Prenup planning Flashcards
Prenup in TX is really what?
For future spouses, only a partition and exchange agreement is allowed under the Constitution. Should be at least titled partition and exchange as a start.
What does partition mean?
Partition means that they both have to get something, can’t all go to one spouse. Should suggest that the husband gives property to the wife so that she has something that is income producing property. Does not have to be equal, just can’t be unconscionable. Another suggestion to husband is that he is going to look like a bad guy in front of the divorce court so he wants to be generous.
Can you create a community free marriage in Texas?
YES! Through a partition and exchange that is appropriate, can create a community-free marriage. Wealthy spouse can’t get greedy.
Can a future spouse waive claims for reimbursement or claim for homestead right of occupancy?
Can you waive the constitutional right of Homestead occupancy? Yes. The Supreme Court of Texas says you can waive it in a prenup. If waiving Homestead right of occupancy, should that blow credit or protection too? Undecided. If she can waive homestead, then she can waive claims for anything really.
“premarital agreement” definition under Texas Uniform Premarital Agreement Act:
means an agreement between prospective spouses made in contemplation of marriage and to be effective on marriage.
“property” definition under Texas Uniform Premarital Agreement Act:
means an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings.
Required formalities under Texas Uniform Premarital Agreement Act:
Few formalities. A premarital agreement must be in writing and signed by both parties. The agreement is enforceable without consideration.
Advantages to a community free marriage:
Everything is seperate property so clean break on divorce or death. Also creditor protection except for necessaries and agency: mainly unpaid medical bills (but just get insurance). Also JSL for income tax if MFJ.
Trap of a community free marriage:
Can they make the 401K separate property? Yes, state law applies to 401k and can create community free marriage through a partition and exchange agreement.
On divorce, the court could not divide it.
BUT at death, ERISA says the surviving spouse has a mandatory benefit under federal law. Federal law doesn’t care if it’s community or separate property.
If the non-participating spouse dies, it stays with the surviving participating spouse.
Spouse could waive their mandatory federal right, which would be separate from the prenup (because the prenup is not among spouses and only spouses can waive the mandatory benefit.) Plus waiver must be done according to federal law not state law.
So as part of the prenup, have them agree that they will execute the appropriate documents after marriage. After the marriage, then can re-execute the prenup as if it were a marital agreement, but if you do the prenup correctly you don’t need to do that.
What if the fiance doesn’t want to sign the prenup? Unilateral planning for one of the future spouses (so now there must be community property if no prenup)
Make sure the client understands what you bring into the marriage is separate. So warn them about co-mingling.
Then suggest documentation for separate property to prove by clear and convincing evidence.
Also explain that separate property can be from traceable mutations
Tell them to segregate sole management community property because mixing makes it joint, exposing it to creditors for contracts.
What are the estate planning tools to facilitate these goals for your client whose fiance won’t sign a prenup?
Revocable trusts: have him declare himself as trustee to a trust where the terms are client for life then remainder to children. Then fund the trust before marriage. Keep income separated from the principle.
Family limited partnership: The client is a general partner and the trust can be created to be the Limited partner. Then contribute to the partnership assets that the client wants to keep separate.
BUT: beware of the trap for oil and gas interests. Could be recharacterizing what would have already been separate property as community property.
When may current spouses enter into a partition and exchange agreement?
At any time via partition and exchange agreement.
Both community that is already existing and in the future. So community free marriage.
No adverse tax consequences if partition and exchange among spouses.
Can’t do this to defraud creditors (4.106). Can’t adversly affect the rights or pre-existing creditors.
AGREEMENT BETWEEN SPOUSES CONCERNING INCOME OR PROPERTY FROM SEPARATE PROPERTY:
At any time, the spouses may agree that the income or property arising from the separate property that is then owned by one of them, or that may thereafter be acquired, shall be the separate property of the owner.
Different than partition and exchange. This is a gift because the other isn’t getting anything.
Formalities of a partition and exchange agreement between current spouses.
A partition or exchange agreement under Section 4.102 or an agreement under Section 4.103 must be in writing and signed by both parties. Either agreement is enforceable without consideration.
Rule for gifts between current spouses?
If one spouse makes a gift of property to the other spouse, the gift is presumed to include all the income and property that may arise from that property.
