What Constitutes a Premarital Agreement?
A premarital agreement is like a contract entered into before a couple commits to spend the rest of their lives together. Defined under the Texas Uniform Premarital Agreement Act, a premarital agreement is a written contract signed by both an intending husband and wife, in contemplation of marriage entered prior to actual marriage, that is effective only upon marriage becoming final. The agreement can deal with various issues involving each spouse’s property and can set up other issues regarding the marriage.
A premarital agreement may include provisions relating to the following:
A premarital agreement may not adversely affect the right or ability of a spouse to the spousal support estate of the other spouse. In other words, you cannot use a premarital agreement to keep a spouse from requesting alimony during the divorce process or after the divorce. The agreement may make provisions for the alteration of the right to spousal support before, during, or after the dissolution of marriage. However, the agreement cannot provide for the waiver of the right to spousal support during the marriage . So in theory, if a couple executes a premarital agreement that waives spousal support in the event of divorce or death of one spouse, the courts will likely enforce it. However, no Texas court has ever actually enforced enforcement of an ex-spouse’s waiver of spousal support in the event of the death of the spouse during the marriage under a premarital agreement, and questions remain as to whether such a provision can be enforced at all. While the jury is still out on the enforceability of the provisions related to spousal support in the context of death, as opposed to divorce, it seems the courts would be more likely to enforce the agreement in divorce cases, since the possibility of inflicting economic harm through disability, death, or the death of a minor child during the marriage is very low.
Pursuant to Texas Family Code section 4.106(b), a premarital agreement does not require consideration (more than a verbal or written promise) to be enforceable. Because a premarital agreement does not require consideration, the agreements does not need to actually benefit each spouse.
Requirements Under the Law in Texas
In Texas, the legal requirements for a premarital agreement are established in Chapter 4 of the Texas Family Code. Section 4.001 of the Texas Family Code states that parties may, before marriage, make written contracts concerning: Under Section 4.003, premarital agreements must be in writing and signed by both parties. Oral agreements are not enforceable. Signed agreements can also be enforceable against a spouse who has filed a bankruptcy petition. However, a contract is not enforceable against a party who was not represented by independent legal counsel at the time the party signed the agreement unless that party: (1) was given a reasonable opportunity to seek independent legal counsel; (2) the party actually had independent legal counsel; or (3) the waiver of independent legal advice was in a separate document in bold print. § § 4.005, 4.006.
An oral statement concerning a premarital agreement or prospective marriage is ineffective unless the statement was made in a signed writing or the parties made a contemporaneous, equivalent, oral statement in the presence of a witness. § 4.003. The law, however, provides for remedies if a person proves that the person failed to sign the agreement due to: (1) fraud, mistake, or duress; (2) an incorrect or incomplete material statement pertaining to the financial assets of the parties; or (3) a failure to disclose a material matter concerning the destruction or dissipation of property in violation of an existing obligation to preserve the property. § 4.008.
The statute of limitations for an action arising under a premarital agreement is generally four years after the date the agreement was signed. § 4.005. A premarital agreement is enforceable without the discretion of a court unless a party proves that: (1) the party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; (2) the party did not voluntarily and expressly waive the disclosure of the property or financial obligations of the other party beyond the disclosure provided; and (3) the agreement was not unconscionable when made. § 4.106.
When a premarital agreement is made in contemplation of a final divorce decree from a previous marriage, it will not be enforceable against a party’s children if the court finds the agreement was not made with the intent to benefit the children. § 4.107. While a party to a premarital agreement may be waived from spousal support, the waiver must be in accordance with Section 8.053 and must be in a separate document in bold print. § 4.106.
Typical Provisions Found In Texas Premarital Agreements
Texas law has a series of common provisions which frequently appear in all premarital agreements. In referencing the Texas Family Code ("F.C."), the common provisions are:
1) The parties can agree on whether their property rights will be governed by:
a. Their premarital agreement;
b. Their religious law concerning the ownership of property; or
c. The laws of another jurisdiction, provided that jurisdiction bears a "reasonable relationship" to the parties.
2) Parties can contract regarding the disposition of their separate property in the event of separation, divorce or death. Specifically, the Texas Family Code states:
a. The division of their property in the event of divorce or death;
b. The modification or elimination of spousal support (aka alimony);
c. The making of a will or trust for the other party;
d. The ownership and management of a business;
e. Disposition of retirement benefits;
- The parties can agree to change the marital property provisions of the Texas Family Code.
- An agreement must be made voluntarily and without duress.
- In order to have a complete agreement, there can be no reliance on misstatements on assets and liabilities to have an enforceable agreement.
- A party has the right to independent legal counsel.
