Hi Dan, thanks for inviting me.
A marital agreement is a written agreement at least in Texas. It must be in writing that people make either before they get married which is a prenup or while they’re married often referred to as a postnuptial agreement. Texas sometimes calls them a partition and exchange agreement because we’re partitioning the community estate if you’re already married. It can contain whatever people want to put in it.
Absolutely if they’re correctly written and executed. Our statutes on prenuptial agreements and postnuptials, which are during the marriage are very clear. They make it very difficult to get out of one of these agreements if it’s written correctly and executed correctly. There are actually some things that have to be done in succession in terms of signing. A waiver of disclosure has to be signed before the document is signed.
There’s really very little that legally cannot be in it. I’ll talk in a moment about practically what really shouldn’t be, but as far as legally, you cannot limit child support in a Texas marital agreement. You can put a minimum. You can say that someone absolutely will pay for something, college, private school, whatever the case may be, but you cannot put a minimum. As far as provisions regarding what will happen with children, those are really just evidence of what people thought was best at that time but decisions about children are made when the decision is made. For example, you could do a prenuptial agreement that says if the parties have children one of them will have the primary custody and the other will have visitation and child support.
Maybe unfortunately years later they are getting divorced and that is no longer appropriate. The person that was supposed to have primary custody is a drinking alcoholic who should not be taking care of children at that time or has developed another substance abuse problem or a mental health issue. Who knows? Those issues are decided under the circumstances that exist at the time of the decision, not in advance. So, you can’t do that. You cannot limit child support in our state, but you can put a minimum. That’s for the children’s best interests, you just can’t put a cap. Otherwise, you can have whatever you want. I usually advise people to keep the agreement broad so that it’s not a narrow set of rules on how they have to live their life day-by-day. It’s really the outlines of what happens in the unfortunate event the marriage ends by divorce and it’s effective if there’s a death. It has to be consistent with the will. We don’t want to have conflicting documents, but my opinion is it should be a broader roadmap of what happens then, not a day-to-day narrow following of rules that is unrealistic in any kind of real relationship.
The amount of disclosure depends on what the parties want to do. Texas law does not require any. A waiver of disclosure may be signed. Parties may disclose some and the waiver may say we’ve given partial disclosure, but not complete disclosure or they can disclose everything. It is safe in my opinion to do the waiver and not disclose. One of the defenses to a marital agreement is if it was not signed voluntarily however, our law does not define voluntary. Some lawyers might argue that if the person didn’t really know the finances is not voluntary, my opinion is the statute covers that. To be more protected, it’s better to disclose them but it is not required.
However, with a prenup it’s easy to say whatever spouse A owns remains theirs, whatever spouse B owns remains theirs but no disclosure. When you have a marriage, you already have community property. You could say that some aspects remain one or the other without disclosure. For example, one spouse will keep all of their own 401K without disclosing the balance. The other one will keep their own without disclosing the balance. But to ensure that all property is addressed and not left as community unless intended to be, there has to be some degree of disclosure in a postnup. I hope that answers it without making it too technical.
If we say unprotected no, not that I can think of. I’m not a tax lawyer, but I can’t think of a situation where it would harm someone to know that the person they’re marrying has a huge tax debt. They probably ought to know it, but I don’t think that knowing it makes them less protected.
We’ve done probably somewhere between 800 and 1,000 prenups by now, I’ve never seen one where it disclosed the source of any asset. It just said the asset. Someone could list an offshore account with a lot of cash in it, but it doesn’t say where it came from.
That could affect the aspect of whether it was signed voluntarily. Texas law says one defense is if it was not signed voluntarily. If someone said I will disclose everything and then lied rather than getting a waiver you could possibly have an argument of involuntariness. The better option in that case if someone does not wish to disclose would be to sign the waiver of disclosure.
It’s always difficult because every relationship is different, and every person is different. In some instances, people have brought it up from the beginning. As soon as they realize that their relationship is getting serious, they will tell the other one that if this continues, I’m going to want a prenup. Sometimes it’s family which makes it a lot easier because then you can just blame them. I have done them for young people who stood to benefit from family money and the family insisted they get a prenup and I’ve done it for people who have grown children whose grown children insisted they get a prenup because they didn’t want the new spouse to take their inheritance.
