In a previous post, I discussed the advantages of postnuptial agreements. Here, I will explore alternative options.
1. Special Warranty Gift Deed
Consider a situation in which one spouse entered the marriage with a home. By application of inception of title rules for separate property1, this home would be that spouse’s separate property.
As the marriage progresses, both spouses approach you with a request to create a postnuptial agreement. This agreement will change the home’s character, so that it is no longer considered as one spouse’s separate property. Instead, both parties will own an equal, undivided interest in the home, making it their joint separate property.
Under the Texas Family Code, a partition and exchange agreement can help the spouses achieve their goals. However, this method might not be the most efficient one. Such agreements require financial disclosure waivers and can lead the drafting attorney to use complicated forms for a relatively simple task.
An alternative would be to transfer ownership of the property from the original owning spouse to both spouses through a gift deed, with “love and affection” as the consideration.
Advantages of a Gift Deed vs. Postnuptial Agreement
- Simple – It can be drafted in an hour.
- Public – This will be filed with the deed records so that everyone knows that the title to the property has changed.
- Certain – Upon dissolution of the marriage by court action (i.e., not by death), each party will be entitled to one-half of the property’s value, not more, not less.
Disadvantages of a Gift Deed vs. Postnuptial Agreement
- Fixed – Each party’s right to the property is fixed at the time the deed is executed. This overrides the court’s ability to award one party more of the property’s value than the other when the court divides the community estate.
- Focused – If the clients seek a postnuptial agreement that does much more than transfer interest in a home, the gift deed approach may be too focused because you may have to draft a full postnuptial agreement or partition and exchange agreement anyway.
2. Power of Attorney to Transfer Motor Vehicle
In a scenario where parties are interested in transferring ownership of a motor vehicle, the process is simpler than a home transfer. All that is required is a standard power of attorney to transfer the motor vehicle’s title. The Texas Department of Motor Vehicles provides a form for the power of attorney that the parties can use. This form is also utilized in divorce cases when transferring ownership of motor vehicles between spouses due to a property division agreement or order.
Advantages of Power of Attorney vs Postnuptial Agreement
- Simple – This is a one-page form that clients can complete and file themselves.
- Public – This form changes the chain of title for the motor vehicle so that the conveying spouse cannot sell or pledge the vehicle without the benefitting spouse’s consent.
- Certain – If the motor vehicle were the separate property of the grantor spouse, it would become the separate property of the grantee spouse by application of the separate property rules of the Texas Family Code. If the motor vehicle was community property, it is unlikely that a court would find the mere changing of title to be an effective partition and exchange of the motor vehicle unless there is clear and convincing evidence outside of the power of attorney to support the notion of a change in character.
Disadvantages of Power of Attorney vs Postnuptial Agreement
- Uncertainty – If the motor vehicle were community property, e.g., acquired during the marriage with funds earned during the marriage, a mere change of title is not likely to rise to the level of clear and convincing evidence needed to alter the character of the property.2 This is different from gifts of jewelry and the like. There are plenty of arguments to make as to why this would become the separate property of the grantee spouse, but clients are not paying us to set up potential arguments. They pay us to increase certainty and avoid risk. For these reasons, if changing the character of the motor vehicle is important, a simple partition and exchange agreement is better.
3. Sales Agreement for Business Interest
If you wish to transfer property between spouses but don’t want to use a postnuptial agreement or a partition and exchange agreement, you can do so by using a sales agreement. In this case, the spouse who owns the property can sell it to the other spouse. This process involves a formal sale, including a purchase agreement and a potentially nominal sale price. It’s important to ensure that the transfer is properly documented and recorded to complete the process, which may also involve additional considerations such as tax implications.
Advantages of a Sales Agreement vs. a Postnuptial Agreement
- Certain – By converting an ownership interest from the property of one party to the property of another party, ownership in the property is clear and accomplished in terms suitable to the type of property being conveyed. For example, a buy/sell agreement regarding a business ownership interest would likely take a form that is more consistent with how interests in businesses are conveyed than a typical postnuptial or partition and exchange agreement.
- Public – Conveying a business ownership interest through a buy/sell agreement will update the ownership of record in the corporate books so that a future acquirer of the business knows who to negotiate with and to whom to deliver consideration for the purchase of the business.
Disadvantages of a Sales Agreement vs. a Postnuptial Agreement
- Complex – A sales agreement will be more complex than a postnuptial or partition and exchange agreement. However, as explained above, the added complexity will be devoted to the unique characteristics of a business interest sales agreement, such as voting rights, preemption rights, governance participation rights, etc., that a family law attorney is likely to draft into a postnuptial agreement.