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What is a Pre-nup?
A prenuptial agreement or “pre-nup” is entered into before marriage. It establishes the property and financial rights of each spouse in the event of a divorce. Most importantly, a prenuptial agreement can preserve the nature of property in the event the marriage ends. In other words, separate property can remain separate, instead of being subject to community property laws.
About one half of all marriages in America result in divorce proceedings. As such, it is smart to consider a prenuptial agreement. Pre-nups are often used to protect the assets of wealthy spouses but also can protect family businesses and serve other important functions.
Why Use a Prenuptial Agreement?
No pre-nup, no problem. Upon marriage your separate property will remain separate property and in the event of a Texas divorce your separate property will remain your separate property, so long as you can prove it belonged to you before the marriage or you received it by gift, devise, or descent. All other property and most forms of income obtained during marriage will become community property. Community property is jointly owned and will be subject to a just and right division (not necessarily 50/50). That includes salary and salary-related benefits, such as 401k plans and pensions.
A key issue is that the income from your separate property, such as a rental property, business, stocks, mutual funds, etc., is almost always community property. Certain forms of distributions from property retains separate property status. That can be an important issue, especially with investments that pay returns that are reinvested. An initial investment in stocks or mutual funds can grow several times over during decades of marriage if the income payments are reinvested. If the initial investment was separate property and distributions during the marriage are reinvested every time, the majority of your account could end up being community property.
What can a prenuptial agreement not do?
Under the Texas laws there are a few things a prenuptial agreement cannot do:
Cannot contain provisions that violate public policy or a statute imposing criminal penalties. No prenuptial agreement that a spouse kills somebody else or they lose all their property.
What Makes a Prenuptial Agreement Invalid?
A prenuptial agreement may be considered invalid under a number of different conditions and scenarios.