Entering a marriage will legally affect a spouse’s rights to property. Many married couples consider entering a marital property agreement during their marriage to define their property rights in the event of death or divorce. Our lawyers at NMSB can provide advice about the benefits and possible disadvantages of entering such an agreement.
REASONS TO ENTER A POSTMARITAL PROPERTY AGREEMENT
The decision to enter a property agreement is an important one. The main purpose of any property agreements is to define or alter rights to property. There are special considerations with property agreements signed during the marriage. Once a marriage already exists, a property agreement may waive rights to community property that have accrued over many years of marriage. Some of the reasons we see for entering post-marital property agreement can include:
- Updating or modifying provisions to a premarital agreement;
- Resolving marital disagreements over the financial decisions;
- As an alternative to filing for divorce;
- Protecting the financial interests of children from a prior marriage;
- Protecting property interests acquired prior to marriage and that may be acquired during marriage;
- Estate-planning purposes;
- Protecting generations of family wealth, such as family trusts and family business interests.
THE BASICS ABOUT PROPERTY OWNERSHIP
Texas is a “community property” state. Since Texas is a community property state, any property or debt acquired during the marriage generally belongs to both spouses. This is true regardless of which spouse holds title to the property. This means that all income, retirement accounts, homes, bank accounts, cars, businesses, and the like acquired during the marriage belong to both spouses. There is another category of property – “separate property” – that belongs only to one spouse. Separate property includes property acquired before marriage and property acquired by gift or inheritance.
WHAT CAN BE INCLUDED IN A POSTMARITAL AGREEMENT
Texas law allows spouses wide latitude in drafting their property agreements. After a marriage, spouses may change community property to separate property and vice-versa. Post-marital agreements regularly include the following:
- An agreement “partitioning” the community property such that each party then owns certain property as their separate property;
- An agreement that the spouses will not create any future community property but that each spouse will own as separate property whatever they earn or acquire during the marriage.
- An agreement converting what would be separate property of one spouse to community property owned thereafter by both spouses
- An agreement that one or both spouses will be responsible for certain debts and will indemnify the other spouse on those debts.
- An agreement requiring that the parties execute wills benefiting the other party in a particular manner.
CONVERTING SEPARATE PROPERTY TO COMMUNITY PROPERTY
If spouses decide to change separate property to community property, there are special procedures and formalities that must be followed. These so-called “conversion agreements” waive separate property interests that would otherwise be protected by marital property law and the Texas Constitution. A conversion agreement requires detailed notice to the spouse waiving his or her separate property rights; otherwise, such agreement may not be enforceable.
CONVERTING COMMUNITY PROPERTY TO SEPARATE PROPERTY
If spouses decide to divide their community property and make their ownership of it separate, an agreement called a Partition and Exchange agreement is signed. This can apply to all of the community property, or just some of it. Some couples opt to do this when one party is entering into a risky business venture or has a business that inherently comes with the risk of lawsuits. In that event, they might want to set aside certain property as the separate property of the other spouse, in the hope that it will never be subject to any claims against the other spouse. Other couples opt to do this as an alternative to divorce. They divide their marital property and go their separate ways financially, even if they remain married.
ENFORCEMENT OF A POST-MARITAL AGREEMENT
The same law generally applies to enforcing premarital and post-marital property agreements. Learn about Premarital Agreements here. Texas law favors the enforcement of these agreements, and they are very difficult to challenge. However, when parties are already married to one another, the law may place higher duties on a spouse (as opposed to people who are not married yet). Before entering a post-marital property agreement, a spouse should understand the duties to disclose information about property that may be placed upon a spouse. Full disclosure of all assets and liabilities is a key factor in making such agreements enforceable against the other spouse.