Single persons and married couples can execute agreements between them under the laws of Texas (and most other states) to specify, in advance, how their assets are to be owned between them and divided upon their divorce or death. These agreements are useful to identify property each spouse owns prior to marriage and in other areas such as homestead rights, rights to control retirement, IRA and life insurance benefits, guardianship priority, prospective inheritances, a family business, the character of compensation earned by each spouse and income tax liabilities for each spouse. Careful record keeping is essential in preserving the character of each spouse’s separate property. Independent counsel for each spouse is recommended to ensure that he or she is fully informed of the legal consequences of their signing such an agreement. These agreements often accompany the spouse’s overall estate planning process for both estate and income tax planning reasons. They also help avoid conflicts between beneficiaries after a spouse’s death by identifying specific assets that each beneficiary may expect to inherit.
COMMUNITY PROPERTY SYSTEM
Texas has adopted the Community Property System that significantly affects estate and marital planning for Texas residents. Understanding these affects is especially important for individuals who have lived in states other than Texas before or during their marriage. Classification of assets owned by an individual as his or her “separate” property, or the “community” property of the individual and his or her spouse determines what property each spouse is entitled to distribute under his or her estate plan. Such classification also affects future estate and income tax consequences upon the death of each spouse.