What is a Sole and Separate Property Agreement?
A sole and separate property agreement is a legally binding document that details what belongs solely to the individual and not to the marriage, according to familylaw.lovetoknow.com. It is a contract with your spouse stating that specific assets are solely yours and will not be divided in the event of divorce.
It grants you the right to have an item that you solely owned before the marriage, such as a car, not be considered marital property and therefore off the table for any future divorce settlements . A sole and separate property agreement won’t be used like a regular prenuptial or post-nuptial agreement, with any assets acquired after the marriage being put in respective columns to indicate belonging to one party or the other. Instead, it only deals with assets that belong to one party prior to the marriage. Assets in a regular prenuptial agreement can be divided in such a way that the individual assets could theoretically be swapped between parties without harm, like a video game console. With a sole and separate property agreement, that doesn’t work. Such personal property is one person’s no matter what.
Elements of the Agreement Form
To assist in avoiding future problems, the following should be considered when preparing a sole and separate property agreement document:
Parties. The sole and separate property agreement should set forth the full name of the spouses. If the spouses each have a middle name or an initial, this information should be included to avoid confusion.
Marital Residence. The marital residence is typically the address where the spouses lived together during the marriage. If the marital residence was acquired prior to marriage, however, it may not be appreciated during the marriage. If the spouses are using the marital residence as their primary residence when the sole and separate property agreement is prepared, then the marital residence should typically be identified.
Other Real Property. Additional property should be identified. Since real property is typically referred by its physical description instead of its address, the legal description should be used. If there have been improvements made to the property, the nature and value of the improvements should be set forth. The manner that the value of the improvements is determined prior to marriage should also be identified.
Personal Property. To avoid misunderstandings, it is important to identify the personal property items that are being conveyed as the sole and separate property of an individual. The names of the households items should be listed. If there are special items of personal property it is most convenient to simply agree that such items shall be the sole and separate property of the individual. If there are anticipated problems, an itemized description should be attached.
Claims to the Property. It is important for the spouses to release any and all claims to the property identified in the sole and separate property agreement. Typically, such claims include any right of dower, courtesy, or other rights that would otherwise terminate when the death of one of the spouses occurs.
There should be an express provision for further actions deemed necessary.
Legal Consequences
The legal implications of signing a sole and separate property agreement form are significant. By signing such a form, the person waives any claim of co-ownership of the property, absent anything in writing from the other spouse. This attaches to any potential equitable distribution rights the other spouse may have had on the property. A party’s failure to sign a separate property agreement form can and will be used against that party in the future in connection with what this person may argue is an interest in the property that should have been part of the equitable distribution process.
For example, a spouse may be adamant that a certain property is "his" or "her." However, if the person has failed to sign the relevant form, the other spouse could easily argue that the other party is trying to gain equity in the property through equitable distribution that the person would not have otherwise had. Of course, there is an exception for property acquired by gift, inheritance or inter vivos gift, which is what the parties are agreeing to with the form.
Why Have a Sole and Separate Property Agreement?
A common reason for having a Sole and Separate Property Agreement is to protect inheritance. An inheritance received during marriage is, absent an agreement to the contrary, community property at divorce. If you’ve been married for many years and inherit $150,000 you cannot ignore the impact of it becoming community property upon divorce. The first question you should ask is whether it can be kept separate-meaning not combined with or contributed to community property, such as a bank account. This can be accomplished by not depositing the inheritance into a bank account held jointly with your spouse. For many people, however, this is not practical, as the funds are likely needed for the mortgage, college tuition or health care costs. In that case if the inheritance can be kept separate enough to show the court that you did not intend to include your spouse or the marriage in your inheritance then the funds may remain yours, even at divorce.
A Sole and Separate Property Agreement is also used in the context of a second marriage. You may have children from a prior marriage and want your inheritance intended for those children to go to them. In that case, if you do not get a Sole and Separate Property Agreement then at your death the money will go into your estate and may have to go through probate. Probate is not a concern when there is a Sole and Separate Property Agreement in effect.
Other clients have a Sole and Separate Property Agreement in order to protect their income as a professional. Your income is typically community property. Even if you want to pass it along to your children, it may go into the marital pot in the absence of a Sole and Separate Property Agreement. In that case, a professional’s income can be protected, at least to an extent, and your choice for who or what to pass it to remains intact.
