Myth vs. Facts on Marital Agreements
Most soon-to-be newlyweds are busy planning all the fun details of their special day. One important detail they may not be thinking of, however, is preparing a marital agreement. There are a lot of myths surrounding the topic of whether or not to have a marital agreement, such as:
“I don’t need a marital agreement; we don’t plan on getting a divorce.”
“I don’t need a marital agreement, I don’t have a lot of money.”
The fact is, it doesn’t matter how old you are, whether or not you believe you will never get divorced, or how much money you have or don’t have. Marital agreements are beneficial no matter what your circumstances are at the time of marriage.
As part of estate planning, sometimes it is necessary to have a marital property agreement to clarify ownership interests and types of property. There are three types of property agreements—a prenuptial, which is executed before marriage; a postnuptial or partition agreement which is signed after marriage, and a conversion agreement which is also signed after marriage.
Prenuptial agreements vary widely but typically include provisions to confirm and modify the characterization of property for spousal support and division of assets upon death or divorce. Most of us don’t enter a marriage thinking it will end in divorce or death, but this is why martial agreements are so important. Should the unexpected ever happen, it will protect you and also prevent litigious divorces or estate proceedings. Researchers estimate that 50% of all first marriages, 67% of second marriages, and 73% of third marriages end in divorce.
Before getting married, you should consider a prenuptial agreement. Two of the leading causes of divorces are money issues and communication issues. The best reasons to enter into a prenuptial agreement are to foster healthy communications about your finances and to define and protect property interests. Ideally, both parties to these agreements are represented by independent counsel.
It is a big misconception that prenups are only for wealthy individuals. Everyone has something worth protecting and a community property state like Texas can complicate property interests and tracing upon death or divorce. Premarital agreements give guidance as to what happens to property, debt, future inheritances, family heirlooms and earnings.
Common issues prenup agreements cover:
- Provisions for payment of expenses during the marriage;
- Characterization of gifts during the marriage;
- Ownership and use of property upon divorce or death;
- Division of assets in divorce or death;
- Allocation of debt upon divorce or death;
- Amount and duration of alimony payments upon divorce or death;
- Obligations to create a trust or will in order to address distribution of assets on death;
- Obligation to elect portability for estate tax savings;
- Determining which state law will apply to the agreement;
- Limit a business owner’s partner’s access to his or her business-related assets following a divorce or death; and
- Surviving spouse’s homestead, reimbursement, community property, and spousal support rights.
The premarital agreement cannot address issues regarding children the couple may have in the future, such as custody and child support. Prenups can help ensure that an individual’s child or children from previous relationships receive their share of his or her assets after his or her death.
Under Texas Family Code §4.004, a prenup must be in writing, signed by both parties and becomes valid when the signers marry each other. In order to be valid, prenuptial agreements must not be unconscionable, provide fair and reasonable disclosure, and be signed voluntarily. Premarital agreements are typically reaffirmation after marriage. Many technicalities can cause a prenup to be deemed invalid, which is why it is essential to hire an attorney to make sure your prenup is properly written and executed.
Postmarital agreements or partition agreements allow spouses to convert their interest in existing or future community property into separate property. Partition agreements may also provide that future earnings or income arising shall be considered separate property. In some unique cases, individuals who are in a stable marriage may wish to convert separate property to community property to gain a full step-up in basis upon the first spouse’s death.
Property agreements are part of comprehensive estate planning. Whether you need a Will, Trust, Pre or Post Marital Agreement or Probate Administration, Loveland & Hurley, PLLC is ready to better prepare you for life’s challenges. As a board-certified Estate Planning and Probate Attorney, Kimberly N. Loveland has the knowledge, skill, and experience to help. Please don’t hesitate to contact us if you have any questions.
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