All About Separate Property Agreements
A "separate property agreement" is a document that is signed between two spouses or between one spouse and a third-party outside of the marriage in order to designate something into separate property, as opposed to community property. Under Texas law, a party can make a property – which otherwise would be considered the community property of that party and the party’s spouse – into the party’s separate property such that the other spouse will have no interest in the property. One of the most common uses in litigation is to separate out an asset or portion of an asset from the community such that the portion that is separated out is not subject to division when a suit for divorce is filed .
The Texas Family Code sets forth the requirements for entering into a valid "premarital agreement" or "partition and exchange agreement" but it does not require that same basic form of agreement if want to make a postmarital agreement. It does not even require the involvement of another spouse. A person could sign a separate property agreement with someone who had no legal interest in the property to start with. The legal complications lie with its use in the divorce context in that, if the spouse does not have an interest in the separate property, then it would not be subject to the court’s division of the debt.
Texas Legal Requirements
According to Texas law, there are certain specific requirements that a formal legally executed and notarized agreement must meet to be considered effective. There are several possible ways a legally binding separate property agreement can be established in Texas; however, to be considered enforceable, the required elements must be met.
One of the most common ways people establish a legally recognized separate property agreement is through a formal written document. For the agreement to be enforceable, it must be signed by both spouses, and either acknowledged before a notary public or signed in the presence of one or more credible witnesses.
"Signature, Acknowledgment and Witnessing requirements. A postnuptial written agreement must: (1) Establish or alter the spouses’ community property rights. To be effective according to the Texas Family Code, the separate property agreement: In this case, court approval is required.
Attorney’s Note: If you are considering a postnuptial agreement, do not include clauses in your postnuptial agreement that state that your children will inherit your estate. Failure to disclose your children at the time you have a postnuptial agreement could lead to the non-disclosure of assets and cause your entire agreement to be void.
If you do not meet the requirements above, an oral postnuptial agreement may still be enforceable by clear and convincing evidence of its existence.
Agreement Form Writing Guidelines
More likely than not, the first thing you’ll notice upon reviewing the Texas Family Code Form 1-11A is its one-sentence clarity: PARTIES: Declarant and his/her current spouse, (collectively "the Parties") desire to enter into this agreement setting forth the agreement between them and establishing the powers of Declarant relating to his or her separate property . . . Oh well. With that sentence in mind, here are 6 tips for drafting a Texas separate property agreement: Tip #1: Identify the separate property. The requirements of specific identification of separate property in an agreement of this nature are: (a) the separate property must be described in such fashion that it is ascertainable; (b) the description must allow the courts to conclude from the language of the agreement that the parties intended that property to be classified separately; and (c) historically, inclusion of an agreed valuation for the property has been suggested as a method of meeting the requirements. Tip #2: Make clear the parties’ intent. If the declarant intends to waive the right to the passage of a particular estate in lieu of a testamentary gift from the surviving spouse, it must be stated in the instrument in explicit terms. Tip #3: Be clear about the rights of the spouse. An agreement of this type should clearly delegate the spouse’s rights in a wife’s separately owned property to the wife in such a manner as to allow the declarant to deal with it as fully as if he were single, to-wit: " . . . parties agree that Declarant in her own right shall have full power to use, transfer, sell, convey, mortgage, lease, exchange and/or otherwise encumber and to devise, will and bequeath to others her separate property without joinder of her spouse . . ." Tip #4: Reference Chapter 2.401. The agreement form should reference Texas Family Code Section 2.401 as a required prerequisite for the effective disposition of community property by will by the surviving spouse. Tip #5: Don’t require signature by legal counsel. Texas courts have held that a waiver of the right to community property rights vis-a-vis signing an agreement of this nature does not require either party to sign such an agreement in the presence of legal counsel. Tip #6: Consider including a severability clause. A severability clause, "saving" the remainder of the agreement, may be necessary to preserve the agreement in the event of the invalidity of a portion thereof.
Common Pitfalls to Avoid
Common mistakes to avoid when completing a Texas separate property agreement form
There are numerous common mistakes that people make when completing a separate property agreement. The first mistake is when a party’s signature is not properly witnessed. As with most legal documents, the signatures on the separate property agreement require a witness. In addition, the parties should include their printed names next to their signatures or have the witnesses put their names on a signature block. On occasion, the signatory for one party in the agreement is not the actual party to the agreement. To be a party to the agreement, a person has to have an interest in the community property. The parties to the agreement must be careful if they are trying to designate a third person as the person with an interest in the community property. The person must have an actual interest in the property before you designate him or her as the third party. A very frequent situation is when the community property is community personal property that was inherited. In this case, the spouse has no interest in the community property that was inherited since the spouse did not contribute to the purchase of the property. An heir has an actual interest in the property. The beneficiary of a trust does not have an interest in the property that was placed in the trust by the grantor of the trust. The third mistake is that one party or both parties does not complete all of the blanks at the end of the agreement. You cannot leave any blanks when you complete the separate property agreement. If it is later discovered that there is some other big honking item that needs to be set out in the separate property agreement, the court will most likely hold that the item is community property and not separate property. Fourth, the separate property agreement is not dated. There has to be a date on the separate property agreement. The separate property agreement is not a binding contract until it is signed and dated by the parties. The parties cannot go back after the fact and hand write a date on the separate property agreement. The court will not allow a date to be added after the fact. Therefore, it is critical that the separate property agreement is signed and dated as close to your marriage date as possible. There is a fifth mistake that occurs but is not as frequent as the first four. Often one party in the separate property agreement does not seek independent legal advice prior to signing the separate property agreement. It is imperative that before signing the separate property agreement, the spouse has an opportunity to discuss the agreement with an attorney. An attorney can help the party understand the ramifications of signing the separate property agreement.
