When couples marry in Texas, any property they acquire after marriage is considered community property. Community property means that the property is equally owned by a married couple, i.e.. each party owns an 50% interest in the property. For example, all money during a marriage earned by a spouse as a salary, commission or bonus, a house or car purchased during the marriage, and stocks earned during the marriage are all likely to be considered by a Court to be community property.
1. Why Would Parties Want a Pre-Marital Agreement?
Couples contemplating marriage may not want to have a community estate during their marriage: maybe one party has real property they wish to protect the income as their own property, one party may have an already established business and they want to protect their interest in the company, one party may have a salary that is significant and they want to protect that money as their own.
Additionally, if couples had property before the marriage, that property would be considered their separate property. For example, as a single person, a party owns a house or car, or if the party had been accruing money into a retirement plan, such as a 401(k). Parties may want to enter into a Pre-Marital Agreement to formally recognize this property as their separate property and to protect this property as their own throughout the marriage.
Therefore, Texas law allows for parties who are contemplating marriage to draft and sign an agreement that decides how they want the characterize their property after they marry. The parties will sign a written agreement, called a Pre-Marital Agreement, also known as a Pre-Nuptial Agreement or “Pre-nup.”
2. Characterizing Property
When a couple signs a Pre-Marital Agreement, the effect of the agreement will be: 1. some or all of the property that is acquired during the marriage will be characterized as each spouse’ separate property or 2. property brought into the marriage will be memorialized as separate property.
“Characterizing property” are the legal words used by the Courts to determine if property is community or separate property.
- Separate property means that only one party in the marriage owns 100% of the interest in a piece of property.
- Community property means that the property is equally owned by a married couple, i.e.. each party owns 50% interest in the property.
3. Effect of a Pre-Marital Agreement
If a couple divorces and the Court is presented with a Pre-Marital Agreement, the Court should review the agreement and characterize the property as the couple agreed to characterize the property when they drafted the Pre-Marital Agreement. Texas Family Law Courts will be looking to see that the agreement is in writing, signed by all parties and if the agreement specifies:
(a) The parties to a premarital agreement may contract with respect to:
(1) the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
(2) the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
(3) the disposition of property on separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
(4) the modification or elimination of spousal support;
(5) the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
(6) the ownership rights in and disposition of the death benefit from a life insurance policy;
(7) the choice of law governing the construction of the agreement; and
(8) any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.
(b) The right of a child to support may not be adversely affected by a premarital agreement.
Tex. Fam. Code Ann. § 4.003
4. What Can Go Wrong with A Pre-Marital Agreement?
A lot. Pre-Marital Agreements require very specific language, require complete disclosure of financials, have timing requirements and both parties should be represented by counsel to inform them of all their rights before signing an agreement. If a party was to protest the validity of the Pre-Marital Agreements, parties want to make sure they have created an enforceable, clear agreement that the Court acknowledges to protect their property.
Additionally, sometimes parties worry about approaching their soon-to-be spouse and offending them by asking for a Pre-Marital Agreement. The positive sides of a Pre-Marital Agreement are that both parties are clear entering into a relationship, knowing the ownership interests in their property and there is equal knowledge of the finances in the relationship. Additionally, parties can be secure in knowing they would retain all interests in a company they created or maybe this is a second marriage and the party will know their money or property is protected for their children.
Pre-Marital Agreements are good tools to effectuate a soon-to-be married couples’ agreement to characterize property. However, there can be pitfalls if the agreements are not done in the safest, most transparent way possible. Please contact Hunt Law Firm to hire one of our expert attorneys to help navigate the Pre-Marital Agreement to help you effectuate an enforceable agreement so that you can relax in your choice for your future.