Prenuptial Agreement: Do You Need One?

Prenup or marital settlement agreement: what is the difference?

A premarital agreement is made between prospective spouses in contemplation of marriage and takes effect when they marry (Texas Family Code 4.001, 4.004). It sets financial rules at the start, while the couple is on good terms.

A marital settlement agreement is made when a marriage is ending. It settles how existing property, debts, support and parenting terms are divided. One is made to prevent uncertainty. The other closes a dispute that already exists.

What Texas law says about property if there is no prenup

Separate property is property a spouse owned or claimed before marriage, property received during marriage by gift, devise or descent, and a personal injury recovery (except for loss of earning capacity). Community property is everything else either spouse acquires during marriage (Family Code 3.001, 3.002).

Property that either spouse holds during or at the end of the marriage is presumed to be community property. A spouse who says an asset is separate must prove it by clear and convincing evidence (3.003). Income earned during the marriage, growth in value and accounts that mix separate and joint money can all raise that question. A prenup is a way to answer it in advance.

What a Texas prenup can cover

Texas has adopted the Uniform Premarital Agreement Act (Family Code chapter 4, subchapter A). For this purpose “property” includes income and earnings (4.001(2)). Section 4.003(a) lets the parties contract about:

• their rights and obligations in the property of either or both of them, whenever and wherever acquired or located;
• the right to buy, sell, use, transfer, lease, mortgage or otherwise manage and control property;
• what happens to property on separation, divorce or death;
• changing or ending spousal support;
• a will, trust or other arrangement that carries out the agreement;
• who owns and receives the death benefit of a life insurance policy;
• which law governs how the agreement is interpreted; and
• any other matter, including personal rights and obligations, that does not violate public policy or a criminal statute.

Business interests and future growth

When one or both spouses own a business, the question is rarely who owns it at the start. It is what happens as it grows. Profits may be reinvested instead of paid out, and value can rise without producing income.

Property held at divorce is presumed community (Family Code 3.003), so a spouse who claims that a business interest or its growth is separate must prove it by clear and convincing evidence. A prenup can state in advance how growth, retained earnings and distributions are treated, and who may manage and control the business (4.003(a)(1)–(2)). The business can then keep operating while both spouses know its financial effect on the marriage.

Financial imbalance, support and long-term security

Spouses do not always start on equal financial footing. One may earn more or own more. The other may move for the family, reduce work or take on unpaid responsibilities.

A prenup can set expectations for income and savings, and in Texas it can change or end spousal support (Family Code 4.003(a)(4)). Because that can be a large change from the default, each spouse should read this part of a draft with care and ask what it would mean in a long marriage, after a move or after a career break.

Assets in more than one country

Many couples hold property abroad, family assets in another country or money moved across borders. Family Code 4.003(a)(1) covers property “whenever and wherever acquired or located,” and 4.003(a)(7) allows a choice of the law that governs how the agreement is interpreted.

A Texas statute does not bind a foreign court. Whether a court in another country will recognize or enforce a Texas agreement is decided under that country's law. For assets in Turkey, see Turkish law.

Limits and enforcement: child support, disclosure and voluntary signing

A prenup gives wide freedom, but not unlimited freedom. The right of a child to support may not be adversely affected by a premarital agreement (Family Code 4.003(b)).

Under Section 4.006, a premarital agreement is not enforceable if the spouse resisting enforcement proves one of two things. The court decides unconscionability as a matter of law, and these are the only remedies and defenses, including common law ones (4.006(b)–(c)).

• They did not sign the agreement voluntarily; or
• The agreement was unconscionable when signed and, before signing, they were not given a fair and reasonable disclosure of the other spouse's property or financial obligations, did not voluntarily and expressly waive that disclosure in writing, and did not have (and could not reasonably have had) adequate knowledge of those assets and obligations.

Before you sign

The statute asks about disclosure of property and financial obligations. Couples can show what each person knew by exchanging written lists of assets, income and debts before signing and keeping them with the agreement. Estate documents should match the agreement: see estate planning and Do I need a will?.

• Exchange written lists of assets, income and debts, and attach them to the agreement.
• Leave enough time before the wedding to read the draft, ask questions and ask for changes. Whether the signature was voluntary is one of the two grounds on which enforcement can be refused (4.006(a)(1)).
• Both spouses must sign. The agreement must be in writing and signed by both, and it needs no consideration (4.002).
• The agreement starts only when you marry (4.004). After marriage it can be amended or revoked only by a written agreement signed by both spouses (4.005).
• Keep your will, beneficiary designations and insurance consistent with the agreement (4.003(a)(5)–(6)).