Let's Remake a Deal

By Desa Philadelphia

Betsy McCaughey Ross, a former Lieutenant Governor of New York, is a fighter. When Republican Governor George Pataki dumped her as his second-term running mate in 1997, she switched parties and made a bid to unseat him. Today she is fighting another former partner, millionaire financier Wilbur Ross, whom she married in 1995 and is now divorcing. At the center of their dispute is her claim that she was forced to sign a document that is suddenly becoming an accessory to many modern marriages: a postnuptial agreement. That's right--after the vows, not before.

It's another by-product of the booming U.S. economy. Prenuptial agreements have long been used by couples who want to set down the terms of any future divorce before they walk down the aisle. But what happens when one spouse unexpectedly comes into great wealth after marriage and wants to alter the terms of a potential divorce settlement? Enter the postnuptial agreement. "Anytime somebody is going to come into substantial unforeseen wealth, that is going to give them the opportunity to examine their relationship," says John Mayoue, an Atlanta lawyer who says the proliferation of Internet millionaires--though they are a little scarcer after this month's market plunge--has had a "huge" influence on his firm's postnup business. These contracts are worked out with personal attorneys and don't usually have to be filed in court, so it's impossible to determine exactly how widespread they are. But veteran lawyers say the number of mid-marriage agreements has exploded in the past five years, perhaps as much as tenfold.

Like prenuptial agreements, postnups can be a few paragraphs or several pages long, typically spelling out what the dependent spouse claims or waives in the event of a divorce. Their unique terms can supersede state laws, though their legal status is still unresolved in many jurisdictions. Most states have laws that govern the enforcement of prenups, but only a few have dealt with the relatively new postnups. The rules vary. New York and Florida have ruled that postnups are enforceable, but North Carolina and Louisiana require the agreements to be approved by a judge. In Hawaii they are valid only if the judge deems the terms fair at the time of signing as well as at divorce--meaning a spouse whose wealth has grown substantially since the agreement may have to renegotiate at separation.

That standard has also been upheld in New Jersey, where Francesca and Antonio Pacelli battled over the validity of their postnuptial agreement. They had been married 10 years in 1985, when, she says, he told her to choose between divorce and signing a postnup. Under the agreement, she was to be awarded $500,000 and half of a $1 million summer home if they divorced. But when Pacelli, a developer, filed for divorce in 1996, his wife argued that she was entitled to more of his fortune, which had increased from $5 million to $11 million, and she sued. The New Jersey Superior Court eventually ruled that the agreement was "not fair and just," and the couple is renegotiating. Jeffrey Weinstein, Antonio Pacelli's lawyer, says the agreement should have been enforced because his wife signed it voluntarily. "A judge should not impose his or her standard on two people's bargain," says Weinstein.

But how voluntary is a postnuptial agreement? A person whose betrothed proposes an unfair prenuptial agreement can walk away from the engagement. But the spouse who is asked to sign a postnup has invested financially and emotionally in the union and may have children to think about. Francesca Pacelli says she signed the postnup agreement "because I didn't want my sons to grow up without a father." McCaughey Ross has claimed that her husband forced her to sign the postnuptial agreement in return for a financial contribution to keep her campaign for Governor afloat. "My reaction was utter disbelief," she says. "I was put under extraordinary public and financial pressure and emotional pressure." The judge ruled last month that although the agreement seems clear, a hearing should be held to determine whether it was signed under duress.