There are many reasons couples should consider whether a premarital agreement (prenuptial agreement) might benefit them. Even if their final decision is “No, it is not for us,” the conversation is well worth having. A premarital agreement addresses numerous aspects of married life. The process of negotiating terms and conditions is beneficial in many ways too. One of the reasons it is helpful is that it opens the door for thoughtful, honest communication about a shared future. Open communication is an essential ingredient in a successful marriage.
Have a Premarital Agreement Conversation
Having handled hundreds if not thousands of divorces in my career, I have thought on multiple occasions that engaged couples should understand the impact marriage will have on their property, both with and without a premarital agreement.
Unlike business partners, often the divorcing couple entered a legal partnership without the benefit of a partnership agreement (a premarital agreement). This understanding is essential for marriage, estate planning, and divorce.
Myths about community property and separate property are quickly dispelled with knowledge. Questions such as:
- If I deposit my paychecks in a separate account, are they my separate property?
- Is my pension a separate or community asset?
Couples do not always realize they are forming a 50/50 partnership in Texas when they marry and reside here. In Texas, under the law, the default status for earnings and debts incurred during the marriage are community property. Often, the impact of community property law may seem unfair to the higher-earning spouse. The effect of probate law may also seem unfair to the economically disadvantaged spouse. A well-drafted premarital agreement can help to balance a couple’s concerns.
Dissatisfaction over marital finances can put tremendous stress on a relationship. We know this, yet couples seldom broach the subject before getting married. One spouse may be a saver, the other a compulsive shopper. Or perhaps both are compulsive shoppers, prone to get into debt quickly. Even when both are savers, one may not save enough in the opinion of the other.
Preparing a premarital agreement necessarily triggers a discussion about managing marital finances. Each needs to know what he or she is getting into with the other’s money habits. Then they can decide how, as a couple, they might adjust their behaviors to be more compatible.
Seldom is avoiding conflict easy when there is tension between a new spouse and the party’s children from a previous marriage or relationship.
Whether the children are minors or adults, a premarital agreement may be instructive following a spouse’s death. Responding emotionally, relationships can sour quickly when the decedent’s children oppose the surviving spouse in probate. Terms agreed to in the premarital agreement can clarify what the surviving spouse is entitled to receive, avoiding a costly, contested probate action.
That is, by understanding what actions transform one spouse’s separate assets into community property owned by both of the spouses. The spouse who brings substantial wealth to the marriage may be concerned about preserving that wealth. Say, for example, to benefit his or her children from a previous marriage.
Rather than requiring spouses to follow Texas’ Community Property system, the premarital agreement puts them in control of how their assets and liabilities will be shared. This also gives them greater flexibility in how they will provide for one another. For instance, terms of the amount of spousal maintenance or the duration of spousal maintenance can be agreed upon in the event of divorce.
Some discussions are difficult. Discuss healthcare, chronic medical conditions, passing of a spouse, long-term care needs, and desired end of life care. These are discussions all couples who plan to marry should have, regardless of age. For a mature individual planning a second marriage, statistically, the number of years ahead are fewer than the years passed. A premarital agreement may include provisions intended to mesh with each spouse’s estate plan.
If parties have a premarital agreement and choose to divorce, then they need not broadcast to the world all of their marital problems. They can instead choose to abide by the terms of the premarital agreement. In this case, the premarital agreement will serve as their guide for the divorce.
The cost of hiring lawyers to prepare the premarital agreement is typically less, often substantially less expensive than incurring the expense of litigating a divorce or contested probate action. Should the relationship fall apart, the premarital agreement can save time and costs by providing for a clear, orderly disposition of accumulated wealth and debts.
In the absence of a premarital agreement, Texas’s divorce statutes and case law will only provide general guidelines. This makes specific results at trial unpredictable. Uncertainty of outcome is an essential factor in leading people to risk litigation over the settlement. However, litigation always comes at a high cost.
Although rare, parties can execute a premarital agreement and have a marriage annulled. There are many grounds for annulment of marriage under Texas Family Code Section 6, including:
- Certain underage marriages
- At least one of the spouses was under the influence of drugs or alcohol at the time of the marriage and could not consent to the marriage
- Undisclosed impotency discovered after the marriage
- Fraud, duress, or force
- Mental incapacity
- Concealed divorce
What happens to a Premarital Agreement when a Marriage is Annulled?
