Texas is a community property state. In very basic terms that means that all property accrued during a marriage is considered owned fifty-fifty by the couple. For example, a couple buys a house. That house is owned equally by each party to the marriage. Then, the husband works and makes the house payment each month out of his pay check. His spouse stays home and is unemployed. Given that they live in Texas, each and every payment made on that mortgage is being made fifty-fifty by the couple.
Let’s say a husband, prior to marriage, has a Section 401(k) account. The value in that account as of the date of marriage is considered to be his separate property. Let’s assume for this article that he makes no further contributions to that account, but that it continues to earn interest. That interest is a community asset!
Let’s say a spouse owns a company prior to marriage. That company is his separate asset. However, all earnings from that company are community property. In short, earnings derived from separate property belong to the community.
This is where prenuptial agreements come into play. A couple can enter in an agreement by which they list all of their property owned at the time of marriage so that there is no doubt what they own separately on date of marriage. Then, in the agreement they agree that all earnings from those assets shall be considered separate property. This is considered to be the principal reason for prenuptial agreements.
Let’s say a spouse brings debt into the marriage. If the couple pays off that debt during the marriage then those debts were paid off with community income. In the event of a divorce the spouse who did not bring that debt into the marriage can seek a reimbursement for one-half of the principal reduction of that debt during the marriage. For example, a spouse owns a house before marriage. During the marriage let’s suppose the couple pays that mortgage down by a factor of $50,000.00. Then the couple divorces. The spouse who did not own the house at time of marriage can make a $25,000.00 reimbursement claim against the other spouse. A prenuptial agreement can avoid that claim by dictating that all income earned by each spouse is the separate property of the spouse earning that income.
These prenuptial agreements can be very lengthy and go to significant ends to detail how the couples’ assets and income shall be managed during the marriage.
Always seek legal advice from an experienced family lawyer to determine whether you need such an agreement. We are ready to help.