The Texas Family Code allows parties to enter into a prenuptial agreement, or prenup, before marriage. It makes those agreements enforceable so long as they meet the requirements set out in the Texas Family Code. A prenup in Texas is an agreement between two people prior to entering into marriage that contractually determines property issues.
A prenuptial agreement stays in effect during the marriage. In the event of divorce, it will govern property treatment during the divorce. The prenuptial agreement can also govern issues during a divorce, such as spousal support or alimony. Whether you should get a prenup depends on a number of issues. Many people think of them as insurance against a foul dissolution of the marriage; but they can also be useful tools to protect property against creditors.
What happens when you don’t have a prenup in Texas?
No prenup, no problem. Upon marriage your separate property will remain separate property. In the event of a Texas divorce your separate property will remain your separate property. (So long as you can prove it belonged to you before the marriage or received by gift, devise, or descent.) All other property and most forms of income obtained during marriage will become community property. Community property remains jointly owned and subject to a just and right division (not necessarily 50/50). That includes salary and salary-related benefits, such as 401k plans and pensions.
A key issue is that the income from your separate property is almost always community property. Certain forms of distributions from property retains separate property status. That can be an important issue, especially when reinvesting income from investments that pay returns. An initial investment in stocks or mutual funds can grow several times over the marriage if the income is reinvested. If the distributions during the marriage are reinvested every time, the majority of your account could end up community property.
Why you might want that prenup?
Obviously the primary purpose of a prenuptial agreement is to govern property division in a divorce. So there is some truth to the statement that having a prenuptial agreement is acknowledging the possibility of a divorce. However, it is not the only reason you may want one.
Property distribution on death
You may want to control the distribution of property upon your death or your spouse’s death to avoid what would be community property from going to your spouse’s family or children from another marriage. These estate planning purposes are important. (Although you can get a postnuptial agreement after the divorce that changes community property to separate property or vice versa.) You may have inherited family wealth or land and want to keep it within your family’s bloodline. If the income from that separate property becomes community property and reinvests into that wealth you can end up with a messy situation where people outside your lineage have their hand in the cookie jar.
Protecting separate property
On the other hand, you may also want to make sure that all of your separate property goes to your spouse and/or your kids and not to siblings, parents, or other people in your family tree. You can also sign a prenuptial agreement that converts some or all of your separate property into community property. The danger here is if you divorce after signing that agreement then all your property is subject to its terms. Delivering your property to your chosen family members may more effectively resolve through an estate planning document.
Another reason why a prenup may be in your best interests is to strengthen the financial stability of the marriage. For example, if one spouse has a lot of debt but not a lot of income, it may make sense to use a prenuptial agreement to keep the debt-free spouse’s income separate property. That also requires carefully documenting of income and assets.
Of course, you also run the risk as the indebted spouse of receiving far less in a divorce because property that would have been community property is now separate property and indivisible by the court without the agreement of the spouses (which is unlikely). You can also protect one spouse’s property from creditors by constraining management rights over community property.
What can a prenuptial agreement do in Texas?
The Texas Family Code authorizes premarital agreements to agree to the characterization of property (separate property or community property), management and control of property, the division of property in a divorce or upon the death of a spouse, require or exclude spousal support or contractual alimony, and a few other related tasks. These powers of a premarital or prenuptial agreement can affect property during and after the marriage. The agreement can also limit to affecting property rights upon divorce. For example, a prenup can require either spouse to pay X amount in contractual alimony to the other spouse if that spouse files for divorce without attending so many months of marital counseling first. Those kinds of poison pill agreements can be enforceable.
What can a prenuptial agreement not do?
- Cannot waive a future spouse’s benefits under an ERISA-protected benefit plan, such as a 401k or private defined benefit pension. A prenup can include a waiver of rights under the plan as a beneficiary or to receive a division of the plan’s benefits upon divorce but it will only be enforceable if the spouses then reaffirm the terms after the date of marriage.
- Cannot contain provisions that violate public policy or a statute imposing criminal penalties. No prenuptial agreement that a spouse kills somebody else or they lose all their property.
- Cannot be used to defraud preexisting creditors. You cannot use a prenuptial agreement to try to avoid what you already owe with the property you already have, such as making all of your separate property your soon-to-be-spouse’s separate property so your creditors cannot get at your property to satisfy your debts. That is different from using the prenuptial agreement to protect your spouse’s property and income from your preexisting creditors.
- Cannot have a harmful or adverse effect on the right of a child to support. A prenup cannot prevent a parent from paying child support that would otherwise be court ordered. The prenup can be enforced to require a parent to pay a greater amount of child support than what the Texas Family Code normally requires. A prenup can pre-determine certain visitation or conservatorship issues but the Family Court will always review those terms in light of what is best for the child. For example, a prenup may require that if either parent develops a drug addiction then that parent will waive all conservatorship or visitation then the court may agree that the terms of the prenuptial agreement are in the best interest of the children and enforce it. However, if the agreement says if a parent files for divorce then that parent automatically loses all visitation rights then the court may not agree it is best for the chilren not to see that parent and refuse to enforce that term.
What will make a prenuptial agreement unenforceable?
A prenuptial agreement is presumed enforceable if:
- in writing;
- signed by both parties;
- both spouses disclosed assets and liabilities prior to signing the agreement;
- both spouses waived the right to further disclosure.
Certain terms of a prenuptial agreement will not be enforced if the violate the Texas Family Code by including terms explained in the last section but the agreement may also be unenforceable as a whole if it fails to meet the requirements listed above.
The Texas Family Code only permits challenges to the enforceability of the prenuptial agreement as a whole (rather than striking impermissible terms) for two reasons:
- Either spouse did not sign the agreement voluntarily; or
- The agreement was unconscionable at the time signed plus the party challenging the agreement:
- was not provided fair an reasonable disclosure of the assets and liabilities of the other spouse;
- did not voluntarily waive, in writing, any right to disclosure of the assets and liabilities of the other person beyond what they already disclosed; and
- did not have, or reasonably could not have had, adequate knowledge of the assets and liabilities of the other spouse-to-be.
Ok, let’s unpack what that means.
An agreement was involuntary if the person was forced to sign the document (i.e. gun to the head), the signature was obtained by fraud, or undue influence. Usually when drafting a prenuptial agreement, both parties will obtain separate attorneys to disprove a later argument that the agreement was involuntary or misunderstood. The involuntariness of a prenup is a very high standard to prove. It’s not enough that one spouse threatened not to marry the other without a prenup.
A prenuptial agreement is unconscionable at the time of signing if unfairness relates to the process and terms. In other words, the party challenging the agreement must show the agreement was unfair to him or her at the time signed (not that the arrangement looked good at the time but ended up a bad deal) and he or she lacked equal bargaining power at the time signed. The latter half of that relates to the three bullet points listed above. If the party does not receive reasonable disclosure of the assets and liabilities then it difficult to determine whether the fairness of terms.
However, it is not enough that the disclosure was insufficient. You also must show that you did not waive the right to additional disclosure and that you would not have had other ways to discover the undisclosed assets and liabilities. That would mean the party challenging the agreement could not have made a decision whether the terms were fair; but had the party had the proper disclosure then he or she would not have signed the agreement because the terms were unfair. Again, having each person have their own divorce attorney will help avoid these situations. The lawyers can assess the fairness of the terms and the extent of disclosure.