The Ultimate Guide To Myths And Misunderstandings About Prenups & Postnups

05 Sep The Ultimate Guide To Myths And Misunderstandings About Prenups & Postnups

Who Really Needs a Prenup or Postnup?

Recently, a person in a contentious and expensive divorce told me they had no prenup because a lawyer said they didn’t need it. This person specifically asked about a prenup before marriage and a lawyer said it was unnecessary. I was shocked! I had no idea some attorneys still think that.

I have practiced family law in Texas since 1992. In 2007 I started TexasPrenup.com and have written hundreds of prenups. McNamara Law Office, PLLC has also represented parties in divorces with prenups and postnups. Sometimes, our client benefits from the agreement and we defend it. Other times, we fight hard against it.

This article will clear up common misconceptions.

Are Prenups Enforceable

Prenups are enforceable. The Texas Supreme Court wrote in 1991:

“We hold that the 1980 amendment to article XVI, section 15, of the Texas Constitution demonstrates an intention on the part of the legislature and the people of Texas to not only authorize future premarital agreements, but to impliedly validate section 5.41 of the Texas Family Code and all premarital agreements entered into before 1980 pursuant to that statute. The legislature and the people of Texas have made the public policy determination that premarital agreements should be enforced.” (Emphasis added) Beck v. Beck, 87 S.W.2d 745 (Tex 1991).

Since then, many appellate opinions have reinforced the rule that prenups are favored and enforced. When written correctly and signed using the right procedure, a prenuptial agreement is almost impossible to defeat.

Texas Family Code Chapter 4 is devoted to marital property agreements (prenuptial and postnuptial agreements). §4.002 says simply:

“A premarital agreement must be in writing and signed by both parties. The agreement is enforceable without consideration.” Tex. Fam. Code §4.002.

§4.006 lists defenses to the agreement. If it was signed voluntarily, it’s hard to get around.

The Constitution of the State of Texas, Art. XVI, section 15 includes:

“…persons about to marry and spouses, without the intention to defraud pre-existing creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any property for the community interest of the other spouse or future spouse in other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse; spouses also may from time to time, by written instrument, agree between themselves that the income or property from all or part of the separate property then owned or which thereafter might be acquired by only one of them, shall be the separate property of that spouse;…” (Tex. Const. art. XVI, §15)

The Texas Constitution, Family Code and Supreme Court all say premarital, or prenuptial, agreements are enforceable.

Are Postnups Enforceable

Postnuptial agreements are enforceable. Texas law about postnups is the same as for prenups. Postnuptial agreements in Texas are often called Partition & Exchange Agreements because they partition the community estate and can exchange community property for separate, and vice versa. They are enforceable and favored by Texas law.

Texas Family Code §4.102 says:

“At any time, the spouses may partition or exchange between themselves all or part of their community property, then existing or to be acquired, as the spouses may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes that spouse’s separate property. The partition or exchange of property may also provide that future earnings and income arising from the transferred property shall be the separate property of the owning spouse.” (Tex. Fam. Code §4.102)

Under the Texas constitution, spouses may:

“…partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any property for the community interest of the other spouse or future spouse in other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse;…” (Tex. Const. art. XVI, §15)

Texas Family Code §4.104 describes the only requirements to make a Postnup valid & enforceable: It must in writing and signed by both spouses.

The defenses are in §4.105. If the agreement was signed voluntarily and following the right procedure, it’s difficult to defeat, even if unfair.

Like prenuptials, postnuptial agreements (partition & exchange agreements) are recognized in the Texas constitution, Family Code and court opinions. They are enforceable.

What’s the Benefit of a Prenup or Postnup?

Some think that because Texas is a community property state and what is owned before marriage remains separate property, a prenup or postnup serves no purpose. This is incorrect.

Community v. Separate Property

Texas law says that everything owned by either spouse is community property unless it can be proven by clear and convincing evidence that:

1. The property was owned by a spouse before marriage;
2. The property is traceable to property owned by a spouse before marriage;
3. The property was a gift to one spouse during marriage;
4. The property was acquired by one spouse during marriage through inheritance;
5. The property or money was compensation for a personal injury to a spouse during marriage, except the portion for lost wages.

A person who only wants to protect what they had before marriage might erroneously think they need no prenup. This usually results from a misunderstanding about the rules of separate property. Retirement contributed during marriage is community property. People mistakenly think that their 401(K) that exists before marriage will be separate property. Actually, all contributions during marriage are community.

Income from separate property is community. Even if no contribution is made to a financial or retirement account during marriage, dividends and interest are community property. The law presumes the entire account is community until the separate portion is proven by Clear & Convincing evidence. This requires a forensic accountant. A prenuptial agreement can make the entire account or fund separate property, regardless of the source or date of contributions.

