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Using Prenuptial Agreements in Texas

Celebrity prenuptial agreements can certainly make headlines. They include unique (and sometimes unflattering) requests that become public fodder; especially when things don’t work out.

Kim Kardashian reportedly will keep all her premarital assets as well as income she earned during her 72-day marriage to Kris Humphries. It is rumored that sister Khloe Kardashian’s prenup with new Dallas Mavericks forward Lamar Odom includes a $5,000 monthly shopping budget and $1,000 monthly beauty budget. Katie Holmes apparently receives $3 million for every year she’s married to actor Tom Cruise. If the marriage lasts more than 11 years, she could be entitled to half of his fortune should they divorce. On the opposite end of the spectrum, Paul McCartney turned down a prenuptial agreement before tying the knot with Nancy Shevell. The legal wrangling in his last divorce probably soured him on the prospect of another prenup.

As people become more ambivalent about marriage, prenups are becoming more common as couples are increasingly prudent about parting ways in case the relationship does not work out. This article will explain what prenuptial agreements are, discuss their benefits and limitations, and help determine whether a prenup is right for you.

Texas Prenups in General

Prenuptial agreements are essentially contracts; written agreements entered into between spouses before they are married. Couples use prenups to avoid disputes regarding property ownership and division of financial assets in the event of a divorce. Prenups are commonly used by couples entering a second marriage, as they want to make clear definitions of separate property. Some couples are combining new households and want to protect children or other relatives from a first marriage. Others may receive income from a jointly-held business with their ex-spouse, or spousal support from a past marriage, and would like to make sure such income remains separate property.

However, this does not mean that couples entering their first marriage are prohibited from entering into a prenup. People commonly use prenuptial agreements to protect assets owned before the marriage or to assign debts to either spouse in the event of a divorce.

Generally, Texas family courts recognize prenuptial agreements if the parties:

•had independent counsel in creating the agreement,
•were aware of their rights regarding property division under Texas law, especially if they agree to waive such rights,
•entered into the agreement freely and voluntarily; and
•were aware of each other’s income, and that full disclosures had been made.

Pros of Prenups – Clear Communication

Since financial discord is the primary reason for divorce, talking to your spouse ahead of time regarding finances and can help in avoiding future rifts over asset management. Of course, prenups are not the most romantic topic for discussion, especially because it invites the thought that your relationship could end badly. However, discussing these issues nurtures healthy communication, sets clear expectations for financial harmony, and breaks down potential barriers that may hinder your relationship. Even if you and your spouse decide a prenup is not for you, discussing it is a very good idea, and you could make fun of celebrities at the same time.

Cons of Prenups – Rocking the Boat

Conversely, prenups have their drawbacks. Some people broach the topic simply at the wrong time. Not only is in bad taste to propose a prenup soon before a wedding, it may not be enforceable in court. Also, a prenups may uncover other faults in the relationship (other than a significant income disparity). Trust issues, especially when manifested through a prenups, can doom a relationship.

Ultimately, if you fear that discussing a property and finance distribution and the possibility of separation or divorce will irreparably harm your relationship, a prenup may not be right for you.

Limitations of Prenups

While you may agree on a number of a financial and property issues through a prenup, it cannot include designations for child support or child custody. Only family courts may make final determinations on these issues. The court must follow statutory guidelines in calculating child support, and must make specific findings if it finds that a deviation is appropriate. Likewise, custody is determined by using the "best interest of the child" standard, where the court considers a number of factors to determine where the child will live and which parent may make decisions for the child.

Also, a court can set aside any part of a prenup it finds to be unfair or not in the interest of justice.

The preceding is not intended to be legal advice. If you have questions about prenuptial agreements in Texas, an experienced Texas family law attorney can help.

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Posted by Michelle May O'Neil on July 4, 2011

In a national news report by Ellen Levya at KABC-TV, it seems prenuptial agreements are not just for people getting married anymore. Out of the more than 12 million unmarried couples living under the same roof in America, many of them are choosing to sign a pre-nup-like agreement in lieu of a marriage license.  Apparently, this is the latest legal trend aimed at protecting singles and their assets.

