The Basics of Texas Prenuptial Agreements | From a Travis County & Williamson County Prenup Lawyer

Anthony F. Brigano, Managing Attorney at Brigano Law, PLLC

To Understand a Prenup, Get Familiar With the Community Estate

To understand how a prenuptial agreement can benefit you, you must have an understanding of a couple of fundamentals of a Texas divorce. First, you need to grasp something we call the "community estate." The community estate is automatically created upon the marriage of two parties. Very generally speaking, the “community estate” consists of all of the assets and all of the liabilities of the parties from the date of the marriage forward, with some exceptions. 

Imagine the community estate as a giant bucket containing everything that the two you have accumulated since the marriage. In the event of a divorce, you have to pour the contents of that bucket into two smaller buckets, one for you and one for your spouse. When you get divorced in Texas, the community estate must be divided between the parties in a way that the Court finds “just and right,” which can sometimes means something close to an even split. These assets and liabilities are divided without much regard to whether they’re in your name, or your spouse’s name.

What is Separate Property?

Separate property, on the other hand, refers to assets which are not part of the community estate. These are assets which belong to one party, but not the other, and therefore cannot be divided in a divorce. Some examples of assets that are not part of the community estate (again, generally) are assets and liabilities acquired by a party prior the marriage, assets acquired by a party through inheritance, assets acquired as a gift specifically to that party, and certain personal injury recoveries. Those are yours, and yours alone.

“. . . [t]here's always a catch.” ― Laurie Halse Anderson

There’s a catch to separate property. Isn’t there always?  The State of Texas has something called the “community property presumption.” During a divorce proceeding, it is presumed that all assets and liabilities of both parties are a part of the community estate. If you have an asset that should be characterized as separate property (and not be divided in your divorce), it is up to you to prove that it is separate property by “clear and convincing evidence.” A Judge in Travis County or Williamson County cannot simply take your word for it. 

For example, if you had a coin collection that you owned prior to the marriage and do not want that divided in your divorce, you must prove that you had possession of the collection prior to the marriage. With adequate proof, that coin collection comes out of the community property bucket and is awarded to you as your sole and separate property. This means that although the coin collection is awarded to you in the divorce, it does not factor into the calculation of the division of property. 

In the above example, if the estate was divided fifty-fifty, you would get your fifty percent share of the community property plus your coin collection. It is very important that let your attorney know if you own any property that may be characterized as separate. Share this information with your attorney at the onset of a divorce proceeding. A talented Austin divorce attorney will discuss separate property with you, but you should volunteer the information just in case.

But What Does this Have to Do With a Texas Prenups?

The State of Texas allows couples considerable flexibility prior to the marriage to make a contract between themselves regarding the characterization of property. Therefore, the couple can make agreements that certain assets and liabilities (or even entire categories of assets and liabilities) will be characterized as community property or characterized as a certain party’s separate property in the event of a divorce. This is where a prenuptial agreement comes into play. A prenuptial agreement, signed prior to the marriage, can affect the characterization of presently held property and property to be obtained in the future. 

“Good fences make good neighbors.”— Robert Frost

No Community Estate Agreements

The most common type of premarital agreement is a premarital agreement that eliminates the community estate entirely. I call it a “no community estate premarital agreement.” Usually, a presumption is created by contract that any property held in the name of each spouse is the sole and separate property of that spouse. Typically, the same goes for liabilities. At the end of the premarital agreement, we include what we call “schedules of assets and liabilities.” A schedule, in this context, is a essentially an exhibit that is incorporated into an a contract and has legal effect. These “schedules” are just a detailed itemization of all of the property owned by each spouse at the time of the signing of the premarital agreement. 

Including schedules has a twofold effect. First, it discloses all of assets and liabilities of a party to prevent the other party from later claiming that they didn’t have the necessary information to make an informed decision. A failure to adequately disclose assets can cause a prenup to be unenforceable. Second, the schedules list existing assets to award to each party as separate property in a divorce. So if you have a piece of property that you owned in the Bahamas prior to the marriage, we identify it with specificity on the schedules to ensure it’s awarded to you in the divorce and that your spouse cannot claim that it is a community asset. Now you know the very basics of one of the most common types of prenuptial agreements.

