By: Larry Hance
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Pre-Marital and Post-Marital Agreements: The Gold Standard for Protecting Assets
Because Texas is a community property state, there is a presumption that money made and assets acquired during a couple’s marriage are community property (jointly owned)– and in the case of a divorce, they’re typically divided between the parties in a settlement that aims to be fair and equitable if not entirely equal. However, there are also laws that apply to inheritances or gifts received during marriage and other assets gained by the parties prior to marriage, which they would own exclusively, if they can prove the inheritance, gift or ownership prior to marriage.
But what happens when separately-held assets and community assets become co- mingled during the marriage? Or what happens when the acquisition of an asset comes into question during divorce proceedings, with one spouse claiming it was acquired prior to marriage and the other spouse claiming it was acquired during the marriage? What about stocks or other investments that gain value during a marriage?
Those questions make divorce proceedings complicated and contentious – but fortunately, there’s something available that keeps questions about separate and community property from entering into the divorce equation. Pre-marital and post-marital agreements (also known as pre-nuptial and post-nuptial agreements) are the gold standard for protecting assets in a divorce, and protecting couples from the acrimony that can result from fights over assets.
The biggest obstacle to getting a pre-marital agreement, for many couples, is bringing it up in the first place. People can’t get over the feeling that it’s unromantic to bring up the possibility of divorce before the marriage, and don’t want to acknowledge the reality that many marriages end in divorce – regardless of divorce statistics being what they are.
While I understand that people are optimistic about their marriages working out as they plan their weddings, I know that a pre-marital agreement is insurance against future disputes – so that it should be part of a financial discussion that couples have as they prepare to make plans for a long future together. They can also be reminded that, for engaged couples who have children from a prior relationship, the pre-marital agreement helps protect assets for their children—and not just in the case of divorce, but also if a spouse dies during the marriage. So, it doesn’t necessarily assume divorce.
A post-marital agreement can be just as effective as a pre-marital agreement, and can be applied for specific scenarios to protect assets. For example, if a couple wants to use part of the wife’s inheritance toward a down payment on a house, the couple can draw up an agreement stating what amount went toward the house, and how the proceeds of a house sale would be divided. In this case, the couple can get a house which they might not be able to get with just jointly-held assets, and avoid disputes that might arise down the road. Some married couples decide to have a post-marital agreement just to decrease disputes and stress over finances. This can save marriages, but if it doesn’t, the divorce is simple because the assets are already divided.
If a couple doesn’t opt to get a pre-marital or post-marital agreement, there are other actions each spouse can take toward protecting their assets, including having physical proof of when inheritances and other pre-marital assets were awarded and acquired, avoiding co-mingling of separate and community assets, and moving separately-held assets into a trust prior to marriage.
But if a client of mine has a significant amount of money in inheritance or other assets acquired prior to marriage, I strongly advocate for the gold standard of a pre-marital or post-marital agreement. It’s simply the best insurance against arguably the most contentious legal battle in which a person might ever find himself or herself. And the cost of the agreement is nominal compared to the nasty divorce, which no one expects to have, but which happen every day.