When two people join together in marriage, they aim to combine their lives, but they enter that arrangement with separate lives, jobs, property, income, and assets. One party may enter a relationship with an inheritance; another may have built a life through business or talent. The point is that people may have things in their lives they either want or need to protect before entering matrimony.
Divorce can be a concern because it threatens the relationship and the status of the separate property and assets each spouse brings to the marriage. Look no further than Amazon’s Jeff Bezos losing more than $35 billion in Amazon stock when separating from his wife. If this is a concern before entering marriage, it is wise to strategize ahead of time and have a game plan ready to go. The primary vehicle to protect assets before marriage is a prenuptial agreement, also called an antenuptial agreement, premarital agreement, or simply prenup for short.
At one time, prenup agreements were illegal in the United States, but since the middle of the 20th century, states across the United States have included statutory allowances for prenups, Texas is among them. Creating a prenuptial agreement is more than simply filling out a form; it is more important to have a strategy in place instead of a filled-out form from a website. You need to enter a prenup with both eyes open and a plan thought out because “there is a chance for litigation if prenuptial agreements are done incorrectly.”
A History of Texas Prenups
As mentioned above, prenuptial agreements originally did not exist under American law. Common law did not recognize them, and couples who tried to form them before marriage did not succeed. That reality started changing in the mid-twentieth century and peaked in 1983 when states began passing and following the Uniform Premarital Agreement Act (UPAA), with Texas among those states.
The UPAA replaced that common law tradition and created statutory allowances for prenuptial agreements under state law. A little over a fourth of the other states have followed the UPAA, with others using modified versions of the UPAA or formulating their unique regulations regarding prenups. The point of the UPAA was to provide a customary law that anyone could use to form a prenup since it was unlikely for state courts to create this on their own.
Suppose prenups are a vital part of your toolbox in protecting hard-earned assets. In that case, these standard statutes can be your best friend because it creates more predictable legal situations, which means it can be easier to map out a plan to prevent litigation before it ever pops up on the horizon. Internationally, there is no similar or credible standardization, and it can be a crapshoot on what kind of laws apply — if any — to a prenup.
To reiterate a point here: it is crucial to set up a legal strategy with an attorney to ensure your assets are protected ahead of time, instead of depending on good arguments to win the day. And in the case of Texas, it’s vital to understand the UPAA and how Texas applies it when building your prenuptial agreement.
The committee that helped form the UPAA said, “The general approach of this act is that parties should be free, within broad limits, to choose the financial terms of their marriage. The limits are those of due process in formation, on the one hand, and certain minimal standards of substantive fairness, on the other.”
More generally, prenups in UPAA states can provide broad protection:
The Uniform Premarital and Marital Agreements Act states that parties should be free to create financial terms in which they both agree—with some limitations. It makes a review of minimal standards of fairness by the state mandatory based on circumstances at the time of the agreement. After the review, a state can refuse to enforce an agreement that puts one party in financial jeopardy. The act also addresses burden of proof and establishes when rights at divorce or death might be waived or modified.
The aim of the act is to provide courts with flexibility in making rulings on family law cases and also give individuals who are considering signing a premarital agreement some confidence that the agreement they enter into will be enforceable and how it will be enforced.
These points are the broad promises of the UPAA. We will cover how Texas implements this below. If you are reading this in another state, it is vital to know whether you are in a UPAA jurisdiction and how they implement it. You cannot assume the UPAA is the same from one state to another, even if the broad themes are similar.
Divorces can be contentious, and spouses have broad rights in those proceedings. Prenuptial agreements, when done right, can help avoid those situations and protect assets by informing courts who gets what in the event of a separation.
The Statutes Governing Texas Prenuptial Agreements
The Texas UPAA is located in the Texas Family Code, Title 1, Subtitle B, Chapter 4, Subchapter A. First, some key definitions help lay things out:
Sec. 4.001. DEFINITIONS. In this subchapter:
- “Premarital agreement” means an agreement between prospective spouses made in contemplation of marriage and to be effective on marriage.
- “Property” means an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings.
The property definition is crucial because it is broad and can include things like salaries or other income. Asset protection first means noting the kinds of items that can receive protection under a prenup.
Texas has few formalities on forming a prenup. But given the short list of instructions, it is vitally important to follow those formalities. If a court believes a process is easy, then not following it could come back to haunt potential litigants. Some additional preliminary statutes:
Sec. 4.002. FORMALITIES. A premarital agreement must be in writing and signed by both parties. The agreement is enforceable without consideration.
