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Premarital Agreements: Negotiating Love Since 1980

Thu, 08/24/2017 - 16:03 -- admin25

by Michael D. Wysocki

Historically, spouses and couples about to marry in Texas could not change the character of their marital property by mere agreement—doing so was prohibited by the Texas Constitution. In 1948, the Texas Constitution was amended to allow spouses to contractually change the character of existing community property to separate property (Marital Agreements). It would be another 32 years before further amendments would allow couples considering marriage to partition or exchange their existing and future property by agreement (Premarital Agreements). Fast forward to 2017 where now the Texas Family Code works with the Texas Constitution to provide strict requirements through which those contemplating marriage can alter their marital property rights by agreement.

Why does one need a Premarital Agreement? Such agreements can help: Preserve family fortunes; eliminate, limit, or set future alimony obligations; document existing assets and related management rights; ensure religious upbringing for children; keep a party’s income separate or limit its’ community nature; clarify tax obligations; manage estate tax elections/credits; and my favorite… predetermine the parties’ rights and duties during the marriage, like family finances, child care, housework, and other domestic relations. Yes, you can contract for housework, size of house, who pays the bills, number of kids, number of nannies, and frequency of intimate relations in the same document. No problem. What you cannot do is: (1) violate public policy or statute imposing criminal penalties, (2) adversely affect a child’s right to support, or (3) defraud creditors. And if you want to push the envelope, the general contract doctrine of severability applies to premarital agreements.

A premarital agreement takes effect on the date of marriage. Until marriage, the agreement remains an executory contract. Notably, the Texas Family Code did not adopt the official comments to the UPAA which require a ‘ceremonial marriage’ for a premarital agreement to become effective, so it is unclear how Texas courts would decide the issue of whether an ‘informal’ or ‘common-law marriage’ would also make a premarital agreement enforceable. I say, “Better safe than sorry. Big wedding!”

The Family Code does not provide a termination date for premarital agreements. If the agreement does not specify its duration, it is presumed the parties intended the agreement to continue for a reasonable time. If it appears that any contingencies therein would limit the agreement’s duration, these contingencies would control. For those that think the second or third time is the charm, the Dallas Court of Appeals has previously found that a premarital agreement was terminated by the first divorce and did not contemplate that it would govern the relationship upon remarriage—so best to renegotiate a better deal upon remarriage.

Who typically seeks a premarital agreement? (1) Parties that both think it is best; (2) One party desires the agreement and the other is only entertaining his/her fiancée’s request; and (3) Neither party wants the agreement, but must do so to appease others. Category 1 is straightforward and not worth further discussion. Category 2 often involves parties with disparate financial circumstances. In these cases it is important to make sure that each party has independent representation, preferably by an attorney Board Certified in Family Law. Category 3 can be tricky. Often mom, dad, or grandparents demand a premarital agreement to protect inheritance. It is also becoming more common for trusts to contain provisions suggesting or requiring the trustee to consider reducing or eliminating distributions unless the beneficiary produces a copy of a premarital agreement which the trustee deems to adequately protect the beneficiary’s financial resources.

No matter which party you represent, set the tone. Give them a detailed information session or two on Texas Family Law. Often times a party has no clue how our community property system works, but just ‘knows’ they need a prenup. Understanding the difference between community property and separate property, how particular interests are treated upon divorce, management principles, and basic rules of premarital agreements can help the party have a meaningful conversation with you about drafting. This will also help ensure your client can have an educated discussion with their fiancée about the agreement, which you know will happen.

There are many other creative steps a practitioner can take in drafting premarital agreements which are outside the scope of this article. The form book contains mere suggestions, so think outside the box. The best service you can provide your client is to tailor the agreement to their individual needs on a case-by-case basis.

 Michael D. Wysocki is Managing Shareolder at O'Neil Wysocki, PC. He can be reached at michael@owlawyers.com.

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