The treatment of credit cards in divorce can have a long-term impact on both parties’ finances. The disposition of credit card debt deserves special attention in marriage dissolution, especially during the planning phase. Read More “Treatment Of Credit Cards In Divorce”
It can be difficult to tell when reinvested earnings become commingled community property, as divorce is always complicated by a business. Most businesses retain some of their earnings to drive growth opportunities over the near term and as cushion for a downturn. These assets can be crucial to the business’s functioning, but they can also be targeted during divorce, especially if there is reason to believe the business-owning spouse is hiding income in the company. Read More “When Reinvested Earnings Become Commingled Community Property”
Restricted Stock Units (RSU’s), stock options, & restricted stock are only valuable if the employee remains employed for the required period, usually the vesting period. When part of the vesting period occurs during marriage and the other part is before or after the marriage, the assets are part community and part separate property.
Only community property is divided in divorce. Read More “Are Restricted Stock, Stock Options and Restricted Stock Units Community or Separate Property?”
If you’re getting ready to sit down to prepare a postnup, you should know the basics of how to write a bullet-proof Texas postnup partition & exchange marital agreement.
There are essentially two different kinds of considerations that you’ll want to make to ensure that the contract will hold up against any questions of its validity that may come up later. Read More “How To Write A Bullet-Proof Texas Post-Marital Agreement”
If you’re getting ready to tie the knot and want to create a prenup, or if you already have one and need to know how to defend a prenup in your divorce proceedings, you should know the four most common mistakes that can invalidate the contract.
- Involuntarily Signing the Agreement
A good way to defend against accusations of involuntariness is to create the contract well ahead of the wedding date. Each party should have adequate time to read and review the document and consult legal counsel. Deciding to draft and/or sign a prenuptial agreement can be a difficult decision to make, and is not something that anybody should be forced to consider the day before the wedding.
- Not providing fair and reasonable disclosure
You should fully disclose all assets and liabilities in the agreement. If any missing information is revealed or if any disclosures that you provide are found to be false, the contract may be invalidated by the court. Minimally, the divorce will become more expensive because there will be issues to litigate.
- Not being fair and reasonable
The details of your prenuptial agreement are largely up to you and your partner. However, if the agreement is unconscionable, it will be vulnerable to dismissal by the court.
- Creating illegal clauses
This should go without saying, but you cannot include clauses that are contradictory to the law. A good example of such a clause is one which limits child support as this is to be determined by the court.
Knowing how to defend a prenup in divorce cases is important, and you should consider consult legal counsel who can give you definitive advice specific to your circumstances.
Many judges and lawyers are unaware that retirement funds can be transferred between spouses via a QDRO even when no divorce is filed. This is useful as part of a postnuptial agreement. A QDRO can be signed by a judge to protect the portion of a spouse’s retirement given to the other in the postnup.
A postnup might give one spouse some of the other’s retirement. The retirement plan may ignore the postnup. It is not binding on a retirement plan. The only way to make the plan give some of the funds to the other spouse is with a Qualified Domestic Relations Order (QDRO).
If a divorce occurs, the non-employee spouse might find there are no funds in the 401(K) because the other withdrew them. A QDRO when the postnup is signed will require the plan to safeguard the non-employee’s share, ensuring it’s available if a divorce occurs, or when the employee spouse dies.
After the funds are transferred into the name of the non-employee spouse via a QDRO, tax laws now apply to the non-employee spouse. That person may withdraw funds, but may have a portion withheld and owe taxes and penalties, depending on the person’s age when the withdrawal is made.
A postnup that awards a spouse some of the other’s retirement should be accompanied by a QDRO. This will increase the cost of the postnup but the added cost is minimal compared to the funds in retirement that might not be available later.
If the media is any indication, every celebrity couple has a prenuptial agreement in place, but nuptial agreements are not just a concern for famous people. There are many couples that could use the peace of mind that comes with a marital agreement, but it doesn’t have to come in the form of a prenuptial agreement. Postnuptial agreements are on the rise, according to the American Academy of Matrimonial Lawyers (AAML). Half of AAML survey respondents confirmed that over the last few years, they have seen a significant increase in postnuptial agreements. And many of these couples already had a prenup in place. There are good reasons for securing a postnuptial agreement, even with a prenup, as things can change during the course of a marriage.
Postnups Are the New Prenups
Texas law refers to a postnup as a Partition and Exchange Agreement. It partitions the community estate into separate estates and may exchange community for separate property.
Postnuptial agreements are similar to prenuptial agreements, in that they seek to define both spouse’s assets, and ensure that those assets remain the property of their owner. If, for example, one spouse enters the relationship with a high value trust in his or her name, a nuptial agreement will ensure that, in the case of divorce, that trust remains their property. In this way, there is little difference between prenuptial and postnuptial agreements.
