provisions concerning:

• to make a will or challenge a will
• the ownership of separate property
• the ownership and division of marital property
• the amount, if any, of spousal support (alimony)
• as well as several additional items

Courts in the State of New York will recognize a properly prepared postnuptial agreement. However, a postnuptial agreement must be done correctly to have any legal import. That is, if a postnuptial agreement is created and executed correctly, and, ideally, with an attorney that routinely handles and has the requisite experience with such agreements, it is valid and enforceable.

Several considerations typically govern the enforceability of a postnuptial agreement. The primary ones, amongst many, include:

• Having an attorney write the postnuptial agreement in the first place.
• Unlike in the case of a prenuptial agreement, ensuring and mandating that each side is represented by an independent attorney.
• Full and fair disclosure of all assets by both parties.
• Proper execution of the agreement.

For a postnuptial, compared to a prenuptial agreement, there is a much higher standard for independent counsel on each side of the table. Moreover, while one party may even waive the right to hire an independent attorney to review a prenuptial agreement under certain circumstances, it is imperative for a valid and binding postnuptial agreement that each spouse has an attorney. As far as our practice and the protection of our client’s interests are concerned it is mandatory that independent counsel represent each party.

Below we provide a thorough and comprehensive analysis of how the New York Appellate Court addressed this issue in the seminal case of Petracca v Petracca.  As the court points out in Petracca, the failure to obtain independent counsel for each party (as well as the failure to provide 100% full disclosure) can result in a party ending up with not only an enforceable postnuptial agreement but disastrous consequences as well.

On December 5^th, 2012, in Petracca v Petracca, 101 AD3d 695 [2d Dept 2012], the New York Supreme Court Appellate Division’s Second Department considered the forgoing principles and affirmed the lower court’s decision to set aside the parties’ postnuptial agreement.

The Husband and Wife entered into a postnuptial agreement in March of 1996, and the agreement provided that the jointly owned marital residence valued at approximately $8 million was the Husband’s separate property.  The agreement further provided that if the parties divorced the Wife, a homemaker, would waive her interests in the Husband’s business interests valued at over $10 million.  In addition, the Wife waived maintenance except for approximately $30,000 a year (which varied depending on the duration of the marriage). Finally, within the postnuptial agreement, the Wife waived her entire interest in the Husband’s estate. The defendant Husband also had a net worth in excess of $22 million.

In action for divorce, the Husband, among other things, sought enforcement of the postnuptial agreement. Thereafter a hearing was conducted by the lower court wherein both parties testified.

The Husband offered conflicting testimony at the hearing.  The Husband denied any knowledge of a miscarriage. The Husband also testified that the parties had negotiated the postnuptial agreement over a timeframe of many weeks, and he was under the impression that the Wife had consulted with her own attorney, although she had not disclosed her attorney’s name to him. The Husband elaborated that the marital residence had been purchased jointly because the Wife wanted to have her name on it “for perception purposes for other people,” but she had also been willing to sign the postnuptial agreement converting the marital residence into the husband’s separate property shortly after its purchase.

After the hearing, the Court expressed doubts about the veracity of the husband’s testimony. The Court determined that the Wife had not been represented by an attorney and had been prevented from grasping the financial impact of the postnuptial agreement as the agreement contained inaccuracies regarding financial disclosures. The Court found that the terms of the agreement were “wholly unfair” and, after analyzing the totality of the circumstances, concluded that the postnuptial agreement was unenforceable. The Court granted the Wife’s motion to set aside the postnuptial agreement.

Notwithstanding the above, the Court held:

A postnuptial agreement “which is regular on its face will be recognized and enforced by the courts in much the same manner as an ordinary contract.”  However, “agreements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith.” Accordingly, “courts have thrown their cloak of protection” over postnuptial agreements” and made it their business, when confronted, to see to it that they are arrived at fairly and equitably, in a manner to be free from the taint of fraud and duress, and to set aside or refuse to enforce those born of and subsisting in inequity.”

Because of the fiduciary relationship between spouses, postnuptial agreements “are closely scrutinized by the courts, and such agreements are more readily set aside in equity under circumstances that would be insufficient to nullify an ordinary contract. To warrant equity’s intervention, no actual fraud need be shown, for relief will be granted if the [agreement] is manifestly unfair to a spouse because of the other’s overreaching.”

In determining whether a postnuptial agreement is invalid, “courts may look at the terms of the agreement to see if there is an inference, or even a negative inference, of overreaching in its execution.” A spouse seeking to set aside a postnuptial agreement initially “bears the burden to establish a fact-based, particularized inequality.” Where this initial burden is satisfied, a proponent of a postnuptial agreement “suffers the shift in burden to disprove fraud or overreaching.”

Here, the plaintiff demonstrated that the terms of the postnuptial agreement were manifestly unfair given the nature and magnitude of the rights she waived, particularly the relinquishment of her property rights in the marital residence and her waiver of all of her inheritance rights, in light of the vast disparity in the parties’ net worth and; furthermore, inasmuch as the terms of the agreement were manifestly unfair to the plaintiff and were unfair when agreement was executed, they give rise to an inference of overreaching. This inference of overreaching is bolstered by the evidence submitted by the plaintiff, including her testimony, regarding the circumstances which led her to give her assent to the postnuptial agreement.

Accordingly, the Supreme Court properly granted the plaintiff’s cross-motion to set aside the parties’ postnuptial agreement.

Our analysis above shows that a postnuptial agreement is subject to a higher standard than a prenuptial agreement. It is critical that a party, regardless of the size of their estate, obtain solid legal advice, and more importantly, follow that advice. In the case of Petracca, perhaps the Husband’s most critical error was not ensuring that his wife obtained an attorney. Considering his estate was valued at $22 million, an ounce of prevention surely would have been worth a pound of cure.

At Novak & Novak P.C., our attorneys are seasoned professionals. All we handle are prenuptial and postnuptial agreements. We do not dabble in this area of law. We know prenuptial and postnuptial agreements inside and out. While in a certain percentage of prenuptial agreements, the non-monied spouse may waive their right to an attorney, we would never let a client do so in a postnuptial agreement. As the court laid out in Petracca … it is critical that both parties are represented by an attorney in postnuptial agreement. It is a lesson that the Husband in Petracca learned the hard way.