Sec. 4.004. EFFECT OF MARRIAGE. A premarital agreement becomes effective on marriage.
Note the first statute: a prenup must be in writing and signed by both parties. You cannot form a prenuptial agreement in Texas through an oral or handshake arrangement.
Best practices would also ensure that both spouses are duly represented by their own independent attorney. While a single attorney can represent both spouses, each spouse should get their own attorney to ensure the agreement tracks the latest legal developments and follows the law on prenuptial agreements.
Finally, what if there are material changes in your life? What if new assets come into being? Obviously, the recent creation of cryptocurrencies was beyond the purview of older prenuptial agreements. But other things can happen as well. People get new jobs, buy property, receive inheritances, and more. If a prenuptial agreement goes into effect, it does not have to remain that way forever. The parties can change it.
On amending a prenuptial agreement, the Texas code says:
Sec. 4.005. AMENDMENT OR REVOCATION. After marriage, a premarital agreement may be amended or revoked only by a written agreement signed by the parties. The amended agreement or the revocation is enforceable without consideration.
Amending the prenuptial agreement follows the same parameters as the original signed document. It must get signed by both parties. Any attempts to create a handshake or oral agreement between spouses will not stand up in court. The parties must write it down, sign it, and agree to it.
Best practices for the original agreement also matter for any amendment. As the statute notes, it’s also possible to revoke a prenuptial agreement. Revocation requires signing and agreeing to cancel the prenup, not just ripping it up and throwing it in the air, as you may see in the movies.
These are the basic parameters for a Texas prenuptial agreement. Under the UPAA, Texas grants broad leeway to parties to protect what they deem essential before entering a marriage. Violating these basics could lead to two adverse outcomes.
First, a could that sees one party ignoring or cutting corners on the low bar for creating a prenuptial agreement could throw it out. If that happens, all prenuptial agreement protections get tossed aside, and standard family law divorce proceedings likely apply.
Second, a court could take a negative view of the party that cut corners beyond throwing out a prenuptial agreement. If the court believes bad faith was involved in forming the prenup, or one party is trying to defraud the other, it could use that basis to rule more harshly against the offending party in any litigation. Potential litigants in a divorce proceeding do not want to start on the wrong side of a judge who views them in a negative light.
Following best practices and securing sound legal counsel is wise to avoid these pitfalls. Protecting assets is about following the procedures and laws the court wants to see, which requires a robust legal strategy with an attorney.
What can you put into a Texas prenuptial agreement
We have touched briefly on the broad categories of items that Texas allows people to include in a prenuptial agreement. Within its UPAA structure, Texas Family Code provides a list of things that people may put in any prenuptial agreement. That list is as follows:
Sec. 4.003. CONTENT. (a) The parties to a premarital agreement may contract with respect to:
- the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
- the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
- the disposition of property on separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
- the modification or elimination of spousal support;
- the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
- the ownership rights in and disposition of the death benefit from a life insurance policy;
- the choice of law governing the construction of the agreement; and
- any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.
(b) The right of a child to support may not be adversely affected by a premarital agreement.
It’s worth starting on the last point listed. In Texas, a prenuptial agreement cannot adversely impact child support. If children are involved in a prenuptial agreement, it is even more imperative that both spouses have their own attorneys to negotiate any pitfalls regarding children. Amending a prenuptial agreement could be a wise move if children become part of the equation during a marriage. Because having children can complicate various issues, it is best to seek sound counsel from an attorney who has expertise in that area.
Aside from that, Texas grants wide latitude to the parties to negotiate nearly all relationship parameters; property, income, insurance, and more can be included in the content list. Prenuptial agreements frequently contain provisions that can punish one partner for cheating in the marriage. It is not uncommon to see a requirement with wealthy celebrities that one partner may be penalized by paying millions of dollars for conducting an affair. Other provisions may reward one spouse monetarily for every year they stay in the marriage.
As previously stated, both parties can amend these contents later on in the marriage in writing. The longer the marriage lasts, the more likely it is that material changes may necessitate changes to a prenuptial agreement. Setting an annual checkup with your attorney to go over any potential changes can go a long way towards ensuring your asset protection plan stays up to date and valid under existing law.
Enforcing a prenup in Texas or How to void a prenup
The Texas statutes on enforcing a prenuptial agreement read more like a “how-to” guide on how to get a court to throw out a prenup. The way to read these statutes is that, generally speaking, a Texas court will enforce a prenuptial agreement unless one of the situations arises in these statutes.
