19
Nov
2010

Cohabitation and Domestic Partnership Agreements

Premarital and post-marital agreements in Texas have a complex history immersed in the community property presumption, the sate constitution, statutes and case law.  Originally, such agreements were found to be unenforceable.  But with amendments to the Texas Constitution, evolving statutes, recent case law, and improved draftsmanship, such agreements are now enforceable under contract law.

For some couples living together is a precursor to marriage; for others, there is no intent to ever marry, or the law prohibits the marriage, as in Texas with same sex marriages.  The simple fact is, domestic partnership agreements involve a wide variety of circumstances, which may or may not involve the gay or lesbian couple. 

Many couples choose to live together so they do not lose certain benefits under current rules of social security, military and insurance disability programs, or to stop those benefits from being taken away from their children.  In other cases, couples who are divorced, and who may have children, may want to protect certain assets.  In situations such as trust funds or inherited funds, beneficiaries simply do not want to place family money at risk.  Other couples choose to shelter their own resources from the real or perceived obligations of their partner.   

The marital agreement is considered to be a contract under Texas law. The premarital agreement must be in writing and signed by both parties.  No actual consideration is required; however, to conform with contractual law, it may be wise to provide benefits for the non-monied party to avoid a later finding of unconscionability, particularly if the financial condition of the non-monied party under the agreement will be poor. 

Matters that may be dealt with in a premarital agreement include, but are not limited to, the following:

  1. the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
  2. the rights and obligations of each of the parties in any of the property of either or both of them whenever or wherever acquired or located;
  3. the disposition of property on separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
  4. the modification or elimination of spousal support;
  5. the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
  6. the ownership rights in and disposition of the death benefit from a life insurance policy;
  7. the choice of law governing the construction of the agreement; and
  8. any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.

Child support may not be adversely affected by a premarital agreement.  Therefore, provisions providing for the elimination of child support upon separation or divorce are unenforceable.  However, provisions for private education, college expenses, and choice of residence may be included, but may still be reviewed by a court to determine if they are in keeping with public policy.

In post-marital agreements, it has been noted that a fiduciary duty exists that is not present in pre-marital agreements between spouses or prospective spouses.  Case law states that a confidential relationship between husband and wife imposes the same duties of good faith and fair dealing on spouses as required of partners and other fiduciaries.  However, adverse parties who have retained independent counsel may not owe fiduciary duties to one another.  Texas Legislature enacted Section 4.105 with the understanding that married spouses owing fiduciary duties to one another would negotiate and execute post-marital agreements.  Not withstanding these duties, the legislature manifested the strong policy preference that voluntarily made post-marital agreements are enforceable.

Cohabitation, domestic partnership, premarital and post-marital agreements may be as creative as a party determines necessary.  However, care must be given to see that such agreements protect the party, keep with public policy, and adhere to current Texas family law and applicable contractual law.

20
Oct
2009

Divorce: What is separate property and what is community property?

Under the Texas Family Code, a spouses separate property consists of 1) the property owned or claimed by the spouse before marriage; 2) the property acquired by the spouse during marriage by gift, devise, or descent, and 3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.

The terms “owned and claimed” as used in the Texas Family Code mean that where the right to the property accrued before marriage, the property would be separate.  Inception of title occurs when a party first has a right of claim to the property by virtue of which title is finally vested.  The existence or nonexistence of the marriage at the time of incipiency of the right of which title finally vests determines whether property is community or separate.  Inception of title occurs when a party first has a right of claim to the property. 

Under Texas Constitution, Art. XVI, Section 15, separate property is defined as all property, both real and personal, of a spouse owned or claimed before marriage, and that acquired afterward by gift, devise or descent, shall be the separate property of that spouse; and laws shall be passed more clearly defining the rights of the spouses, in relation to separate  and community property; provided that 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 may also 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; if one spouse makes a gift of property to the other that gift is presumed to include all income or property which might arise from that gift of property; and spouses may agree in writing that all or part of the separate property owned by either or both of them shall be the spouses’ community property.

In 1917 the Legislature defined and income from separate property to be the separate property of the owner spouse.  In Arnold v. Leonard, 114 Tex. 535,273 S.W. 799 (1925), the Supreme Court held that the Legislature did not have the constitutional authority to characterize the income from separate property as the owner’s separate property.  The court explained that the Legislature’s authority was limited to enacting laws regulating the management and liability of marital property, not its separate or community character.  This decision strengthened the constitutional principal that the Legislature may not define what is community and separate property in a manner inconsistent with Article 16, Section 15 of the Texas Constitution.

There are numerous means by which separate property may be acquired in defiance of Article 16, Section 15, a partial list includes mutations of separate property, increases in value of separate land and personality, recovery for personal injury not measured by loss of earning power, improvements of separate land with an unascertainable amount of community funds, and United States Securities purchased with community funds.

Although such property may undergo changes or mutations, as long as it is traced and properly identified it will remain separate property.