- An agreement must be in writing and signed by both parties. (F.C. Section 4.100- D.R.I.E.E.L)
Advantages for Couples
Under Texas law, a premarital agreement is not enforceable if the Court finds that the party against whom enforcement is sought appears to have been an incapable of understanding the legal consequences of signing the document. An individual who has not truly been afforded an opportunity for adequate review of a contract before signing it may not be bound by its terms when marital rights and obligations are at issue. Far more importantly, however, if the marriage in fact breaks down and a divorce is sought or obtained, there is no doubt that a premarital agreement made available for review and understanding will greatly simplify issues of property division, alimony, and the extent to which attorneys’ fees shall be paid as a part of the marital estate’s debts.
A spouse not willing to sign a premarital agreement can simply walk away from the bargaining table. An unwillingness, however, is general not to go into the marriage at all, not necessarily to sign off on welcome terms for the other party. There is nothing "underhanded" about seeking a written agreement concerning the financial consequences of marriage. Only those unwilling to negotiate fairly will not enter into a premarital agreement with an honest and straightforward approach.
Premarital agreements set forth the parties’ properties both acquired before and during the marriage. Due to these efforts, divorce and estate laws, although they appear simple in theory, devolve into complex issues almost always difficult to settle because the parties do not keep an even hand in their recordkeeping and wording of documents. When a clear start is made, however, the division of community, or joint, property on divorce becomes based, as much as is possible, on the parties’ wishes. Alimony, or spousal support, also becomes far easier to determine ahead of time.
Any new marriage is the coming together of two people from different sets of family and cultural backgrounds. A premarital agreement offers important protections even in peaceful, trusting unions. With respect to property division, a couple can choose which assets will be defined as community. A couple must choose which preferred law or laws will govern the interpretation of their agreement. (Different states, when it comes to laws applicable to contractual and commercial matters, sometimes take very divergent approaches even with similar language.) One spouse might want to agree to forego any right to alimony or spousal support, while the other prefers to agree to forego any right to alimony. These are merely examples of the many factors, in addition to negotiation history, that will come into play concerning the standards of review applied to a premarital agreement, and to the agreement’s validity.
Surprisingly, a premarital agreement can sometimes have an effect on negotiations made between the spouses after the marriage. Certain professions, and status obtained through the marriage (i.e. that of a company officer or director), and even the standing of a business as "professional," may for some spouses create a privilege by law from having to provide documents or testimony to the other spouse concerning any issues relevant to the foregoing matters. While premarital agreements can create these privileges, which may be more difficult to manipulate than others, spouses contemplating marriage can agree to waive them so that each has greater access to the other’s financial status through certain records and testimony.
A premarital agreement makes a great deal of sense for those contemplating marriage. One spouse, at least, can preserve a right or ability that might be forfeited upon court-ordered division or allocation. In most instances, the right is quite important since courts will generally afford little or no deference to the parties’ agreements concerning their properties and debts if large enough financial inequalities will result. A premarital agreement can offer precious opportunities for the parties, especially in the business and technical fields, to anticipate what traits will be regarded as characteristics of professional or passive investments. Protection of separate property pursuant to a premarital agreement also offers an opportunity to businesses to retain functionality when ownership changes due to divorce.
Disadvantages and Risks
One common challenge to enforcement of premarital agreements in Texas arises from matters not included in the agreement. For example, if the husband and wife enter into an initial agreement, then a substantial period of time passes before the couple marries, the terms of the agreement could become stale or no longer relevant. Both parties may have benefited economically from the initial behavior or circumstance that caused the agreement to be signed. But the relationship has matured and now either spouse has a more mature view of money, work, property, and leisure time. In this circumstance, the judge will assess whether the agreement continues to be in the best interest of each party or is even relevant. A premarital agreement is not preventing a marriage, but has to be created in good faith and it cannot be punitive.
Another common challenge to enforcement of a premarital agreement exists when only one party actually hires an attorney. When both parties lack representation, and the initial waiver forms are attached to the agreement, the issue may arise that there was no true "buyer’s remorse" regarding the agreement. The judge may decide that the absence of counsel for each party and the failure to discuss prior to signing the agreement, the waiver form is so significant that the agreement cannot be enforced. Best practices include having representations from each party that they feel like the agreement is fair. This means that even the wealthier party should be willing to confer with the other party about the ability to afford legal counsel, and should be willing to advise the less wealthy party that he/she should seek counsel prior to signing the agreement . These conversations cannot be secretive or half-hearted with regard to the motivations of either party. Each spouse should generally have the same level of knowledge regarding the value of assets as it pertains to their agreement. If one spouse fears to speak up, then the unfairness may be so extreme that the agreement is struck down.