Once again, we go to the Texas Family Code for these parameters. There are two broad categories Texas lays out. The first one is:
Sec. 4.006. ENFORCEMENT. (a) A premarital agreement is not enforceable if the party against whom enforcement is requested proves that:
(1) the party did not sign the agreement voluntarily; or
The first issue is that of voluntariness. Texas courts, and UPAA courts in general, do not want parties signing a prenuptial agreement against their will. If they sign under duress, or a prenup was forced on them at the last second under duress — for instance, on the wedding day — then a court will look negatively upon a prenuptial agreement and may throw it out.
This point is why the best practice is usually one where both parties have their own attorneys, negotiate the prenup well in advance of the wedding, and follow all the prerequisites before signing.
The second part of the statutes deals with unconscionable prenuptial agreements:
(2) the agreement was unconscionable when it was signed and, before signing the agreement, that party:
- was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
- did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and
- did not have, or reasonably could not have had, adequate knowledge of the property or financial obligations of the other party.
(b) An issue of unconscionability of a premarital agreement shall be decided by the court as a matter of law.
The unconscionable section deals with bad faith negotiations. Parties cannot hide property, wealth, or other things from the other side in a prenuptial agreement. If a person signs a prenuptial without knowing what they could sign away, a court could strike that down as unconscionable.
As one Texas lawyer advises, “whether a given prenuptial agreement was unconscionable can be a rather complicated question which can be influenced by a wide variety of different details regarding what the situation was when the couple signed the agreement and in the time leading up to the signing.”
If both spouses are represented by their own attorney, it helps avoid unconscionability charges because it helps foster the complete listing of all assets. Attorneys can help avoid those waters. Hiding material matters in a prenuptial agreement can lead to a court striking down a prenuptial agreement, and then your assets are back at square one under divorce laws and family law. Avoiding unconscionability charges in a prenuptial agreement should be a prong of any asset protection plan.
Community property, separate property, and how that factors into Texas Prenups.
Texas is one of nine states that follows community property rules. Most states follow common law or equitable division, which means an unequal division of assets in a divorce can concur depending on various factors. Community property generally means all assets two individuals have, once they enter a marriage, get split evenly in a divorce.
As one expert sums up:
Texas is a community property state, which means that all assets and property either partner in a marriage acquires during the marriage is jointly owned by both spouses. Anything a partner brings to the marriage is generally considered separate property as long as the assets are not commingled.
The most important factor for courts is establishing: what is community property? Courts have to determine whether both spouses bought, purchased, or came into possession of something during the marriage. If so, it is likely community property. It is likely in a community property state for separate property to become community property if the spouses commingle those assets during the marriage.
In a community property state, prenuptial agreements are even more critical because you can state what is and is not separate property for both spouses upfront.
Suppose a court sees that both parties have predetermined what is separate property. In that case, it can sidestep community property rules, and both spouses walk away with their separate property, even in situations where assets were commingled in the marriage. If there is no prenuptial agreement, commingling becomes a significant factor. If a prenup is in place, the agreement should rule in that situation.
This point on community vs. separate property is another reason why it is wise to revisit prenuptial and other asset protection documents to ensure everything is covered. Updating prenuptial agreements to reflect potential new property that needs to get listed as separate property can protect it from future risks.
It is possible for people who are already married and lack a prenuptial agreement to achieve some of these same protections by forming a Marital Property Agreement. These agreements can also become helpful if one party no longer wants to update a prenuptial agreement. Texas Code states:
Sec. 4.102. PARTITION OR EXCHANGE OF COMMUNITY PROPERTY. At any time, the spouses may partition or exchange between themselves all or part of their community property, then existing or to be acquired, as the spouses may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes that spouse’s separate property. The partition or exchange of property may also provide that future earnings and income arising from the transferred property shall be the separate property of the owning spouse.
That statute lays out the same point we have made here; both parties can list what they want to be community or separate property.
Hopefully, this foray into Texas laws and statutes into prenuptial agreements gives you some ideas and plans on forming an asset protection plan that covers marriage. Prenuptial agreements can provide a critical element to ensuring property and other assets remain separate property under Texas law, which can prevent those assets from getting taken away in the event of a divorce.
LEGAL DISCLAIMER: Information in this article is provided free of charge and purely for informational and educational purposes only and is not offered as legal advice. No attorney-client relationship is created by the offering of this article. TexasAssetProtection.org is not a law firm, does not represent clients, and is not representing you or anyone else. Although every effort is made to keep information up-to-date, laws may change. Retaining legal counsel for your individual case and circumstance is advisable before taking any action that has legal consequences. Consult a tax advisor or financial consultant as well, as this is not offered for any tax or financial service or advice.