A partition or exchange agreement allows married couples in community property states who are anticipating separation or divorce or otherwise wanting to change the ownership of certain community property assets to do so by agreement. Community property is generally property that is acquired by either spouse during marriage (and thus owned by both spouses), with exceptions for property such as gifts, inheritances, and assets owned before marriage.
A partition or exchange agreement allows a married couple to change the legal character or nature of community property assets—whether cash, stocks, bonds, real estate, retirement accounts, artwork, jewelry, or other property—to separate property assets by dividing (partitioning) their community property assets into separate property interests or by exchanging their community property interests in different assets to make one asset the separate property of one spouse and the other asset the separate property of the other spouse.
The partition or exchange agreement may also provide that future earnings and income arising from the transferred property will be the separate property of the spouse who owns it (income from separate property is generally community property, absent an agreement to the contrary).
The law usually requires an agreement changing the nature or characterization of property during marriage to be in writing but provides that such agreements do not require the exchange of something of value by both parties (consideration), as is usually required to create an enforceable agreement.
Reasons A Partition or Exchange Agreement May Be Unenforceable
A partition or exchange agreement must be in writing and signed by both parties. A partition or exchange agreement is not enforceable if the party against whom enforcement is requested proves that:
• the party did not sign the agreement voluntarily; or
• the agreement was unconscionable when it was signed and, before signing the agreement, that party: (1) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; (2) did not voluntarily and expressly waive (in writing) any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and (3) did not have and could not reasonably have had adequate knowledge of the property or financial obligations of the other party.
A question of unconscionability of a partition or exchange agreement is usually decided by the court as a matter of law rather than by the jury as a matter of fact.
Recording a Partition or Exchange Agreement in County Deed Records
By recording a partition or exchange agreement that involves real property (real estate) in the county deed records, a property-owner spouse may protect partitioned-or-exchanged separate property from a creditor’s claim that a judgment against the other spouse can be satisfied from the partitioned-or-exchanged property because it is the kind of property that is usually community property and the creditor had no notice it was not community property.
Law is Often Located in State Statutes
In many states the law regarding partition or exchange agreements is located in the state’s statutes—often in the family code or domestic relations code.
In Texas, a partition or exchange agreement is a legal tool that allows married couples to reclassify community property as separate property. Community property typically includes assets acquired during the marriage, while separate property consists of gifts, inheritances, and pre-marriage assets. These agreements can partition or exchange assets such as cash, stocks, real estate, and personal items, and can stipulate that future income from these assets remains separate property. Texas law requires such agreements to be in writing and signed by both spouses to be enforceable. They do not need consideration to be valid. However, an agreement may be unenforceable if a spouse did not sign it voluntarily or if it was unconscionable at the time of signing. Unconscionability is determined if one spouse lacked a fair disclosure of the other's financials, did not waive the right to disclosure, or could not have known the other's financial obligations. Courts typically decide on unconscionability as a matter of law. To protect against creditors' claims, agreements involving real estate should be recorded in county deed records. The statutes governing these agreements are often found in the state's family or domestic relations code.
