January is the month for wedding extravaganzas. Plans for June weddings begin to unfold. Vendors from near and far advertise and promote trendy gowns, tuxedos, flowers and venues. But what about your financial plans? What are your options? What does the designation as “married” really mean?
Texas is a Community Property State
In Texas, beginning with the date you marry, each and every asset you acquire or debt you incur thereafter, becomes community property regardless of which spouse paid for the asset. Likewise, all income of the spouses becomes community property. Why does this matter? It matters because in the unlikely event your dearly beloved ever becomes less “dear” and less “beloved”, absent an agreement, a Court will divide all community property assets according to a just and right division in a divorce.
A “just and right” division does not presume a 50/50 division. Instead, a “just and right” division takes into account many factors, including fault in the break up of the marriage. Without a premarital agreement, one spouse may convince the Court they are entitled to more than half of the assets acquired during the marriage based on a sundry of facts. With a valid premarital agreement, there is no community property to divide, so the power of a judge to make a just and right division is eliminated, and the possibility of a “messy divorce” played out in the public courtroom is greatly reduced.
What are the Options?
Some couples choose instead to enter into a contract prior to marriage so that their income remains separate property (not subject to division upon divorce) and therefore, all assets acquired during the marriage remain the separate property of the spouse who paid for the asset.These contracts are called Premarital Agreements.
The terms of the agreement vary widely. Some may include a provision for a joint bank account where each spouse contributes monthly so that expenses such as utilities, cell phone bills, and other recurring expenses will be shared. Others provide for lump sum amounts to be paid to a spouse upon divorce with the amount increasing with the number of years the marriage is viable. Any term agreed upon by you and your fiancé can be incorporated into the premarital agreement.
Are Premarital Agreements Enforceable?
Generally speaking, premarital agreements are favored and presumptively valid in Texas courts, but following guidelines set out in the Texas Family Code will help ensure enforceability.
First, make sure both spouses agree to the terms and each have their own attorney to review the agreement and explain the terms clearly. I’m sure many of you will not see the need to incur the cost of two attorneys, but a contract is by nature a two-sided agreement. If both spouses have an attorney, they will both be advised of how the agreement will affect them and may prevent a claim of involuntary execution later. Attorneys frequently negotiate terms on behalf of their client after an initial draft is presented. The more thoroughly the contract is negotiated, the less likely either spouse may claim the contract is invalid or that they did not understand what they signed.
Second, be sure to disclose all assets of each spouse in exhibits attached to the agreement. Full disclosure prevents either spouse from claiming they were not well informed about the other spouse’s assets prior to execution.
Third, don’t wait until the last minute to review the document and sign the agreement. Technically, you can sign on the same day as the wedding, but the closer you sign to making your vows, the more likely one spouse may later claim they felt pressured or did not sign voluntarily.
Are Premarital Agreements Advisable?
I don’t think anyone can make that decision except you and your fiancé. Certainly, the mention of a premarital agreement may raise issues we don’t really like to consider at the inception of the marriage; however, it usually makes the divorce process easier if the marriage fails. I will qualify “usually” because premarital agreements can be challenged in court – both as to their validity and even after they are determined to be valid, proof for “who bought what” is still required to determine which assets are your separate property. Of course, agreements are highly encouraged on division of property and Courts generally require mediation to avoid contested trials.
No one likes to consider divorce at the beginning of your life together, but as a family law specialist, I certainly believe candid and forthright financial communications with your fiancé will increase the chances that your marriage will indeed last a lifetime.