Did you know that when you wed, generally all property obtained from that point on is jointly owned by you and your spouse? Hence the phrase, “what’s mine is yours.” If that sends a shiver down your spine, don’t worry! You’re not totally out of the driver’s seat. Enter the transmutation agreement! This type of postnuptial agreement allows you to change the designation of property during your marriage. *Collective sigh of relief* Stay tuned for all the details!
While it may sound like something out of the X-men, a transmutation agreement is a form of a postnuptial agreement – which, as the name suggests, is an agreement, similar to a prenuptial agreement, that you enter into AFTER marriage. Transmutation is a process where your property changes designation (i.e. from separate/non-marital to marital). Whether or not you entered into a prenuptial agreement, a transmutation agreement allows you to change the designation of your property from separate to marital, or vice versa.
Why is that important? Well, when you marry, you become a partnership in the eyes of the law. That means, generally, any property acquired by you or your spouse during the marriage is considered joint marital property. That is the case even if one spouse did not contribute a single cent to the purchase. The same thing goes for debt acquired during the marriage. Because the property is considered jointly owned, depending on the state you live in, upon divorce, it will be split with your spouse. Not surprisingly, many couples aren’t thrilled by the prospect of having to split EVERYTHING, hence the popularity of prenuptial agreements.
Transmutation can occur in three ways: (1) separate/non-marital property that becomes marital/community property, (2) marital/community property that becomes separate non-marital property, and (3) separate property that becomes someone else’s separate property.
Typically, transmutation agreements target specific property, as opposed to prenups and postnups which typically target all of your assets, property, and liabilities. For example, a home that is separately owned could be the subject of a transmutation agreement in order to change the destination to marital property.
Why you should consider a transmutation agreement
There are several reasons to consider a transmutation agreement including a lack of a prenup or changes in circumstances during the marriage. As we highlighted above, once you wed without a prenup, any property you obtain is also your spouse’s (absent exceptions). Perhaps you are ok with that for the most part but there are a few items you want to protect. This is a great reason to have a transmutation agreement. For example, perhaps you purchased your childhood home during the marriage and want to ensure that it remains solely yours so you can pass it on to your own children. In that instance, you could create a transmutation agreement where your spouse agrees that the childhood home is separate property. This is an important note, your spouse must agree to the change in designation of the property because by entering into the agreement, one spouse is waiving their right to their interest in that property.
Here is another example. Perhaps wife owns a home prior to marriage. After the couple wed, they move into the wife’s house and stay a lot longer than planned. Ten years down the road, the couple is still living in the “wife’s house” where they are now raising their children. Husband has been helping with the expenses over the years, but the home is still solely considered the wife’s home. Wife wants the home to belong to both spouses so they enter into a transmutation agreement in which they both agree that wife’s separately owned home will become marital/community property.
These agreements can also be helpful for couples with children from a previous marriage. In this scenario, there may be certain property that each spouse wants to keep separate to ensure that it passes down to their children. However, if the property was purchased during the marriage (without a prenup) it will likely be considered the joint property of the couple. That means that if the couple divorced, the property would likely be split between them. While there is still a chance that you could get certain property in a divorce – especially if you live in an equitable distribution state – there are no guarantees. A transmutation agreement allows the couple to transmute the property from marital to separate/non-marital to ensure that it is not up for grabs in a divorce.
Prenups and postnups vs. transmutation agreements
While transmutation agreements are a form of postnuptial agreement, as they are entered into after marriage, they have their differences. Transmutation agreements target specific property/assets/liabilities. For example, a transmutation agreement can target a house owned prior to marriage and turn it into marital property. Postnups, on the other hand, have a wider scope. Postnups are intended to address a wider range of issues including alimony and even lifestyle clauses. Postnups can comprehensively address all assets and liabilities as well. For example, a postnup can declare that all property owned prior to marriage, or all property obtained individually during the marriage is separate/non-marital property. While transmutation agreements can address more than just one asset, they aren’t really intended to address all current and future property as a whole. Instead, they are meant to change the designation of specific property/assets/liabilities. Though, transmutation agreements can be used for property not yet owned.
The differences between prenups and transmutation agreements are similar. Additionally, a prenup must be entered into prior to marriage and a transmutation agreement is entered into after marriage which makes sense, right? Before you are married, you can’t transmute your property from separate to marital property. That can only be done after marriage. The same goes for the other direction. Before marriage, you have no marital/community property so you can’t change the designation to separate/non-marital property.
Transmutation agreement requirements
Similar to prenups and postnups, transmutation agreements need to be in writing and signed by both parties. Additionally, the agreement needs to be voluntary. That means one spouse cannot exert undue pressure or coercion in order to bring about the signing. If that happens, the enforceability of your agreement can likely be challenged and ultimately the whole agreement could be thrown out.
Many states don’t recognize or honor postnuptial agreements. As a transmutation agreement is a form of postnup, they will also be affected. Check to see if transmutation agreements are permitted in your state. Additionally, just like prenups and postnups, requirements for transmutation agreements can vary by state so be sure to check out your state laws before entering into the agreement.
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