In Texas, separate property can be converted to community property by a written agreement signed by both spouses that identifies the property to be convert and specified it is being converted to community property. Tex. Fam. Code § 4.203. In a recent case, a former husband challenged the property division in his divorce decree, arguing certain assets had been improperly characterized as the wife’s separate property.
The wife was beneficiary of three irrevocable trusts set up by her grandparents. The income from the trusts was to be distributed to the wife at least annually starting when she turned 21. The trustee was also authorized to distribute principal for the wife’s care, comfort, support, and education if the trustee deemed it necessary. When she turned 32, the trustee had the discretion to distribute the balance. After the wife’s thirty-second birthday, which occurred during the marriage, the trustee terminated the trusts and put the accounts in her name. They were worth about $2.3 million at the time.
The parties hired an estate-planning attorney. They both signed an engagement letter, stating they told the attorney they considered the current assets, specifically including the funds inherited by the wife, to be community property. The trust agreement stated that the trustors contemplated that all assets that would be transferred to the trust would be community property. However, it also included a provision allowing either party to modify, revoke, or terminate the agreement with respect to any of their own separate property held in the trust. They subsequently transferred the assets from the grandparents’ trusts to the new trust account.
Continue Reading ›