Partition Agreements "An Extra Estate Planning Tool"

Purpose of Partition Agreements in Texas: These agreements are used by married couples to transfer property between themselves. They are used to create or protect separate property. Pre-Marital and Marital Agreements contain partitions. They are also used to transfer community  property interests to the other spouse.

Second Marriage Example.  In second marriages situations, a couple will enter into a Pre-Marital Agreement to identify and segregate their respective separate property. Separate property in Texas means property that was acquired before the marriage and can be identified, property that was inherited or gifted to a person during the marriage, or lawsuit settlements for pain and suffering. The name on the account does not govern; the property must fall into one of those categories to be separate property. However, the income from separate property is community property. This can create a community property interest in the separate property over a period of years if dividends and interest are reinvested in the account. There are other ways that separate property can lose its identity.  In many second marriage situations, the husband and wife want to avoid this confusion, the pre-marital or marital property agreement provides a way to do this.

Asset Protection Example. Some couples fear that one of the spouses may be exposed to a high risk from lawsuits. Physicians are an obvious example of this concern. All of the community  property of both spouses is liable for any lawsuit judgment against either spouse. On the other hand, the separate property of one spouse is not liable to the lawsuit judgments of the other spouse. Therefore, where one spouse is a physician, the couple may partition some of their property into separate property and reduce liability if the physician spouse is sued and loses. With the partition, the non-physician spouse’s separate property is not liable for the lawsuit.

Medicaid Estate Planning Example. If one spouse needs nursing home care and applies for Medicaid to pay for the care, the process will require that all of the property greater than $2,000 belonging to the spouse in the nursing home be transferred to the spouse at home. A partition agreement is used to transfer the disabled spouse’s one-half community property interest to the spouse at home.