With regard to the specifics of any interspousal contracts, Texas courts will only examine issues of unconscionability at the time the contract is created. A contract is unconscionable if the product of the excessive power of one party over the other so fleeces the less powerful of what he is entitled to have as to constitute a refusal to exercise reason. A person simply being less financially fortunate than another, and not being aware of the assets and debts of his/her spouse does not constitute unconscionability. The parties are not in the role of fiduciaries with a duty of loyalty and full disclosure. It is not a situation which requires the examination of fiduciary principles. If the agreement is enforceable at its inception, even if unconscionable later, it will continue to be enforceable, unless the contract has changed, or a showing occurs that it is unconscionable in the present.
Another challenge to the strict enforcement of a premarital agreement includes a finding of duress, fraud, coercion, or misrepresentation. For example, if the parties encountered an illness, financial issue, or emergency prior to signing the agreement, this factor could lead a judge to strike the agreement. If one party signed the agreement under protest, or without the opportunity for consultation with counsel or reflection, a judge may also strike a premarital agreement. The burden of proof is a preponderance of the evidence.
How to Establish a Premarital Agreement in Texas
The first and foremost step we recommend is to consult with your individual attorney. You must each have an attorney who is practicing in Texas and familiar with premarital agreements. If you are still looking for attorneys, here is some information on attorneys we recommend. The second step is to sit down with your intentions and finances and order them out. You will want to be upfront with your future spouse about what you want from the agreement. The agreement will be useless if you both act dishonestly with each other. Be certain to include anything of value that you want as part of the agreement. The thing to remember about premarital agreements is that they are all part of a trade of sorts between you and your spouse to be. Your spouse may be willing to give up some reward later so that you can have yours. If you approach the negotiation as a trade then it becomes less adversarial. The third step is to begin to draft the language. You may have a premarital agreement language that you may have previously drafted you may want to use as a start. Each premarital agreement used in the state of Texas has a recitation where the married couple tells the judge why this agreement is being signed. Other types of language in Texas premarital agreements may include: The final step is to sign the agreement. As long as there is two weeks before the marriage for it to be valid, and both parties have legal counsel, and both people sign the agreement voluntarily, the delegates are generally fine with these types of agreements.
Challenges and Contests
In the event of a dispute over the terms of a premarital agreement, the dispute may be brought for determination in the manner and form as provided by the Texas Family Code. As a general rule, a premarital agreement properly signed (i.e. notarized and/or witnesses) and entered into prior to marriage will be enforceable. However, a party seeking to set aside a particular provision of a premarital agreement may do so by presenting evidence that: While the burden of proof is on the challenging party, the burden of producing evidence that the challenged provision is enforceable is on the other party. The Texas Family Code provides for different levels of judicial review that may be used to compel performance or to seek enforcement of a premarital agreement. One mechanism authorized by the statute for the enforcement of premarital agreements is the contempt power of the Court. In Chow v. Chow, the El Paso Court of Appeals concluded that the contempt power of the Court was sufficient to compel a party’s compliance with a valid premarital agreement. Although Chow not a divorce case, the El Paso Court of Appeals adopted the reasoning used by the Texas Supreme Court in the dissolution of marriage context in assessing the validity of spousal agreements. In Chow, the El Paso Court of Appeals held that the contempt powers of the Court might be used to enforce a valid premarital agreement for one of the parties to convey certain property. When Chow refused to divest title to the property that was subject of a mortgage lien, the El Paso Court of Appeals ordered him jailed until he complied with the trial court’s order. Chow specifically cited the Texas Supreme Court’s reasoning in the case of Davidson v. Davidson. In Davidson, the Texas Supreme Court reasoned that Court’s order was enforceable through contempt proceedings because spousal agreements allow the parties to settle their claims regarding any community property they have acquired before marriage, any joint earnings that arose from their efforts during the marriage, and any earnings that are from any continued efforts one or both makes during the marriage. Because agreement allows the parties to contract away their right to the community property, the Court has the authority to determine if such an agreement is valid. If the court finds that a disputed provision does not comport with the Texas Family Code, it must then enforce the agreement to the extent of its validity. Of considerable interest to property law practitioners, latches, i.e. unreasonable delay in the assertion of a claim in a manner that disadvantages the other party, can bar a claim to enforce a marital agreement. Laches is an equitable doctrine used to bar a recovery when the party seeking recovery did not exercise diligence in asserting a legal right and the delay in asserting the right prejudiced the opposing party. Laches requires the application of two elements. First, the person asserting the defense must be materially disadvantaged in some manner, second, the disadvantage must be directly attributable to the other person’s delay. The Texas Supreme Court has ruled that laches can debar the enforcement of a post-marital agreement due to the delay.
Final Thoughts: Is a Premarital Agreement for You?
As you can see, premarital agreements in the State of Texas are not a deterrent to marriage, they are used as a means for two people to plan their financial future together . A premarital agreement doesn’t mean an end to love, it means an opportunity to create a bright financial future for both parties and spend a lifetime collaborating together as husband and wife.