Some view marital property agreements as cynical or unromantic in nature. However, they often serve important functions for marrying or married couples. Problematic issues in a relationship generally do not disappear permanently when partners simply ignore them. Marital property agreements allow couples proactively to address potential sources of conflict.
When effectively negotiated and drafted, the specific terms of a marital property agreement may reduce or eliminate financial conflicts between the spouses by resolving uncertainty regarding the future. They also may provide an incentive to continue the marriage or a disincentive for engaging in inappropriate behavior.
People enter into marital property agreements for various reasons. A premarital agreement serves to memorialize the parties’ financial circumstances at the time of the marriage. A post-marital agreement may serve to accomplish a gift by one spouse of his separate property to the community estate. Clients can use both types of agreements to change the character of property that otherwise would be community property under Texas law.
At the commencement of the process, each party clearly should define his or her goals regarding the marital property agreement. Common goals include preserving assets owned before marriage and changing the character of income earned during the marriage, including the parties’ paychecks and investment income. The non-monied spouse may desire to exchange existing legal rights for specified financial benefits to ensure financial security in the event the relationship fails. Additionally, marrying couples with children from prior relationships may desire to segregate assets clearly for their respective children and to protect the surviving spouse in the event of the other spouse’s death, such as by granting a life estate in a separate property marital residence.
After defining the respective goals, the parties and their counsel should set about the process of advancing those goals through the many different types of available provisions. When negotiating and drafting an agreement, there is great room for creativity. However, provisions restricting child support are void as a matter of public policy.
Some marital property agreements provide for a “signing bonus.” This essentially is specified compensation exchanged for giving up other rights in the agreement. That payment may be in a lump sum or in a series of periodic payments. Structuring the payment schedule to terminate payments if the receiving party files for divorce can add incentive for the receiving party to continue the marriage. To provide similar incentive for the paying party, lawyers can couple the payment schedule with an acceleration clause that applies if the paying party files for divorce.
Some marital property agreements contain penalty clauses, such as a provision that imposes specific financial consequences for proven infidelity. Other agreements contain provisions that are contingent upon specific circumstances, such as the birth of children.
Dealing With Divorce
Marital property agreements often include specific terms and procedures in the event that the marriage ends in divorce. Where community property exists, the agreement may set forth a specified percentage division of the community property’s value. Alternatively, the agreement may provide for specific payment upon divorce, either as a fixed sum or calculated by criteria such as the duration of the marriage. Those terms are not limited to cash payments; instead, they may require the purchase of assets, such as a house or car, for the non-monied spouse.
In the event of divorce, the marital property agreement may simplify certain aspects of the litigation by predetermining the use of assets such as the marital residence or establishing specific financial terms for the divorcing spouses to follow during the pendency of the divorce, such as interim support and payment of attorney fees. Of course, the agreement may eliminate rights that otherwise would exist, such as the right to make claims for reimbursement, post-divorce support and attorney fees.
Where a marital property agreement exists, divorce litigation often includes a challenge to the agreement’s enforceability. However, counsel can decrease the risk of such a challenge by including strict penalty terms in the event that someone unsuccessfully challenges the agreement’s enforceability. Those potential adverse consequences may cause a party to reconsider rolling the dice on the issue of enforceability and simply to honor his or her prior agreement.
The marital agreement may specify arbitration as the alternative to litigating the divorce in family court. Such an option may be attractive for reasons of privacy, expediency or control.
In any event, the attorney should consider including a provision stating that the law in effect when the agreement is reached shall be the controlling law in subsequent litigation. This protects against subsequent substantive changes in the law.
Finally, although enforceability is not the focus of this column, agreements must be drafted properly to increase the likelihood of enforceability.
Although not for everyone, marital property agreements can serve important functions for married or marrying couples.