There’s no romantic way to have the conversation but ultimately, we all pass on and a prenup is important. It is certainly much less stressful to have it in a divorce than to wish you had done a prenup or a postnup if things are getting bad, or if finances have taken a wrong direction and people want to get an agreement while they’re married.
Early on in my career, I did civil litigation and family law. I realized quickly that the law says that we will end an intimate and important personal relationship basically in the same forum using really the same rules of evidence and procedure that we do to resolve car wrecks and contracts. It doesn’t fit in my opinion. I wish there was a different way to end marriages if they need to end. But right now, the law is what it is and we either negotiate a deal or a judge decides. Marital agreements let people have a lot more control over that. I don’t know what the ideal would be. That would be something for the academic world to decide, but I think it gives people a lot more control in the unfortunate event that happens.
I look at it like car insurance or house insurance. Nobody expects their house to burn down or wants it to burn down but nonetheless, they have insurance on their house. Most savings accounts are insured to some degree by the government. We have auto insurance. It’s legally required, but I think most people would have it even if it wasn’t and we don’t expect to get in a car wreck. By offering the packages I’m trying to make it affordable to people so that they can set the ground rules and put it in a drawer and not have to worry about it.
The packages are designed to basically keep everything separate property, but parties can have a joint bank account. They can have more than one joint account if they wish. They can give each other gifts or loans; they can buy cars together. They can buy a house together. They can file joint taxes. It allows them to have a normal married life, but in the unfortunate event that the marriage ends by divorce, there’s an outline of how it’s going to go. As long as people are comfortable with the notion that basically, each keeps what they’ve got, the standard packages worked very well for that, and by standardizing we’ve been able to make them available at a very reasonable price.
The State Bar of Texas publishes a multi-volume set of templates and forms that lawyers may use in drafting documents. It’s all online now. The last time I bought the three-ring binders, it was up to six, four-inch three-ring binders, maybe three-inch three-ring binders, a lot of forms, and its templates. I don’t want to use the word forms because they’re not something the general public could use. In 2006 or seven, I started with those, modified them and added a lot to them, according to what people have expressed that they want and fix them up to where they are now — very excellent packages.
There are three levels of packages for each, for the prenups and the postnups. The mid-range ones are based on the Texas templates that judges and lawyers are used to seeing. They run about 40 pages for the document. They’re extensive, they cover everything. The lower range package accomplishes much the same, but I’ve written it myself with much simpler language so it’s only about eight or 10 pages maybe. Simpler language accomplishes much the same. For those who don’t want to spend on the mid-range, it’s an alternative.
The third level is what we call the concierge package. With the first two, we send people blank excel schedules on which they list their own assets and debts. They type them in, they list them themselves. On the postnups, it’s very important to get that right because if you leave something off, the center package says it’s owned 50/50. On the concierge package, we complete all the schedules, we work with the client to get all of the data correctly done.. So, it’s a complete finished package. We also send a notary to them anywhere in the state of Texas with the other two spouses or fiancés, take the packages, find a notary, get it all signed. We usually start with one of the standard packages and then tell them what it would cost to modify.
Yes, they are for what they do. I don’t want to be immodest, but I think they’re better than a lot of the prenups I’ve seen lawyers write who don’t write them every day and who have not been refining them for over 10 years, 15 years maybe. If the goal is in the event of divorce each spouse keeps their own bank accounts in their name, their own retirement, their own real estate, and if they want to buy a house or they want to give each other gifts or take out a loan together, whatever it is they may do so, it works for that. When you get into circumstances where someone’s going to say if we get divorced, one spouse will give the other a sum of money or alimony or payments those are not included in the standard agreements so we could add them, and it doesn’t cost that much to add them compared to what other lawyers charge for these types of agreements.