Limited Community Estate Agreements

Another type of premarital agreement does not eliminate the community estate, it simply limits it. The parties can agree in this type of contract that only certain assets (or types of assets) will become community property, and all other assets acquired by the parties will be the sole and separate property of the party in whose name the asset is titled. I call this one a “limited community estate prenuptial agreement.”

A very common type of limited community estate premarital agreement is an agreement where income from a party’s separate property remains that party’s separate property in the event of a divorce. Ordinarily, despite the fact that you may have a separate property asset, the income from that asset becomes community property upon receipt. For example, if you owned a rental property outright prior to the marriage, we can prove that the property is your separate property with a deed. This way, the property will not be awarded to your spouse in the divorce. But the rental income from the property is community property. With a limited community estate prenup, you might agree that the rental income, or even future investments of that rental income, will be your separate property as well.

Looking Ahead

This concludes the very basics of premarital agreements. Over forthcoming blog posts, we are going to outline some provisions that we have drafted for our clients in Travis County and Williamson County that typically do one of two things. If the other party to the premarital agreement has substantial wealth and wants to eliminate the community estate, we generally craft some provisions that will ensure our client has financial security in the event of a divorce. This is essential if there is no community estate, because in that instance, our client will not be participating in the growth of the other party’s estate during the marriage. 

On the other hand, where we represent the wealthier spouse who is the party who wants to eliminate the community estate, we generally craft some low impact provisions to provide the other spouse the incentive to sign off on the agreement. In either case, there is typically some give and take and some back and forth. This is where a major public misconception of prenups falls apart. We can protect your hard earned assets in a way that is not greedy or unfair to your spouse. In the forthcoming blog posts, I'm going to provide you with some ideas how we can do that without having a looming negative financial impact on the wealth you've built for yourself.

I tell my clients, the goal is that you sign the prenup, you stick it in a safe deposit box, and hopefully you never have to look at it again. But much like a gun, with a prenup it's better to have one and not need it, than to need one and not have it. (Kidding. I joke.)

“You can marry the right person today, yet be married to the wrong person someday … without having married again." ―Mokokoma Mokhonoana

The "So What?"

You may be thinking, "so what?" Well, the so what is that if you have accumulated some wealth and are considering getting married, you should at least consider a premarital agreement. Even if you have not accumulated significant wealth, but do have some present or future assets that you believe are your separate property, a premarital agreement can serve to remove all doubt as to the characterization of those assets. If you're not considering a premarital agreement, you should be doing your research to understand what is and what is not characterized as community property in Texas, and what assets you will be able to someday claim as your separate property in the event of a divorce. If you do not want a prenup, you should at the minimum keep a personal file that consists of a "snapshot" of your financial picture as of the date of the marriage. This way, in the event of a divorce you will have secured evidence (e.g., bank statements, deeds, bills of sale) to make your separate property claims in Court. The safer route, however, is a prenup. Consult an Austin lawyer with experience in drafting prenuptial agreements for further guidance.

This blog post is the first in a series that will explore some custom prenup provisions in Texas, showcasing unique clauses and their practical benefits. The final blog post in this series will explore the broad strokes of enforceability of prenups and how we will ensure that your prenuptial agreement will withstand a challenge in a Travis County or Williamson County courthouse.

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About the Firm

Brigano Law, PLLC  Serving Travis County and Williamson County, Texas  Specializing in Texas divorce, child custody, prenuptial agreements and other family law matters, Brigano Law PLLC’s managing attorney, Anthony F. Brigano, Esq., provides strategic, precise, and compassionate guidance. The firm an emphasis on drafting custom prenuptial agreements that are both enforceable and thoughtfully tailored.

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