Why are all these unmarried couples taking this direction? In a poll of divorce attorneys, 48% said that they have seen an increase in unmarried couples headed to court over issues when there is a split. 

Now a growing number of these couples are choosing to sign co-habitation agreements. These are legally binding agreements for couples that share a home, but aren't married in the traditional sense.  They outline the couple’s expectations for their relationship, and also what happens in the event that the relationship ends, either by death or by simply deciding they're not going to live together anymore.

These co-habitation agreements can range from simple to complex, covering everything from medical decisions and health insurance. They can even cover who's responsible for debt and what to do with a house, cars, furniture, even pets.

Dr. Anne-Renee Testa, a relationship coach, says these agreements are just a sign of the times. That's because over the last 20 years, the number of unmarried couples living under the same roof has skyrocketed by more than 85%.

Dr. Testa says, "Any couple that is interested in being intelligent about their relationship should do something like this because it absolutely clears the air.”

In my own practice as a Family Law attorney in Dallas, I have found these co-habitation agreements to be beneficial to same sex couples as well as traditional couples that live together without being married.  They even work for people living together who are not romantically involved, such as roommates. 

The important thing is not to think of these agreements as a negative thing. It is not about control over the other person, or distrust in one another. It is really just a protection mechanism for both parties involved in the relationship, just like a prenuptial agreement for traditional married couples.

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Brian Bix of the University of Minnesota Law School has released a peer reviewed article to the American Academy of Matrimonial Laywers Journal called Private Ordering and Family Law.  Until recently, he contends, private agreements regarding family matters to change the law as it applies to their family were rarely upheld.  Of course, a person could choose to get married or not, or to have children or not, but once those choices were made, the law was clearly defined as to the rights and obligations that stem from that decision.  In recent years, the laws have become more friendly to allowing private agreements to change the law as it relates to a particular couple or family dynamic.

One can speak of premarital agreements, marital agreements, separation agreements, open adoption agreements, co-parenting agreements, agreements on the disposition of frozen embryos, and agreements to arbitrate disputes arising out of any of the above agreements.

In Dallas family law matters and for that matter in family law matters in Texas, couples may define their property rights during marriage by signing either a premarital agreement (aka prenup) or entering into a postmarital agreement.  Parents may choose to have children outside of the traditional marriage relationship and enter into agreements addressing parenting of the child.  Domestic partners, including same sex partners, who choose not to legally marry may enter into cohabitation agreements as well.

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I previously wrote about the rise in prenups (prenuptial agreements aka premarital agreements) across the country.  Dallas divorce attorneys are seeing similar trends as well.  Then, a client asked me, what are the most important things to put in a prenup?

Interestingly, CNBC is currently researching this topic and contacted me about being involved in a documentary they are filming.  I did the interview yesterday and the episode is expected to air in February 2011.

The most important consideration in a prenup is to think about what the goal of the document is before drafting it or even talking about it.  Is the goal to preserve an inheritance?  Or a business started before the marriage?  Is the goal to protect the financial interest of children from a prior marriage?  Or, maybe it is important to provide financially for one spouse in the event of death or divorce?  The bottom line, have a clear purpose in mind for the prenup.

Also, be upfront with your soon-to-be-spouse about the reasons you want a prenup and discuss it openly.  Many people find prenups distasteful and even disrespectful, so be open about the reasons for it.

Full disclosure of assets and liabilities by both soon-to-be-spouses is essential in a prenup.  List completely and accurately the extent of the assets that each spouse has going into the marriage, such as retirement account balances, business ownership interest, even baseball card collections if they are valuable and important to preserve.

A prenup can be used for many reasons.  It is, at its most basic, a contract between two people.  It can be used to simply define what each spouse has going into the marriage so everyone is on the same page if a divorce becomes necessary about what belongs to each outside of the marriage relationship.  Or, a prenup can be more complex in dividing up money and propery earned or acquired during the marriage.  A prenup can also preserve as separate property an asset such as a business interest that may transform or mutate during a marriage from suddenly transforming into a community property asset. For example, if a business is of one type (such as an LLC) at the beginning of the marriage, but maybe due to changes in tax laws, it becomes necessary to change the formation to something different (such as an LLP), the mutation can be defined in a prenup as to not change the characterization of the asset as one spouse's separate property.

