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Redefining community and separate property in prenuptial agreements

Prenuptial agreements, most people know, are useful in helping couples to set the terms of their divorce as far as how assets and liabilities are divided. Absent a marital agreement, Texas courts divide property according to the principles laid out in state law.

Prenuptial agreements, when properly drafted and executed, can trump state default rules of property division. The can do this not only by specifically detailing how property is divided, but also by reclassifying property. This means that couples don't have to be bound the definitions of separate and community property as defined by state law

Under state law, absent an agreement to the contrary, separate property includes property a spouse owned before the marriage, property acquired during the marriage either by gift or through a will, and certain damages resulting from personal injuries the spouse suffered during the marriage. Community property includes most property acquired by either spouse during the marriage. State law presumes that any property possessed by either spouse during a marriage or upon divorce is community property, though this can be challenged in court.

In establishing a prenuptial agreement, parties need to be very clear about the terms they use in the agreement. It is possible for parties to incorporate the definitions used in state law, but parties often benefit from reworking those definitions. So, a couple may agree, for instance, that a business which begins after the marriage may be the separate property of one or the other party, regardless of the contributions made by the other party, or that a business which began prior to the marriage will be considered community property in divorce. A couple may also generally define community property as excluding any business assets, or as including them, as the case may be.

There are many possibilities when it comes to defining marital and community property, but the key is to leave nothing to ambiguity. Parties who are contemplating a prenuptial agreement do well to work with an experienced attorney for guidance and advocacy. Doing so ensures that their interests will be worked into the agreement and that everything will be done correctly.

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