13 Terms for Shared Property Agreement

• Library: Premarital Agreements: Drafting and Negotiation (ABA) (2017 Ed.)

13 Terms for Shared Property Agreement

The model paragraphs below can be substituted for paragraphs of the title controls agreement to create a sharing agreement.

Definitions, separate and marital property: comment

When parties opt for an agreement that provides for sharing assets acquired through their common labor, the agreement should clearly define what is included in the shared pool of assets. The definitions can be consistent with the law that would govern at divorce but need not necessarily be. A party in an all-property state may want a classification scheme that more closely resembles dual classification so as to retain his or her exclusive right to premarital, inherited, and gifted property.¹

Generally, separate property will include the following:

• Property owned prior to marriage, including property disclosed on the parties' asset disclosure schedules;
• Gifts and inherited assets; and
• Property acquired in exchange for separate property.

Generally, marital property will be defined as all property acquired during the marriage through employment, regardless of title, except property specifically classified as separate.

In defining separate and marital property, counsel should consider a number of issues:

• Will income from separate property be separate property or marital property?
• Will appreciation on separate property be separate or marital?
• Will intraspousal gifts be separate or marital?
• What effect will commingling of separate property and marital property have on classification?
• Will jointly titled real estate be treated as marital property, regardless of the source of funds for acquisition, or will it be part separate and part marital in proportion to each party's monetary contributions?
• Will a jointly titled financial institution account be entirely marital, or will the agreement allow for a party to trace out separate property contributions?
• What effect will monetary contributions of marital funds to acquisition, improvement, or appreciation of one party's separate property have on classification of that property?
• What effect will one party's monetary contributions of his or her separate property funds to acquisition, improvement, or appreciation of the other party's separate property have on classification of that property?

The agreement should also make clear the circumstances under which contractual separate property will become marital property. Some spouses will elect to deposit what would otherwise be separate property into a joint financial institution account. The definitions in the agreement should clearly answer the question whether joint title causes the funds, and assets acquired therefrom, to become marital. For example, in Jangula v. Jangula,² a home acquired with funds from a joint account was marital under the terms of a premarital agreement although the funds were originally the husband's separate property. By contrast, in Seherr-Thoss v. Seherr-Thoss,³ the husband used separate funds to purchase a home in his name and later transferred title into joint names. The premarital agreement provided for separate property to retain its character even if held in joint names unless the parties executed a separate agreement stating a different intent. The husband was therefore entitled to the full proceeds of sale.

The model text below provides for a business or professional services practice to be the separate property of the owner-spouse but for compensation from working in the business to be marital property. A party who comes to the marriage with a business or professional practice and seeks a premarital agreement is often motivated by a desire to protect his or her exclusive rights and to prevent a valuation of goodwill as part of a divorce. This provision can serve that client's objective.

The model text also provides that marital property includes a joint financial institution account without regard to the source of funds. This is intended to eliminate litigation over tracing money in and out of an account in which there may be multiple transactions. Such litigation can be expensive. Eliminating it can further the goal of reducing the transactional costs of divorce.

The definitions below come from the law of equitable distribution at divorce. In common law title states, these definitions may not be meaningful at death in the absence of a contract. Parties to a premarital or postmarital agreement could elect to use the same scheme for defining rights at death, or they could take a different...