Altering the Character of Assets by Agreement

Agreements to Recharacterize Assets, generally

Can be used to opt out of statutory definitions of CP and SP, either as to particular assets or as to all acquisitions. This agreement can be made before or during the marriage.

Transmutation

The change in the character of an asset during the marriage. Can be by gift or by agreement. No consideration is required.

Premarital Agreements

Premarital Agreements can limit property rights and, within limits, spousal support obligations. Often the parties agree that each party’s earnings will remain SP. A premarital agreement does not require any consideration.

CP Agreements and the SoF

The general rule is that agreements about the characterization of assets during marriage requires a writing signed by both parties. However, an oral premarital agreement may be enforced when: (1) the executory promise was fully executed (aka actual performance of the promise); or (2) the promisor is estopped to assert the SoF because the promisee relied to their detriment on the oral premarital agreement.

Premarital Agreement Abilities

Parties can agree to just about anything. Provisions to waive property rights are enforceable. Provisions limiting or waiving spousal support are not per se unenforceable, but the parties cannot agree to limit either party’s contribution to furnish child support as this is prohibited by statute

Unenforceable Premarital Agreements

A premarital agreement is unenforceable if: (1) it promotes divorce; (2) it was not voluntary; or (3) it is unconscionable

Premarital Agreement Not Voluntary

A premarital agreement will be deemed not voluntary unless the court finds that the party challenging the agreement: (1) was represented by counsel or waived representation in writing; (2) was given at least seven days to review and sign the agreement; and (3) if unrepresented by legal counsel, was fully informed in writing of the terms and basic effect of the agreement. The party must also execute a document declaring they received this information

Unconscionable Premarital Spousal Support Agreements

A provision in a premarital agreement regarding spousal support is unenforceable on one of two grounds: (1) the party challenging the agreement was not represented by independent legal counsel at the time it was signed; or (2) the provision is unconscionable at the time of enforcement (even if the party had independent legal counsel at the time of signing)

Other Unconscionable Premarital Agreements

An agreement about matters other than spousal support is unenforceable if (1) it was unconscionable when made and: (2) a full and fair disclose of the other party’s property or financial obligations was not made; (3) the right to a disclosure was not waived in writing; AND (3) the party challenging did not have adequate knowledge of the other party’s property or financial circumstances.

Premarital Agreements: Who Decides Unconscionability

By statute, unconscionability is a matter of law to be decided by the court, not a question for the jury

Premarital Agreements: Waiver of Death Rights

A waiver of marital death rights contained in a valid premarital agreement is enforceable if it satisfies either the Family Code or Probate Code requirements

Marital Agreements (Transmutations)

During marriage, spouses may “transmute” any of their property from SP to CP, from CP to SP, or from one spouse’s SP to the other spouse’s SP.

Requirements for a Valid transmutation Agreement

A valid transmutation agreement must: (1) be made in writing; (2) expressly declare that a change in the ownership of property is being made; and (3) have the consent of the spouse whose interest is adversely affected. The usual writing requirement exceptions (partial performance or estoppel) do not apply. Extrinsic evidence is not admissible to interpret the meaning of a transmutation agreement

Transmutation Writing Requirement Exception

The writing requirement does not extend to gifts between spouses of items of a personal nature that are, taking into account the financial circumstances of the marriage, insubstantial in value

Transmutation: Statements in Will or Trust

A person seeking a divorce is not bound by a description of the character of property that may appear in his will. A description of the character of property in an inter vivos trust is likewise not binding, absent an unambiguous indication that transmutation was intended.

Transmutations: Presumptions of Undue Influence

There is a rebuttable presumption of undue influence when one spouse gains an advantage over the other in a property transaction. The spouse who gained the advantage has the burden of rebutting the presumption by a preponderance of the evidence