The Texas Family Code defines community property as follows:  “community property consists of the property, other than separate property, acquired by either spouse during marriage.”

Texas Family Code, Section 3.003 states that all property possessed by either spouse during or at the dissolution of the marriage is presumed to be community property and that the degree of proof necessary to establish that property is separate property, rather than community property, is clear and convincing evidence.  Clear and convincing evidence is defined as that measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.  If property cannot be proved to be separate property, then it is deemed to be community property.

The Texas Family Code, Section 7.002, deals with quasi-community property and requires a court divide property wherever the property is situated, if 1) the property was acquired by either spouse while domiciled in another state and the property would have been community property if the spouse who acquired the property had been domiciled in Texas at the time of acquisition; or 2) property was acquired by either spouse in exchange for real or personal property and that property would have been community property if the spouse who acquired the property so exchanged had been domiciled in Texas at the time of the acquisition.

23
Sep
2009

Division of Marital Assets

Texas law requires trial courts to divide the estate of the parties in a manner that is just and fair having due regard for the rights of each party and any children of the marriage.  Tex. Fam. Code Ann. 7.001.  A disproportionate division must have a reasonable basis.  Smith v. Smith, 143 S.W.3d 206, 214 (Tex. App. – Waco 2004, no pet.).  The trial court has broad discretion in determining the disposition of property in a divorce action.  If there is some evidence of a substantive and probative character to support the division, the trial court does not abuse its discretion if it orders an unequal division of marital estate.  However, the division should not be a punishment for the spouse at fault.  There is a difference between making a just and right division of the property with due regard for the children of the marriage and punishing the errant spouse.  In general, the trial courts in Texas have perceived this distinction. 

Generally, in a fault-based divorce, the court may consider the conduct of the errant spouse in making a disproportionate distribution of the marital estate.  Young v. Young, 609 S.W.2d 758, 761-62 (Tex. 1980).  This does not mean that fault must be considered.

The Texas Family Code sections 3.02 and 3.07 provide six circumstances when a divorce decree may be granted in favor of one spouse.  These include the traditional fault grounds for divorce of cruelty, adultery, and abandonment.  These sections were codified by the Legislature into the Family Code along with section 3.01 which provides for “no-fault” divorce based on insupportability because of discord or conflict of personalities that destroys the legitimate ends of the marriage relationship and prevents any reasonable expectation of reconciliation.

Texas courts have considered the following factors when equitably dividing a community estate: 

  1. fault in breakup of the marriage;
  2. the benefits that the innocent spouse would have derived had the marriage continued;
  3. disparity in the spouses’ income and earning capacities;
  4. each spouse’s business opportunities;
  5. differences in the spouses’ education;
  6. physical health and need for future support;
  7. the relative ages of the parties;
  8. each spouse’s financial condition and obligations;
  9. the size of each spouse’s separate estate and any expected inheritance;
  10. the nature of the spouses’ property;
  11. the rights of the children of the marriage;
  12. waste of community assets or constructive fraud against the community;
  13. gifts by one spouse to the other; and
  14. tax liabilities.

The court need not divide the community estate equally.  Smallwood v. Smallwood, 548 S.W.2d 796, 797 (Tex. Civ. App. – Waco 1977, no writ).  The court has a broad discretion in making a just and right division, and absent a clear abuse of discretion, such decision will not be disturbed.  Murff v. Murff, S.W.2d 696, 698-99 (Tex. 1981); Boyd v. Boyd, 131 S.W. 3d 605, 610 (Tex. App. – Fort Worth 2005, no pet.) 

When there is no evidence or insufficient evidence to support the property division or an award of attorney’s fees, the appellate court must reverse or remand such decision for a new trial.  Sadone v. Miller-Sadone, 116 S.W.3d 204, 208 (Tex. App. – El Paso 2003, no pet). 

A party who seeks to assert the separate character of property must prove that character by clear and convincing evidence.  Clear and convincing evidence is that measure or degree of proof that will produce in the mind of the trier of fact (judge or jury) a firm belief or conviction as to the truth of the allegation. 

In a popular decision Phillips v. Phillips, 75 S.W.3d 564 (Tex. App. – Beaumont 2002, no pet.), Chief Justice Walker opined that because legislature has now authorized “no fault” divorce, fault could no longer be considered in dividing community estate.  However, In Re Brown, 187 S.W.3d 143, 2006 Tex. App. LEXIS 686 (Tex. App. Waco 2006) states that what is “just and right” in dividing the property should not depend on the ground on which the divorce is granted; the just and right division of property is separate from the dissolution issue. If one spouse’s conduct causes the destruction of the financial benefits of a particular marriage, benefits on which the other spouse relied, a trial court should have discretion to consider that factor in dividing the community estate – regardless of the basis for granting the divorce.

To prove a disproportionate division of assets in a divorce case, counsel must put on clear and convincing evidence.  Without such support, there will be no disproportionate division of community estate.  The circumstances of each marriage dictate what factors should be considered in the property division upon divorce.

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