How to Protect Separate Property IRAs in Second Marriage

This column first appeared in the San Antonio Express News and other Hearst Newspapers on September 2, 2019.

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Treasure the family that you have.

Dear Mr. Premack: I'm 73 and I live in Texas. I'm planning to get married for a second time. I have two adult children and four grandchildren. I have 3 IRA/ROTH IRA'S than predate the marriage and no new money is being added to them. I know that under Texas law the accounts are separate property. I plan to list my new wife as a beneficiary for some portion of these accounts. What should I do to make sure my asset management firms do not consider them community property? What should I do to protect these assets in the unlikely event of a divorce, or some other unforeseen situation? Thank you. CL

Under Texas law, any item that you own while you are un-married is your separate property. When you marry, its character does not change; it legally stays your separate property. However, after you marry, any earnings from that separate property is by default community property. Hence your IRA slowly commingles your separate property with newly earned community property.

You ask what you should do to protect the IRAs, and likely a variety of other assets, in case of divorce. You also need to consider protecting the assets at the time of your death, so that they pass to those you select instead of being claimed by your new spouse or her children. So, how do you protect your assets and by extension your existing family?

The first and best way to protect yourself is to stay unmarried. Likely you want to marry because you are in love, or because you see a new spouse as socially desirable, or because she expects to get married, or because you seek companionship and a caregiver as you age. Marriage is ancient and revered, but it is not mandatory. You have an existing family (your children and grandchildren from your first marriage) to whom you also owe your love and your allegiance.

The next best way to protect yourself is with a pre-nuptial agreement. In it, you and your fiancé can agree that certain items will retain their separate property character even if there are future earnings. You can entirely eliminate community property if you both so agree. The contract must be voluntary, must be made with full disclosure, and you must both have independent legal counsel. Once signed, the properly written agreement will protect your assets and family even if there is a divorce or when you die.

You ask how to assure that the asset management firms treat your assets as separate property. While you can inform them in writing, they may not agree with your assertion after you marry. Remember, by law new earning are community property unless you have a binding marital property agreement that says earnings will remain separate property after marriage.

Hence, the only way to assure the asset management firms treat your assets as separate property is 1) for you to maintain them 100% as separate property by creation of a binding marital property agreement and then 2) sharing that agreement with the asset management firm. Once they see the agreement, they should agree to footnote your accounts with a separate property flag. Failure to enter into a marital property agreement dooms your separate IRA accounts to slow commingling with community property earnings. Unless you decide to stay single, the only way to achieve your goals is to work with your legal counsel to prepare a binding marital property agreement.

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Paul Premack is a San Antonio Certified Elder Law Attorney, handling wills and trusts, probate, and business entity issues. View past legal columns or submit free questions on legal issues via www.Premack.com.