Texas Family Code Section 4.007 says that “If a marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable only to the extent necessary to avoid an inequitable result.”
Do the points listed above mirror your concerns or pique an interest in the potential benefits of negotiating a marriage future? Keep reading. The next step is to determine how you and your future spouse might benefit from a premarital agreement.
Who Needs a Premarital Agreement?
A prenuptial agreement is an action plan of the parties’ own making. The deal includes terms and conditions effective upon the passing of specified events. For instance, an agreed term may provide:
- The economically dependent spouse a predetermined amount of spousal maintenance if they legally separate or divorce
- An agreed condition may be the planned purchase of a vacation home can only follow a debt-free marital residence
- An express statement of each spouse’s portion of the mortgage payment.
What is the takeaway? It is essential to have flexibility and control over what happens with the marriage down the road. Ten years or so in the future (with married life no longer hypothetical), the spouses could choose to modify their premarital agreement, revoke it in its entirety, create a superseding premarital agreement, or do nothing at all.
Considerations Worthy of Negotiation
To retain flexibility and control tomorrow, give marriage careful consideration today. Marriage is a huge commitment. Planning an idyllic wedding is exciting, a lifetime experience that should be joyful and memorable. But negotiating terms and conditions for a premarital agreement means imagining what this marriage could be and should be. That is not a simple task. Start the conversation by raising the following questions.
Assets and Debts
Is a premarital agreement to protect significant assets? Is there a substantial imbalance of wealth or income? Are circumstances such that one will bring considerable debt to the marriage? What percentage of revenue will each spouse apply to fund an IRA, 401k, or another retirement plan?
Involving a certified financial advisor or Certified Public Accountant (CPA) may be necessary for fruitful negotiations between parties with their lawyer’s assistance.
Is this a second marriage for either party? Does either party have children from a previous marriage or relationship? What is the plan for raising a child? Creating a plan for the child’s treatment during the marriage, with divorce, upon a parent’s death, will take careful consideration. Be sure to build flexibility and control into the premarital agreement.
Professional Practices or Business Interests
Is either party a business owner? In the absence of a prenuptial agreement, a business with a community interest is divided upon divorce or upon the spouse’s death, who was the primary operator. This could mean the termination of the organization and the end of a steady income stream. Consider, too, the consequences of dividing a professional practice as a marital asset.
What about age? Is one party significantly older than the other? On the wedding day, the younger spouse may have many earnings-years ahead while the older spouse is already drawing a pension or approaching retirement on a fixed income.
Lovers may not care much about age differences, but age disparity may be cause for financial concern. If divorce results in equal, or nearly equal, division of community assets and debts, then the older spouse’s financial resources may never be sufficiently recovered to provide for his or her retirement.
Each spouse owns one half of the community estate (assets and debts). Could that division be altered? Yes, by a premarital agreement negotiated before marriage or by agreement during a divorce.
A valid premarital agreement may include a property division plan that deviates from the presumed division of 50/50 under Texas law and plans for the elder spouse’s late-in-life needs.
College and Professional Degrees
Might one spouse willingly support the other, so their marriage benefits from future income generated through the other spouse’s college or professional degrees? One spouse may work two or three jobs to cover household and tuition expenses. Doing so allows the other spouse to concentrate on coursework and focus on obtaining the degree that will, they believe, ultimately benefit the marital community. Sometimes spouses postpone having children as well.
What is a fair division of property if this couple gets divorced or separates? Or upon death, how should the decadent’s estate be shared? What if survivors include the decedent’s children from a previous marriage? Again, a prenup is about control with flexibility.
Inheritances and Gifts
What happens if a spouse anticipates receiving a substantial inheritance during the marriage? A provision in the premarital agreement could determine how inheritance is handled upon a spouse’s death. The premarital agreement could provide that any estate remains the beneficiary’s separate property despite their actions during the marriage. In the absence of a premarital agreement, then the future activities of the spouse could risk the inheritance being construed as transmutation, or gift to the community under Texas law.
With an experienced Family Law attorney’s help during negotiations, drafting, and execution, a premarital agreement can resolve these and other complex issues. When the time arrives to enforce the agreement, the attorney knows that the court must determine whether all substantive terms are fair. And whether procedural fairness existed in negotiating and executing the contract before the wedding.
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