How to Create a Sole and Separate Property Agreement
The process of creating a Sole and Separate Property Agreement begins with the spouses contacting and discussing the issue with an attorney. The attorney frequently has to educate the clients with regard to the difference between community property laws and separate property and the effect that those laws and the agreement may have on the clients in the future. In many cases, it is preferable, although not absolutely necessary, for each party to have their own attorney to assist them in the preparation of the Agreement . This type of document requires the negotiation of the terms of the Agreement, including what property will be characterized as separate property versus community property. If there is real property involved, the title company should be contacted during this process to determine what needs to be done to accomplish the conversion to sole and separate property and the proper manner to do that. The Agreement is titled Sole and Separate Property Agreement and is signed by the parties. A notary is required to take the acknowledgment and the original should be recorded.
Common Errors to Avoid
Most people do not seek out sole and separate property agreement forms until they are in the process of finalizing a divorce or preparing a prenuptial agreement. The mistake many make is failing to understand the purpose behind the document. Your sole and separate property is anything you owned before the marriage, as well as any assets you acquired during the marriage that were not actively or passively shared with your spouse. This definition sounds simple, but as with most legal issues, it can present gray areas, especially in terms of how property can be classified as distinctly yours. Your situation is unique, and your agreement has significant legal consequences if you or your partner dies or if you eventually divorce. Working with an attorney who has experience helping clients draft these agreements will ensure that you create a document that will withstand scrutiny and serve your interests.
How to Use the Agreement Form
Individuals entering into sole and separate property agreements must ensure that the provisions of the Agreement are incorporated in their daily lives and given effect to in all aspects of their marriage. Practically speaking, a spouse should not place the other spouse’s sole and separate property into a joint account and vice versa. A spouse will not be presumed to have gifted or contributed to their spouse’s sole and separate property upon deposit of sole and separate funds into a joint account absent evidence to the contrary. Counsel always advise the deposition spouse to retain his or her deposit slips evidencing the source of funds to ensure clarity in the event of future disputes around the source of the funds.
Additionally, discretionary spending, such as withdrawals by the depositing spouse into a joint account, should not involve the use or expending of sole and separate property. Without evidence that both spouses anticipate and expect such expenditures, Courts will not likely find that that the spending spouse is entitled to reimbursement or credit against the depositing spouse’s estate as a result of utilizing a portion of a spouse’s sole and separate property for discretionary spending.
In the event of death, a marital home that has been designated as sole and separate property may be disposed of in accordance with the Provisions of the Agreed Statement of the Marital Home and the parties’ Agreement. Absent such documents, a spouse’s designee or Probate Court would determine how to fairly distribute the proceeds of the sale of the property if sold. One spouse cannot unilaterally cash out on a house or family cottage to the exclusion of the other spouse. The parties’ Agreement could permit one spouse to pay the other out upon sale of the property, which would provide clarity to the parties’ intention around what happens to the property upon sale. Without an Agreement, the parties can still agree to share equally in the proceeds of the sale. As such, it is always best to include the parties’ intent in the Agreement, which removes the ambiguity of divorce legislation in the province of Ontario (Family Law Act) and that of estates legislation regarding married couples (Succession Law Reform Act).
Frequently Asked Questions About Sole and Separate Property Agreements
You will often hear the term "community property" used to describe property that is legally owned by both spouses in a Texas divorce. However, did you know that Texas also allows for a couple to protect certain items as sole and separate property? This means that even after a divorce, the item remains the individual property of one spouse, and is not subject to division by the court.
Q: If I had the property before we were married, is it automatically mine?
A: Not necessarily. If title to the property ever changed hands during the marriage, then there is a presumption that the spouse that obtained the title share owns the property.
Q: Does a sole and separate property agreement mean that your spouse cannot receive any of the value of the asset in a divorce?
A: Not necessarily. You and your spouse can agree that all or some portion of the increase or appreciation of value during the marriage will be treated as community property.
Q: If we have a sole and separate property agreement, will the item be valued as of the date of the divorce or the filing date?
A: It depends on the terms of the agreement. The agreement can specify that the value will be as of the filing date or the date of the divorce (date of division) .
Q: Do I have to give my spouse any of the "increase in value" of the item during the marriage?
A: No. If you and your spouse agreed not to share the increase in value of a particular item, but simply wanted to preserve its "original value," then you are entitled to the entire "original value" of the item without having to pay your spouse "half" of the original value.
Q: What if I waited until after we were separated to purchase the asset?
A: Again, it depends on the terms of your agreement. If the agreement says that "property purchased during separation" will be treated as sole and separate property, then it likely is not subject to division regardless of the fact that you purchased it during the pendency of the divorce.
Q: If we sign a sole and separate property agreement, can I then change my mind and try to divide the property with my spouse later?
A: Technically, yes. A sole and separate property agreement does not prevent you from "contracting" to treat the property differently, but merely sets forth your original intention so that no fight about the property exists at the time of the divorce.