Before I begin our discussion, it’s important to point out that marital property agreements serve a number of legitimate purposes, and not all of them involve the dissolution of marriage. For example, marital property agreements can serve as excellent estate planning tools. They can also serve as an asset protection strategy by helping insulate the property of one spouse from the creditors of the other spouse.    

This article does not address those “other” legitimate purposes. Instead, this article focuses on what many consider to be the defining feature of marital property agreements: the ability to permit couples to agree to the terms of their property division in the event of divorce.   

This is of particular importance to owners of closely held businesses who may find themselves in the difficult position of having to divide an interest in their business upon divorce.  

A primer on Texas marital property laws is helpful when discussing the importance of marital property agreements.  

Let’s begin with the basics. In Texas, all property owned by a spouse before marriage is separately owned property of that spouse. All property acquired during marriage is community property except property acquired through gift, devise, descent or the recovery for personal injuries sustained by a spouse during marriage (except any recovery for loss of earning capacity during marriage.)

Property possessed by either spouse on dissolution of marriage is presumed to be community property, and the spouse asserting the existence of separate property carries the burden of persuasion by clear and convincing evidence.   

Essentially, the character of the property as separate versus community is important because only community property is subject to division by a divorce court. However, property in divorces on file prior to Sept. 1, 2009, can potentially be subject to liens created upon the division of the marital estate.  

What many individuals fail to realize is income from separate property, including a separate property business, is community property. For example, cash dividends from stock are treated like income. When distributed during marriage, they are characterized as community property. A distribution by a corporation to its shareholders may constitute a dividend as a matter of law, even though it is not formally designated a dividend by the board of directors.   

The use of pre- and post-marital agreements can provide a method for couples to deviate from the standard Texas laws governing marital property.      

For example, a premarital agreement can address the issue of increases in the value of a closely held business owned by one spouse prior to marriage. The premarital agreement can provide that any increases in value of a party’s separate property stock due to the time, toil and effort expended by that person in the running of his or her business remains the separate property of that party. Premarital agreements can also help identify and preserve the separate property character of inherited or gifted property and any increases in value to that property.   

Post-marital agreements serve a similar function. For instance, couples can enter into a partition and exchange agreement to partition or exchange between themselves all or part of their community property, including an interest in a closely held business. A property interest transferred to a spouse by a partition or exchange agreement is that spouse’s separate property. The partition and exchange agreement may also provide that future earnings and income from the property remain the separate property of the owning spouse.   

As an aside, these situations also highlight the need for buy/sell provisions in a business’ governing documents addressing contingencies, such as the divorce of a partner or member.     

Marital property agreements must comply with very specific statutory guidelines in order to be enforceable. Because of this, parties contemplating entering into these types of agreements should consult with their separate, independent legal counsel to ensure the agreements are enforceable.     

Couples should also be fully aware of the advantages and disadvantages of any tax consequences of a marital property provision prior to entering into the agreement.   

Here’s wishing your continued success and happiness in your marriage. With that said, it’s never a bad idea to plan for contingencies in life – namely, divorce.   

This article is not intended as an exhaustive discussion on the points raised herein, nor is it intended as a substitute for legal advice or opinion, which can be rendered only when related to specific fact situations.   

Karina C. Cantu is an attorney in the San Antonio office of Jackson Walker L.L.P. For more information, please contact her at 210-978-7700 or visit www.jw.com.