Prenups are front and center

Prenuptial agreements serve as insurance for resolving issues if marriages end. Changes in the nation’s tax laws concerning divorce and the increased use of prenuptial agreements have focused more attention on them. If done correctly, these agreements outline financial rights and responsibilities and set forth agreements on property division before marriage. Prenups can also lower the length and tension of the divorce process.

Changes to the federal tax law have also prompted many married couples to review existing agreements. Previously, spousal support payments were deductible to the spouse who paid alimony and were taxable as income to the spouse who received it. Prenuptial agreements were often based on this long-standing tax rule. Effective Jan. 1, 2019, spousal support is no longer deductible to the payor or taxed as income to the payee spouse. This also applies to prenups entered after Dec. 31, 2018, or amended after that date.

Several issues must be kept in mind when negotiating and executing these agreements. In community property states like Texas, both spouses own property and debt acquired during marriage. These agreements should specifically set forth each spouse’s assets and liabilities.

These agreements may also set forth how property is transferred after a spouse’s death and the rights of any heirs. However, couples should be wary of estate waivers, which release an heir from the right to claim property when another person dies. A prenuptial agreement should acknowledge existing estate plans from earlier marriages to ensure that a well-drafted estate plan remains intact.

Prenuptial agreements should be executed well before the marriage ceremony to assure that there was no undue influence. Both sides should fully divulge their assets, debts, income and other financial information. It may be necessary to have property valuations performed. Both parties should also have their own attorneys represent them and advise them on the agreement’s terms. A qualified family law attorney can help prepare an agreement that protects their rights, meets the couple’s needs and complies with Texas law.