Download Marital Property Agreements - Business Tools word count 742 Karen

Marital Property Agreements - Business Tools
word count 742
Karen Blakely Turner has been Board Certified in Family Law since 1994. She may be reached at
[email protected]
Under Title 1, Chapter 4 of the Texas Family Code, there are three types of agreements that spouses or
future spouse may enter into, short of a divorce, that affect their ownership of presently owned
property or property to be acquired in the future. First, is the premarital agreement, which the parties
enter into prior to marriage and which becomes effective upon marriage. The second type of
agreement is the post-martial property agreement entered into between spouses. The terms of both of
these agreements are limited only by the creativity of the parties and attorneys, however, most address
the creation of separate versus community estates and the mechanisms of how they are created.
The third type of marital agreement is an agreement to convert separate property to community
property, which can be a stand- alone document itself, or may be included as part of either a premarital
agreement or the post-marital property agreement. All of the types of marital property agreements
require no consideration to be enforceable and must be in writing and signed by both parties.
The policy of the State of Texas is to enforce marital agreements and; therefore, there is a presumption
that marital agreements are valid. If a spouse seeks to have the agreement found unenforceable, the
spouse has the burden of proof to show that the agreement was not signed voluntarily; or that the
agreement was unconscionable when it was signed, and that before the signing of the agreement that
the party was not provided a disclosure of the financial estate, did not waive disclosure, and did not
have adequate knowledge of the estate. The case law on “voluntariness” has narrowly construed what
is involuntary.
Marital property agreements are no longer only for the wealthy. It has now become common place for
couples with various financial situations to enter into marital property agreements. If a future husband
has substantial debt or a business that by its nature is financially risky, the future spouses may want to
consider entering into a premarital agreement in order to protect the future wife’s assets and income
from the existing and potential creditors of the future husband.
It is sound business planning for members of a family, who either share an interest in a family business
or trust, to insist that the family member who is marrying enter into a premarital agreement in order to
protect the passing of wealth from one generation to another as separate property.
Some partnership agreements are now requiring that partners, prior to entering into a marriage, enter
into premarital agreement with the future spouse in an effort to keep the partnership interest and
partnership income separate property. That way the partnership avoids being drug into a divorce
business valuation situation, having to produce the financial records of the partnership, or potentially
having the non-partner ex-spouse being awarded an interest in the partnership.
All too commonly divorce clients come to their attorneys with a marital property agreement that has
been signed then stuffed away in a drawer and never looked at again. The couple then conducts their
finances and business without regard to the marital agreement. This often has a devastating effect on
the spouse who thought that his assets were protected. The best advice for such a client is to review
the marital agreement and consult with a family law lawyer prior to doing any major purchases, business
formation or restructuring of entities.
A common example is the client whose financial planner recommends that the client borrow funds on
margin to make investments, since it is a better financial deal than liquidating assets. Under Texas law,
assets purchased on credit are community property, unless the marital property agreement provides
otherwise. So, even though the client had the intent to make the investment with her separate property
funds, since all the assets in her brokerage account were separate property, by borrowing the funds on
margin, she created a community asset.
Another example of mistakes made when the marital property agreement is not reviewed and followed
is when the agreement states that salary is community property and earned income is separate
property. If the spouse who owns an interest in a closely-held company listens to financial advice that it
is best to be paid in the form of salary instead of profit distributions, he will inadvertently create a larger
community estate than potentially intended, instead of easily creating a separate estate by using
income distributions instead of salary.