The difference really comes down to timing. Prenuptial agreements are put together before the marriage ceremony, and before the couple confirms their new marital status. Postnuptial agreements are put together after the vows are read and (usually) after the honeymoon. Some of the rising popularity of postnups, therefore, can be explained by timing.
An important difference between the timing of a prenup and postnup is the alternative if no agreement is made. Before marriage there is no community property. While it is inconvenient and may be embarrassing, canceling a wedding means each person keeps their own property. There is no community property to divide. Community property begins the moment people are married. A postnup is negotiated after community property already exists. The alternatives, if no agreement is made, are to remain married or seek a divorce. Remaining married without a binding written marital agreement means community property laws apply. For some, choosing between continuing to accumulate community property and a divorce is heart-wrenching.
There are times when a postnup is needed, even when a prenup was written before getting married. Life usually gets more complicated after the wedding. Some of the reasons why a couple might secure a postnup after a prenup include:
- New assets enter the picture – Lawyers assisting with a prenup do their best to account for every possible asset, present and future. This includes assets like trusts and retirement benefits. Sometimes, though, a couple experiences an unexpected windfall. For example, a spouse may be in line for an inheritance that they weren’t aware of. When a good deal of new money enters a relationship, a postnup can ensure that it remains the property of the beneficiary, should a divorce eventually be necessary. In short, it’s the same kind of protection that a prenup offers.
- A spouse’s business takes off – Whether a spouse starts a business after getting married, or the business was already up and running, it can be extremely difficult to project its performance over the long haul. If, however, a business does suddenly become profitable, it may be time to create a postnup. A postnup can define who owns the business, and what the other spouse’s relationship to the business is, forming a plan in the event of divorce or passing.
- There’s reason to believe a prenup will be voided – Nuptial agreements have to follow a strict set of guidelines to be considered valid. Among these guidelines is complete disclosure of all assets, for both spouses, or a properly worded waiver of disclosure signed BEFORE the prenup. If these assets are not made clear in the prenup, and a waiver is not signed, it can put the entire agreement in danger. If either spouse has reason to believe that this could be the case, a postnup will clear up any potential problems and ensure there is a plan in place.
- Medical issues force their way into the relationship – As people age, things they would never have considered, like medical problems, become major points of concern. If either spouse is stricken wth a disease that threatens their ability to make decisions, such as Alzheimer’s, then a postnup can set everything in stone before medical issues intrude.
There are almost no limits on what can be handled with a postnup, as long as it is overseen by an experienced attorney. The agreement need not be as simple as partitioning the community estate into separate estates. It can also provide for equalizing payments between spouses and a financial penalty if one is at fault in a divorce. If a spouse takes time off from a career, for example to raise children or assist with the other’s career, a postnup can allocate some of the other’s earnings to the stay-home spouse.
A postnup need not clinically divide each spouse’s estate so they feel like roommates. It can provide for joint financial accounts, including joint household checking; joint purchases; joint tax returns; and even joint debt. It can also keep all finances separate and say how the bills and expenses will be paid.
Postnups are a comprehensive way to add stability to a relationship, answering the tough questions about assets and debts. They are just as useful even with a prenup in place, and can cover areas not addressed by a prenup or concerns that pop up over the normal course of a marriage. Married life isn’t always easy, but a postnup can make it easier.
The primary differences between a prenup and a postnup are in the alternatives if an agreement is not made. A prenup is put together prior to marriage, and a postnup handles the details after the vows have been made.
If no agreement is made on a Prenup, each fiancé may walk away without a divorce or community property to divide. After marriage, the alternatives to reaching agreement are divorce or stay married with no enforceable marital agreement. After marriage, it’s not as clear how assets and debts should be allocated. Each spouse may feel entitled to an asset acquired jointly, or might want the other to be responsible for a joint debt.
Postnups allow couples to deal with the important, difficult-to-talk-about issues after the wedding is out of the way, and once the couple has settled into its new routine. It may not sound like a fairy tale, but addressing the tough money and property concerns this way can ensure the charged up, pre-marital emotions don’t get in the way.
Marriage isn’t getting easier for U.S. couples. Almost half (44 percent) of first marriages end in divorce. The picture is even more dire for couples entering their second marriage, as up to 80 percent of those fail. Clearly, there is a place for nuptial agreements, whether they come before or after the ceremony.
What is a postnuptial agreement?
In short, it’s much like a prenuptial agreement, only it happens after the wedding. In Texas law a postnup is called a partition and exchange agreement. 4.102 of the Texas Family Code refers to partitioning and exchanging community property into the separate property of each spouse. It is the same as a postnup, a postnuptial, or post-marital agreement.
