People spend years building family businesses. When a business owner decides to marry after creating a small business as a single person, he or she could potentially lose this investment in a later division of property in divorce. Especially for an older spouse who owns a substantial operation or professional practice, or someone with an interest in a family company, a prenuptial agreement may be a way to preserve these interests in the original proprietor in an unplanned-for divorce.
Texas Prenuptial Agreements
A “prenuptial agreement” is a property agreement entered into by a couple before marriage. They can decide in the agreement how their separate, premarital property will be distributed upon divorce or death. Prenuptial agreements are also called “premarital” or “antenuptial” agreements or contracts, or “prenups” for short.
Texas has a strong history of endorsing prenuptial agreements by recognizing them in its state constitution and laws.
Community and Separate Property
Texas is a “community-property” state, meaning that everything acquired during a marriage (even if by just one spouse) becomes community property and part of the “marital estate” to be divided equally upon divorce. “Separate property” is property and assets owned by either spouse before the marriage or received by gift or inheritance during marriage. Separate property is not in the marital estate and ownership normally remains with the originally owning spouse on divorce.
Texas law presumes that community property will be divided in half, but the division does not have to be exact if the court justifies a different, more equitable proportion.
If a spouse owns a business going into a marriage, normally the business would remain the separate property of that spouse, but growth in value and earnings from that business during marriage may be considered community property, complicating ownership questions at divorce. In addition, if the spouse who did not own the business contributed substantially to it during the marriage, that contribution could make a portion of the formerly separate business into community property.
A prenuptial agreement can change how Texas law governing community property is applied toproperty division in a business-owner divorce, potentially avoiding nasty divorce litigation. For example, the prenup could set out that any increase in value or earnings from the business during marriage would remain separate property, allowing the original owner to keep it in his or her family of origin or give it to children from an earlier marriage. An agreement could also provide that the original business will remain separate property even if the other spouse contributes to it during the marriage.
If you are contemplating marriage in Texas and want to explore whether a prenuptial agreement can protect your pre-existing business interests, speak with an experienced family law attorney to understand your options and be sure the prenup is correctly drafted so it remains valid and binding.