That’s correct. In fact, a lot of times people who have some retirement, and they have a house might get the lower range package because it suits their needs. But no, that’s why we’ve priced them the way we have because they’re not strictly for the wealthy. Unfortunately, divorce doesn’t just happen to wealthy people. It can happen to anybody and if someone has $10 million, they can part with five and they’ve still got five million. If they’ve got one retirement account and a house with a mortgage, then it can be a much tougher hit if they have to part with that or some of it. Having a prenup can help with that.
I recently handled a divorce where I did not write the prenup. There wasn’t a prenup, but the party had consulted another lawyer and said everything I owned before marriage I want to be separate, but everything in the marriage community and the lawyer said, you don’t need a prenup for that because it’s already separate under Texas law. But he ended up spending a lot of money with accountants to prove what was separate and to trace that money whereas the cost of a prenup would have been a lot less and it would have said these accounts are his, they’re separate.
Even for those who want to say we want everything to be community during the marriage, a prenup can still be an advantage to say that and to designate what is in fact separate so, you don’t have to spend a lot of money on it later.
Don’t get bogged down in details. There are websites and there are articles that tell you, you can put all kinds of day-to-day stuff in it like one is going to give the other a weekly allowance or who’s going to do the dishes or some day-to-day nonsense. The problem with that is what are you going to do when they don’t. So, we have an agreement that says every five years, one’s going to buy the other car and in the fifth year they don’t buy the car. What are you going to do? You’re going to get divorced and part of it is going to be that they have to give you the price of a car. At that point, if the decision is made to say, this marriage should end then you need an outline of what happens and whether or not you got your car, or someone did the dishes isn’t going to matter.
What’s going to matter is the bigger picture of retirement accounts, bank accounts, investment accounts, real estate. In Texas, we have mineral interests. Think in terms of the bigger picture and think unpleasant thoughts of, if this doesn’t work what am I going to end up with rather than instructions on how to have your marriage day-to-day. That would be my advice.
Brian McNamara:There’s a common misconception that having a marital agreement can make the divorce a lot easier or it can make it cost less. What it does is it changes the whole dynamic. It changes the negotiation. It changes a trial if there is one.
The biggest factor in the cost and stress of a divorce is personalities. If we have a marital agreement and one spouse says I’m not going to follow it, I’m not going to agree, just not going to happen. I can’t just walk into a judge’s office and say, hey, judge, trust me this is a good decree, sign it, any more than in a business transaction if someone sends goods. As far as they’re concerned those goods arrived in excellent condition and the buyer refuses to pay. This is back 27 years ago, when I used to do more civil work and they would say the goods are delivered, they won’t pay me, go get my money. Well, I can’t just walk into a judge’s office and say trust me judge they got their stuff. We still have to go through the hoops and possibly, maybe do a summary judgement, maybe have a trial. That has to happen.
With a marital agreement, it’s the same. I can’t skip the process but if you have a marital agreement that says wealthy spouse, or better off spouse keeps everything and other spouse keeps their stuff. The negotiation is about how much is the wealthy spouse going to give to the other spouse to bring this to an end. It’s not about pooling those two estates and saying we’re going to cut this down the middle.
You could have a wealthy spouse with a $5 million estate, and instead of saying, how close to two and a half million are you going to give your spouse now we’re talking about, are you going to give them some money to just go away and bring it to an end? It could be 20,000, it could be 30, it could be 40, but it’s nowhere near half the estate. Likewise in a trial, it’s a two-part trial, often. The first part is, is this a valid agreement? If it’s valid, okay, we’re done. If the judge says it’s not, well, there could be an appeal of that. It’s rare that there’s not but then that it would be like a traditional divorce. But when you have a marital agreement the process and the stress and the cost can still be high but what you’re negotiating about, what the trial is about is a whole lot different amount of money.
Correct. It would be like trying to collect money from someone if you had no contract versus if you have a contract.
Also, if you’re looking for more information about divorce and how to help yourself through the process, go to divorcemag.com and divorcedmoms.com. Brian, thank you again for your time. Always a pleasure.
Thank you, Dan.