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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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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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