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‘Postnup’ boom among hedge fund managers

Date: Thursday, May 31, 2007
Author: Broke Masters, Financial Times

First it was the “prenup”, but now the postnuptial agreement is soaring in popularity among newly wealthy hedge fund managers and other executives keen to safeguard their fortunes in case they face a messy divorce.

“Postnups”, as the agreements are known, are similar to prenuptial agreements on how to divide marital assets, except they are signed after marriage, not before.

At least one US hedge fund is refusing to take on new partners until they sign a postnup barring their spouses from making any claims on the fund, says Ken Burrows, a New York attorney who has written all the fund’s agreements. Mr Burrows declined to identify the firm because of confidentiality rules.

Another New York attorney, who has handled four postnups this year, says the people seeking them develop a “mindset” that makes them think “all my spouse is doing is spending my money. Let me staunch the flow now. Let me limit the goody bag and limit my future exposure.”

Kevin Tierney, presiding judge over matrimonial cases in the Connecticut judicial district that is home to many hedge funds, said postnups had become “rather common” in his court.

Statistics on postnups are hard to come by. As private contracts, they are not filed in court unless a divorce takes place and even then many are covered by confidentiality agreements. But a recent poll of members of the American Academy of Matrimonial Lawyers found 49 per cent were writing more postnups than they did five years ago.

Most hedge funds do not mandate postnups, but partners often encourage one another to sign them, to protect both the firm and themselves.

“The marital relationship has traditionally been the secret close bond. Now it’s the business partners, the hedge fund world, the drinking buddies – and the spouse is one circle out,” said Patricia Ferrari, a partner in the New York office of Fox Rothschild LLP.

She said she now writes four or five postnuptial agreements a year, up from none in the late 1990s.

As for why spouses go along with such agreements, it is because they want to preserve their marriage and their lifestyle, according to Bern Clair, a prominent Manhattan divorce attorney. “She’s bargaining for marriage and the husband or breadwinner is bargaining for divorce,” he said.