If the account existed before marriage but it contains community property it will be treated as community property and divided, unless a forensic accountant proves the separate portion by clear and convincing evidence. This is expensive. Sometimes, records no longer exist and funds owned before marriage are divided.

A house owned before the marriage is separate property. Mortgage payments during the marriage might be reimbursable to the community estate. Wages are community property. Even if a spouse puts their paycheck in an individual account the income is still community property. Using it to pay the mortgage on a house that is separate usually creates a claim for reimbursement by the community estate.

Even when separate property is traceable and can be proven clearly and convincingly, it substantially increases the cost of divorce.

This is all avoidable with a prenup or postnuptial agreement. The agreement can designate community & separate property. It can eliminate reimbursement claims and achieve what people sometimes think is the law.

No Automatic 50/50 Division of Community Property

People sometimes say they’re fine with having everything divided 50/50 and don’t need a prenup or postnup. However, Texas law does not require a 50/50 division. Texas Family Code sec. 7.001 says:

“In a decree of divorce or annulment, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.” (Tex. Fam. Code §7.001).

The law requires a “just and right” division, meaning a judge has great discretion. A substantial disparity in earning ability is a common reason to favor the lower-earning spouse in the property division. The higher earner will earn it back faster. Fault in ending the marriage can be a basis to favor the other spouse in the division.

In 1981 the Texas Supreme Court wrote:

“…the trial court may consider such factors as the spouses’ capacities and abilities, benefits which the party not at fault would have derived from continuation of the marriage, business opportunities, education, relative physical conditions, relative financial condition and obligations, disparity of ages, size of separate estates, and the nature of the property. We believe that the consideration of such factors by the trial court is proper in making a “just and right” division of the property. Likewise, the consideration of a disparity in earning capacities or of incomes is proper…” (Murff v. Murff, 615 S.W.2d 696, Tex. 1981).

There is no automatic 50/50 division of community property. A prenup or postnup can require that all community property be divided equally.

Attorney’s Fees

Either spouse may be awarded a judgment for attorney’s fees against the other. That means that after the property is divided, a spouse may have a judgment against them for the other’s attorney’s fees. A court may also disproportionately divide the community property to alleviate a spouse’s attorney’s fees.

While a divorce is pending, a judge may order one spouse to pay the other’s attorney’s fees, or give the other money to use toward their attorney’s fees.

A prenup or postnup can require each spouse to be responsible for their own legal fees.

Alimony & Spousal Maintenance

Texas Family Code Chapter 8 allows spousal maintenance or alimony after divorce. A disabled spouse may receive maintenance indefinitely. Absent disability, spousal maintenance may be ordered for up to ten years, depending on the length of the marriage, employability of the spouses, and size of the community & separate estates. (Tex. Fam. Code §8.054.)

Maintenance may be $5,000 per month or 20% of the payer’s average monthly gross income, whichever is less. It is no longer tax deductible, so the payer still pays income tax on the money paid to the ex-spouse.

A prenuptial or postnuptial agreement can eliminate alimony or spousal maintenance. It can also specify the amount and length of time it will be paid. A poorly written prenup or postnup might make all property separate but fail to address alimony, leaving that the only option to a judge who thinks one spouse should have support. The higher earning spouse could be ordered to pay up to $5,000 per month for 10 years or more, with no tax deductibility.

Temporary Orders, Spousal Support & Exclusive Use of a Residence

While a divorce is pending, a judge has broad discretion about who uses which property, ordering support, and how bills get paid. A spouse may be excluded from the residence and still ordered to pay all household bills, including for the residence from which they are excluded. A prenup or postnup can alleviate or eliminate this. Child support can still be ordered and the house might be awarded to the parent with the children on more school nights, but a prenup or postnup can limit the judge’s discretion in temporary orders. If there are no children, the agreement can prohibit either spouse being ordered to support the other; or it can provide for a specific amount of support for a particular length of time.

Leaving Property to Relatives

When a person dies they may only leave their separate property and a portion of community property to someone other than their spouse. A person may not bequeath their spouse’s share of the community property. Without a prenup or postnup, everything acquired during marriage is community property, with limited exceptions explained above. Income during marriage is community. Contributions to retirement and financial accounts are community, as are earnings from those accounts. A prenup or postnup provides more flexibility in writing a will. By designating property as separate, a spouse may leave more of their estate to their children, relatives or whomever they choose.

True Benefits of a Prenup or Postnup

There are many benefits to a prenup or postnup that even some lawyers do not understand. Before you decide it’s unnecessary, speak with an experienced family law attorney. We never expect, or want, our house to burn down, but we pay for insurance annually. Likewise, a prenup is not an expectation of divorce. It’s financial planning for a contingency we hope to never face. Unlike insurance, you don’t keep paying for it year after year.