Charles and Diana, in their 70’s, had been married 10 years. Each had children by a deceased first spouse. They enjoyed a wonderful relationship with their children and stepchildren. Due to the assets each inherited from their first spouse, each had liquid assets in excess of $500,000. They lived in Diana’s home, valued at over $400,000.
The Verbal Agreement
They had agreed verbally that if one of them died, the survivor didn’t need the deceased spouse’s assets. Each had signed a Last Will and Testament appointing one of their children executor and leaving their estate to their natural children. They didn’t have a written prenuptial or post-nuptial agreement or any kind of a trust. After all, they were happily married, trusted their children and stepchildren and everyone knew their agreement not to claim the deceased spouse’s assets. They had everything planned, or so they thought.
Unfortunately, Diana was killed in a car accident. Her sudden death was very stressful to Charles as well as Diana’s children. After the funeral, Diana’s son, William (her Executor), hired an attorney to begin the probate. The attorney explained that he needed Diana’s brokerage and bank account statements in order to prepare and file the probate Inventory that would be required.
William asked Charles for a copy of the couple’s computer disc drive, which contained all the account records. When William met Charles to get Diana’s records, William thought it was a little strange that Charles had hired a computer expert to copy the disc drive. Charles seemed tense and uncomfortable. Later, when William reviewed his mother’s records, he noticed Charles’ records were not on the disc drive but he thought nothing of it. William also noticed that Diana had taken about half of the IRA she had inherited from William’s father and invested it with the same stockbroker that Charles used.
A week later, William’s lawyer called and said he received a letter from a lawyer hired by Charles. The letter said Charles had decided to claim Diana’s house as his probate homestead. William was shocked to learn that under the Texas Constitution, Charles could live in Diana’s house for the rest of his life. William’s attorney explained that even though the house had been Diana’s separate property, Charles had the right to designate the house as his widower’s homestead. When William called Charles to complain that his actions violated the verbal agreement with Diana, the conversation disintegrated into an argument.
A few weeks later, William’s attorney received a 10-page letter from Charles’ lawyer. Charles was now claiming that each of the new accounts Diana opened were community property accounts because they had been opened during the marriage and Texas law presumes that all marital property is community property unless the presumption can be rebutted by evidence.
As community property, Charles was claiming half of those accounts were his. William’s attorney went on to explain that he could fight Charles in court but it would be expensive and they might not win. William wanted to retaliate by claiming half of all of Charles’ accounts were also community property. The problem was that they didn’t have any of Charles’ account records because Charles had not provided them. William’s attorney explained that he could get those records through court ordered discovery but that it would be expensive. William was furious when he found out that he would have to pay all of Charles’ lawyer fees as well as his own under Texas law.
Could this have been avoided?
All of this could have been avoided if Charles and Diana had hired their attorneys to draft a prenuptial or postnuptial agreement. Such an ante-nuptial agreement can be signed before or after the marriage. An ante-nuptial agreement can definitively establish all the community or separate nature of property acquired prior to or during the marriage. Such an agreement can also settle whether income or appreciation earned by separate property or labor during the marriage is community or separate. Finally, the agreement could have prevented the surviving spouse from claiming the deceased spouse’s home as a probate homestead. Even without Charles’ cooperation, Diana could have better protected her estate by placing her assets in a trust.
Diana thought she had her estate properly planned. However, estate planning is a complicated field that contains surprises for the unwary. Diana did not realize that her estate plan was vulnerable. Her mistake cost her family dearly. Choose a qualified attorney who concentrates his practice in estate planning and probate to develop and implement your estate plan.This article was written by Craig W. Watson, Attorney