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When Houston prenuptial agreements collide with estate plans

Financial choices reflect past, evolving and anticipated life events. A newly-married person has different priorities than a first-time parent or an older person contemplating the inheritances of heirs. Texas prenuptial agreements define separate and marital assets but, at some point, the provisions in that contract may conflict with desires for an estate plan.

A Houston pre-marital agreement is a financial cushion in advance of a possible divorce. Provided the marriage endures, a spouse may want to make sure a protected, separate asset or some part of it ends up with a surviving spouse in an estate plan. The terms of asset ownership become conditional.

Is there a way to shelter the asset under one set of circumstances and give all or some of it away under other conditions? The terms of a prenuptial agreement do not have to be changed to allow this to occur. However, more legal documentation is needed to make room for asset access.

Let’s use a spouse’s business as an example, protected as separate property under a pre-nuptial contract. The business remains indivisible in divorce, but the owner is worried the contract will keep a spouse from benefiting from the business upon the entrepreneur’s death. The business owner wants the spouse to receive income without gaining any control over the company.

A financial adviser may recommend establishing a family limited partnership. The spouse with the business retains ownership of the partnership through a limited liability company. Upon the company owner’s death, the surviving spouse would inherit a portion of shares and income through a testamentary trust, with no stake in the decision-making end of the ongoing business.

Prenuptial agreements and estate plans involve separate areas of law. It’s possible to coordinate a team of financial and legal advisers to guide you over these financial obstacles, so assets are well protected under any conditions now and in the future.

Source: The Wall Street Journal, “Creating an Estate Plan Around a Prenup” Alex Coppola, Jul. 11, 2014

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