Tying a Slipknot: Coordinating Prenuptial Agreements With Estate Planning

Originally published by Paul Romano.

The origin of the matrimonial term, “tying the knot,” isn’t altogether clear. It probably arose from the medieval tradition of tying together the right hands of the bride and groom during the wedding ceremony. The gesture signified that the couple was “bound” together until death. A cynical Texas attorney recently quipped that with the increased numbers of prenuptial agreements, today’s married couple was often bound with a slipknot. The attorney added, “Just pull one end and the whole thing disappears.”

While prenuptial agreements are sometimes given a bad name, they can serve important purposes and they should be considered particularly when one or both of the prospective spouses has been previously married and where one or both has acquired significant assets before stepping forward to say, “I do.” Properly drafted, a prenuptial agreement can also be an invaluable aid in estate planning.

Issues Commonly Treated in a “Prenup”

Texas Family Code Section 4.003(a) allows prospective spouses to agree on a host of issues, including at least the following:

•  Whether specific property will be characterized as community property or separate property, should the marriage later be dissolved
•  The manner in which property will be managed or controlled
•  How the couple’s property will be divided upon divorce or the death of a spouse
•  The amount of spousal support that will be paid upon divorce (or the methodology to compute that level of support)

Bear in mind that prenuptial agreements cannot generally create any agreement related to retirement accounts and assets that are subject to ERISA. One must be a “spouse” to waive spousal rights to retirement assets.

Income Received During Marriage is Community Property

Since Texas is a community property state, most property acquired by the couple during marriage is considered to be owned by both spouses. That is the case even if, for example, the income flows from a business that one of the spouses owned prior to marriage. Moreover, any increase in value of the underlying business during the marriage may sometimes be subject to treatment as community property as well.

Prenuptial Agreements Are Often Coordinated With Special Trust Agreements

It is important to coordinate any prenuptial agreement with the couple’s wills and other estate planning documents. For example, where one spouse is involved in a business and desires that the business assets remain separate and apart from the marital estate, such segregation can usually be accomplished by transferring the business interest to a trust. The trust must be carefully drafted to avoid fraudulent conveyance issues, but through the guidance of a skilled attorney, one’s business goals can be fostered.

Candid Discussion and Planning Can Form the Basis of a Long-lasting Marriage

Contrary to some popular belief, couples that seriously discuss money issues prior to marriage and who negotiate and sign prenuptial agreements are not more prone to divorce than couples who say their vows without prior planning. Indeed, where financial concerns are openly discussed prior to marriage, where both prospective spouses are given the opportunity to share their concerns and goals, a solid matrimonial foundation is laid.

The issues can be complex, however. Both prospective spouses usually need the type of skilled and dispassionate counsel that an experienced attorney can provide.

The attorneys at Romano & Sumner, PLLC have more than 20 years of combined experience providing expert legal assistance to clients in all types of wealth management and estate planning. At Romano & Sumner, we never use a cookie cutter approach. We listen to you and offer multiple alternatives designed just for you. We pride ourselves upon our professionalism and client service. We keep our clients informed, returning your calls within 24 hours. We’re ready to assist you as you make the important decisions that affect your family. Call us at 281-242-0995 or complete our online contact form.

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