A prenup can also address protecting the inheritance rights of children from prior relationships or how each spouse will designate beneficiaries.  I've even seen prenups that provide an amount of spousal support for one or both spouses in the event of a future divorce.

If you are thinking about getting married and think you may need a prenup, contact a lawyer to discuss how a prenup could benefit your particular situation.

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Tiger Woods recent marital problem highlights the need for premarital agreements sometimes called prenuptial agreements.  There's been speculation that Tiger Woods and his wife may have reached an agreement to stay married and avoid divorce -- which in Texas is called a postnuptial agreement.  The gritty details of actor Dennis Hopper's and golf aces Tiger Woods' and Greg Norman's prenups have all been hot topics on the internet.

Suze Orman encourages every engaged couple to get one to protect their current and future assets as well as to sheild themselves in case a mate secretly runs up massive credit card debt. "People are hopeful," Orman says. "They want their relationship to last. ... It's just natural that they don't think they'll need a prenup. Never in a million years do they think (divorce) will happen." In 2008, the divorce rate was about 50%. Among married Americans, the median duration of their wedded life in 2008 was 18 years, according to Pew Research Center's analysis of government data. Given those odds, "Hope is not a financial plan," says Orman, who urges that every couple get a prenup. "The time to plan for a divorce is not when you're in a state of hate," she says.

Among the divorced, 15% say they regret not having a prenup in their most recent marriage, according to the Harris poll. Men are more likely than women to have this regret, at 19% vs. 12%. Nearly 40% of divorced Americans also say they would ask their significant other to sign a prenuptial agreement if they remarried.

Elizabeth Gilbert, the author of Eat Pray Love and Committed, advocates for couples to get prenups:  "Marriage is not just a private love story but also a social and economical contract of the strictest order," she says.  "If it weren't, there wouldn't be thousands of municipal, state and federal laws pertaining to our matrimonial union."

USA Today writer Laura Petrecca in the USA Today article Prenuptial agreements: Unromantic, but Important cites to a Harris Interactive study that nearly 2/3rds of singles say they would ask for a prenup.  On the other hand, of those polled, only 3% actually had prenups.

That statistic may mean that prenups are on the rise.  Or, it could mean that they chicken out of throwing cold water on the afterglow of the engagement. Let's face it: The afterglow of that Valentine's Day proposal often begins to dim as discussions of wedding details get started. The happy couples face potential buzz killers that are financial (how to keep reception costs down), logistical (where to seat relatives not on speaking terms) and, in recent years, even more controversial (So, honey, I love you, but how about that prenuptial agreement ...).

The prenup seems so utterly unromantic — or just plain wrong — but it's also become so right for so many these days: those keenly aware that a marriage may end up in a legal separation, divorce or death. Most prenups tackle financial issues such as real estate, division of bank accounts and potential spousal support in the case of divorce or separation.

Prenups can focus on the obvious disparity in earnings or wealth, credit card or student loan debts, future spousal support, or child support paid to children from another relationship.  But prenups can also address emotional or behavioral issues.  One example cited in the USA Today article references a husband who wanted to make sure his wife remained drug-free so he conditioned payment of spousal support upon a clean drug test each month.  Other prenups have addressed issues such as adultery, intimacy, weight-gain, division of household duties. Those clauses may seem unnecessary to some folks, but nailing down what is important to each individual — be it the ownership of a ski house, retaining the rights to an antique tea set or determining who keeps the pets after the breakup — is vital to do before the marriage laws kick in.

The bottom line is that a prenup can address whatever issues are important to the spouses -- from simple identification of assets and debts going into the marriage, to the more complex issues about how the marriage relationship will work.  There is really no "form" prenup -- it should contain the provisions that are important to the people signing it.  A prenup gives the soon-to-be-spouses a way to re-write the law that governs a divorce to conform to their own expectations.

Keep in mind, however, that even if  a prenup is executed, a party may still seek to challenge it.  Under Texas law a person may challenge a prenup based on the circumstances surrounding its signing -- was it signed under "duress"?  Or, it may be challenged based on the contents being so unfair as to be termed "unconscionable".  Parties to a prenup must make a full disclosure of income, assets, and debts.

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