Many couples don’t consider the complex entanglement of financial assets that occurs as soon as both people say “I do.” That’s not to say that postnuptial agreements are only concerned with money and assets, but that is what they primarily address. In some cases, both parties can come up with some creative additions to an agreement, like a penalty if one commits infidelity.
The only thing that postnuptial agreements may not cover are specifics regarding child custody or limiting child support. A postnuptial agreement can’t force a spouse to commit a crime either, but that should go without saying. As for children, courts have decided, wisely, that it’s more important to determine what is in the child’s best interest at the time the decision is made, rather than just following a contract when a child’s well-being is at stake. This same thought process governs child support as well, except that minimum levels of support are enforceable. The agreement cannot limit the amount of support that might be required.
A postnuptial agreement must meet a set of criteria to be considered valid. They include:
- Must be written – Courts will not enforce anything other than a written agreement.
- Must be signed – Both spouses will need to sign the agreement, and it should be notarized, but that is not required by law.
- Must be agreed upon voluntarily – If one spouse coerces, threatens or deceives the other party to sign the agreement, it will not be recognized by the court. Texas courts have not defined voluntary, but have set the bar high. Threatening to exercise a legal right is not coercion or duress. Telling a spouse to sign a postnup or a divorce will happen does not mean the agreement was signed involuntarily. It is enforceable because a person has the right to seek a divorce.
- Must be largely fair – A postnup needs to be (mostly) fair, but Texas law makes it hard to defeat an unfair agreement. To defeat the agreement, it must be both unconscionable when it was signed and there was no disclosure of finances, or a waiver of such disclosure, before signing. “Unconscionable” is undefined. It means the agreement was so bad when it was signed that a judge’s conscience will not allow enforcement of it. While this seems subjective, courts will not overturn a marital agreement just because it’s unfair.
- Must disclose everything – This is the point that is often overlooked. When people enter into marriage, they have a right to know the other spouse’s assets, to an extremely fine degree. If every asset is not accounted for, it can jeopardize the agreement’s status. Texas law allows the spouses to waive disclosure, but this must be done BEFORE the agreement is signed.
Who should consider a postnuptial agreement?
There are plenty of people who could benefit from a postnuptial agreement, including:
- Spouses that are entering the marriage with major assets – This is usually the reason for putting together a prenup or a postnup. Without a postnup, a divorce can potentially become a withering, and costly, experience for a spouse holding significant assets. In the absence of an agreement, a Texas judge must divide the estate “in a just and right manner,” which doesn’t necessarily mean equally. Perceptions of fairness differ, so a division one spouse, or a judge, thinks is fair, might seem unjust to the other spouse. A postnup can enumerate which assets belong to whom, so if a divorce does happen, those assets will be granted to the person to whom they are allocated in the postnup. When a spouse dies, the separate assets allocated to that spouse in a postnup will be disposed according to that spouse’s Will.
- There are children from previous marriages involved – As complicated as marriage makes asset handling, it gets even more complicated when children from previous marriages are present. A postnup can help define which assets are to be left to the children, and which are to be left to the spouse. Otherwise, the spouse may receive assets and parts of the estate that were intended for the children.
- An inheritance or retirement benefits are in play – Not all assets are brought into the relationship. If either spouse expects they will eventually be in line for an inheritance or for retirement benefits, then it is best to produce an agreement beforehand. Otherwise, they might become community assets, and not the sole property of the named beneficiary.
- Either spouse owns a business – Businesses are also assets, and if a spouse owns one that is or becomes profitable, it also has to be protected. Without a postnup, part of the business or its earnings will likely be given to the other party if a divorce occurs.
- Debts and Taxes – A postnup can ensure that the debts or tax liabilities of one spouse are not paid from community funds. Debts and unpaid taxes existing before marriage can be paid by attaching a joint account, or even an individual account of the other spouse if the funds are community. If a spouse wants to start a business during the marriage, and there is risk the business might fail and owe debts or taxes, a postnup can ensure those debts and taxes are paid only by the spouse starting the business. Keep in mind, this would mean that spouse also owns 100% of the business if it is successful.
When determining why you need a postnup when you have a prenup, it’s important to understand that the point of a postnup is to clearly define what both sides are entitled to, and to protect those assets in the unfortunate event that a divorce is necessary, or on the death of a spouse. With a postnup each spouse is free to bequeath separate property in a Will without interference. This can help protect children of a prior marriage, or family assets.
Discussing a postnup is not the most romantic topic, but it offers stability and peace of mind, and that’s never a bad thing.