Marital Property Agreements – Dividing Assets and Income without Divorcing
In Texas, there is no “legal separation” — you are either married, or you are divorced. As a result, individuals are often in a quandary as to how to protect and/or divide their assets when they have an issue in their marriage that needs to be addressed without having to file for a divorce. For example, a spouse may start a new business that has substantial financial risks associated with it, or the spouse may have a significant spending issue or may have been unfaithful during the marriage. In these kinds of situations, a marital property agreement can provide a sense of security by addressing the financial issues in the marriage so that the parties can go forward in the marriage. To effectively use a marital property agreement to address your financial needs and goals, it is important that you have an understanding of the marital property law system used in Texas and how a marital property agreement can alter this system.
Texas Community Property System
Texas follows the community property system. In simple terms, the community property system means that each spouse owns an interest in all of the property that is acquired during the marriage and that all property owned during the marriage is presumed to be community property. Another feature under the Texas community property system is that income derived from separate property is community property. Texas law also recognizes that certain property is the separate property of one spouse. In general terms, separate property is defined as property that is owned by a spouse before marriage, property that is acquired during the marriage by gift, will or inheritance and property that is purchased with separate property assets. The significance of property being classified as either community or separate property is that during a divorce, community property is subject to being divided between the spouses and separate property is not. The only action that the court can take with respect to the separate property of a spouse is to confirm that it is the property of that spouse.
Marital Property Agreements
Under Texas law, spouses are granted the right to change the character of community and separate property by agreement with the use of a marital property agreement. A marital property agreement (also frequently referred to as a post-marital agreement), is an agreement that spouses can enter into at any time after marriage. To be valid, this agreement must be in writing and signed. A marital property agreement permits spouses to alter the community property system used in Texas in the following ways:
- Convert community property into separate property by partitioning and exchanging community property between the spouses — If the parties accumulated $100,000 in an account during the marriage then the $100,000 is community property and each party owns an interest in the property. At the time of a divorce, the $100,000 is subject to being divided between the spouses by the court. In a marital property agreement, the spouses can agree to divide the $100,000 so that each spouse owns $50,000 of the account as his/her separate property. In this situation, at the time of divorce, the $50,000 owned by each spouse will not be subject to being divided by the court, but rather, will be confirmed as the separate property of the spouse.
- Convert income that is derived from separate property from community property to separate property — If a spouse owned a retirement account prior to marriage then all income that flows from this account during the marriage is community property and is subject to being divided at the time of divorce. In a marital property agreement, the spouses can agree that all of the income from the separate property retirement account is also to be that spouse’s separate property. In this situation, none of the retirement account will be subject to division by the court at the time of divorce; but rather, the entire retirement account will be confirmed as the separate property of the spouse owning the account before marriage.
In summary, a well-written marital property agreement will allow you and your spouse to clarify your respective property rights and eliminate any uncertainty about those rights during your marriage, and at the same time, clearly define what will happen with some or all of your property in the event of a divorce. Call GoransonBain Ausley to learn more about whether a marital property agreement is right for your situation.
This post was written by Angel Berbarie.
“I don’t just look at the legal aspects of the case, I consider the human element as well, and work to protect my clients’ well-being and the well-being of their families.” — Angel J. Berbarie