When to Seek Legal Assistance
In our digitally connected world, where we are accustomed to doing everything online, including signing contracts, signing a separate property agreement (an alternative to a premarital agreement) without a lawyer is not the best idea. Neither spouse should sign such an agreement without at least consulting with a lawyer.
There are several scenarios where you should:
- Be ready to sign but do not have time for your attorney to review and prepare the agreement before the wedding. If you have an absolute timeline, it is best to show your attorney your own draft of the agreement (using the form you can download on this page) as soon as possible. This gives your attorney the chance to advise on the details. In addition, the attorney can draft their own version of the document. Then, if you are comfortable retaining your own copy of the agreement and do not want your own attorney to keep a file for the process, you can sign that document.
- Have a complex situation (i.e., business interests, special requirements for child support or other needs) that requires some extra work to prepare the agreement. These agreements are often pretty straightforward and require no more than some basic information from you and your fiancé. But in some cases, you may need your lawyer to customize the agreement to fit some specific need.
- Wonder whether the deal you are being asked to sign is fair. There are times when maybe the other party has drafted this agreement for their own benefit , and you just have not had enough time to really read it. Our understanding is that maybe your fiancé wants a prenup instead of a postnup. Maybe you or your fiancé asking for some sort of a sweetener. If you signed this thing as-is, would you still get the "I do" from the other party?
- Do not really know your fiancé well or trust them to fairly negotiate an agreement. This is something that comes up more often than you would expect. Maybe the ring is all that glitters, but there is gold underneath…. Or, let’s say you wander into the church as the lady or fellow in white, but are you marrying the right person? Does their family deserve your money? Or their children? Nothing about this scenario is contractual. In fact, you and your partner should not even be talking about signing a contract until after you are actually married. However, in extreme cases, such as the ones mentioned, it is worth a visit to an attorney to get an assessment of the situation from a third party.
- Do not feel comfortable asking your fiancé to create an agreement even though you both could benefit from the protections in it. Having that conversation can be awkward for couples in love. You might feel like you are presuming that the relationship will fail, or like you are picking over the meat of a great omelet even though the egg is not bad at all.
If you really do not feel comfortable broaching the issue but think it is important to address, tell your partner that you have been approached about signing a really important document before the wedding and that you are currently considering what to do about it with your attorney.
Updating or Revising the Agreement
It is relatively easy to update or amend the monetary aspects of a Texas Separate Property Agreement. For instance, if dividends from a bank account or dividends from securities increase or decrease, that may need to be reflected in the agreement. It sometimes makes sense to adjust the numbers in the original agreement in order to keep them current with the parties’ intent.
More significant changes are often needed to a Texas Separate Property Agreement because of changes in the law or of the parties’ circumstances. In either of these situations, it is important to update and amend the agreement. In Texas, a prenuptial agreement may be amended after marriage without consideration the same way the agreement was made. It is important for the parties to indicate that any amendment is intended to change or update the existing agreement so that there is no mistake about the intent of the agreement.
Sometimes, after a divorce, parties may set aside a Texas marital agreement, also called a "mid-marriage" or "post-marital" agreement, by indicating that the marital agreement no longer applies to the parties. This rest situation has occurred more frequently in recent months as the laws have changed.
Most Commonly Asked Questions
1. What is a Texas separate property agreement?
This an agreement between spouses who are married and want to make clear what property belongs to each despite any community property laws in the state of Texas. In general, Texas law treats all property acquired during the marriage as community property to be divided between the spouses upon divorce. A valid separate property agreement alters the classification of marital assets and debts.
2. Is the Texas separate property agreement enforceable?
If it is signed, voluntary, not the product of fraud or coercion, in writing, contains adequate information on the property subject to the agreement, has fair and reasonable disclosure, has fair and reasonable property protection which must have been disclosed , then it is enforceable.
3. Can a Texas separate property agreement be overturned?
It is very difficult to overturn a validly executed Texas separate property agreement. To effectuate something like this would likely require evidence of a fraud or coercion to show brainwashing, drugging, or physical restraint. Reformation of a contract requires showing that a prior version existed which was consistent with a party’s intent but was incorrectly created.
4. Can a Texas separate property agreement be used in a common law cohabitation relationship or marriage by analogy?
Many people use a Texas separate property agreement for their unmarried relationships. These agreements will claim property as separate property as if no formal marriage existed. These contracts can be used to argue for a partnership interest in a joint business venture, equity in a house with one person’s name on the deed or mortgage and a distribution of property upon separation.
