Sandra Reed’s Life Care Planning: Pre- and post-marital agreements — should you have one?

Attorney Sandra W. Reed answers your life planning questions.

Attorney Sandra W. Reed answers

your life planning questions.

What Does a Pre- or Post- Marital Agreement Do?

 Texas is a community property state, which means that an individual’s property is characterized as community or separate property. In very simple terms, separate property is property that was acquired prior to marriage, or acquired during marriage by gift, inheritance or through compensation for a personal injury. Community property is all other property acquired during marriage.

For most people, understanding what constitutes community property is more complicated than the above explanation sounds. In truth, it is more complicated than that. That an individual’s earnings from his or her job are community property is straightforward enough.

But would the unsuspecting innocent know that the interest earned from $100,000 worth of CDs inherited from Daddy is also community property? If those CDs are earning 2 percent annually, they are creating $2,000 of community property each year. If the same inherited $100,000 is the dream investment that pays 10 percent annually in dividends, it is creating $10,000 in community property every single year. You get the picture.

The characterization of property as separate or community property is a crucial element in a divorce action. The divorce court has the power to divide only a couple’s community property between them. The court cannot divest a divorcing spouse of his or her separate property.

A pre-marital agreement (often referred to as a “pre-nuptial agreement”) allows the couple to spell out at the time of marriage each asset and its value owned by each party as separate property. In either a pre-marital agreement or a post-marital agreement, couples can agree what property will remain separate property during the marriage, along with the increase in this property from interest, dividends or other growth.

The couple can also agree that property acquired during the marriage will be separate property, even if Texas property rules would otherwise characterize the property as community. The parties may also contract as to rights and obligations of the parties with regard to any of the property they currently have or will acquire.

A marital agreement can provide for the creation of some community property during the marriage. Frequently, couples will wish to designate as community property the homestead, certain bank accounts and vehicles as community property.

Although the Texas Family Code sets out specific provisions that relate to contents and enforcement of marital agreements, if couples wish to be creative, they can agree to virtually anything that is not fraudulent, criminal or against public policy.

Who Needs a Pre- or Post-Marital Agreement?

One or Both Spouses Have Inherited Assets

When one or both of the spouses have inherited assets prior to marriage, they may wish to make a pre-marital agreement. Inheritances are the separate property of the spouse who inherited it. However, the interest and dividends are, under Texas community property laws, community property following marriage. The couple with inherited assets may wish to enter into a pre-marital agreement that states the interest, dividends or other growth of a spouse’s inherited property will also be retained by that spouse as separate property.

One or Both Spouses Bring Property Obtained From Previous Marriage

One or both spouses may bring into the new marriage substantial property obtained by virtue of a previous marriage, which they wish to leave to children of that previous marriage. The property usually consists of: (1) their half or more of the community property, if the marriage ended in divorce; or (2) all of the community property plus all of the separate property of the deceased spouse, if the marriage ended by death.  Not all spouses leave all their property to the surviving spouse, but many do. If there is no will, all of the community property goes to the surviving spouse by rule of law.

The desire to preserve the separate property assets against community property laws in divorce or probate courts may be especially strong in “empty nesters” with grown children and even grandchildren. A pre-marital agreement can protect that separate property brought into the marriage and preserve it for the children or for whomever the owner wishes to benefit. The pre-marital agreement can make clear that the property is not part of, nor does it ever become part of, the marital (community) property of the second marriage.

 Spouses Have Co-Mingled Assets During Marriage

A spouse who wants the bulk of his or her estate to go to someone other than the surviving spouse may benefit from a post-marital agreement. A post-marital agreement is especially needed to ensure that assets are passed at death to the desired person, rather than the spouse, if the spouses have mixed their separate and community assets.

If they have placed assets into accounts and replacement assets such that it is difficult to distinguish which assets are separate and which are community, they have co-mingled. Texas law holds that co-mingled assets that cannot be traced as separate are deemed community. Under the circumstance of commingled property, even the best estate plan may not be able to ensure that assets go to the intended parties unless a post-marital agreement has been agreed to by the spouses.

Can Marital Agreements Be Amended or Revoked?

Marital agreements may be amended or revoked at any time by parties, but they must do so in writing to make the changes or revocation valid. A marital agreement can state within its terms that the contract expires, either in part or totally, at a particular time or under particular circumstances.

Physical destruction does not nullify the agreement. That means a spouse cannot void the agreement by destroying the document.

What Ensures Marital Agreements Will Be Upheld?

To assure that the marital agreement will be upheld, it should clearly and unequivocally state the intent of the parties. Both parties must disclose all assets and liabilities prior to signing and sign voluntarily. The agreement should be drawn up with the assistance of an experienced attorney, witnessed and signed before a notary.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is located in Fort Worth. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at swreed2@yahoo.com or by phone at 254-797-0211.

 

 

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