It is important for taxpayers to understand how partition agreements and an IRS tax filing status are linked. The connection between the two can impact how a married couple files their tax returns and how it could potentially affect the non-debtor spouse.



In the case of married couples, partition agreements are legal documents that define the terms and conditions of the division of property between the two of them. Property can include real estate, bank accounts, and other valuable goods. Examples of partition agreements are prenuptial and postnuptial agreements. Partition agreements are essentially an agreement between the spouses on how to divide ownership and rights to their property. In Texas, any property that is earned or received, with some exceptions like inheritance, is considered community property, meaning both spouses have ownership rights over the whole. A partition agreement is typically used as a way for the spouses to state that they do not want Texas law to dictate ownership of the property, and they want to decide who owns what.

Today, it is not unusual to see couples entering partition agreements after they have married. The reasoning behind this movement is that it can allow the two individuals to have a say in how their property is divided up instead of letting default Texas community property laws decide. Certain pieces of property are defined as separate. This keeps property as “yours and mine” and eliminates the default “ours” factor.
Entering into a Partition Agreement
One of the most common questions we get about partition agreements is why someone would want to enter into one. The short answer is that there are a number of valid reasons, including:

* People with a second marriage (who have children from a first marriage) may be worried about the consequences upon death (or the incapacitation) of one of the married partners, such that they want some of their money to go to their children. This may or may not occur if it is community property.


* Married partners that no longer live together but do not wish to legally divorce.


* In connection where partners are divorced and perhaps there is a reconciliation where the couple decides to reconcile but wants to have boundaries as to what each owns.


* Estate planning purposes.


* For creditor protection purposes so that the debts of a debtor-spouse do not attach to the non-debtor spouse, or the assets of a non-debtor’s spouse are not subject to claims from the creditors of a debtor-spouse. This can work fairly well when you partition them, if at the time you partition them there is no real debt problem. It works best if the spouses enter into a partition agreement prospectively so as to avoid the argument that this was done to defraud creditors.

It is worth noting that it can be hard for a creditor to set a partition aside unless the person already has a judgement against them or the partition agreement was signed well after the debt entered into collection actions.
Entering into Partition Agreement Before Marriage and Its Impact on Filing Taxes
If a partition agreement has already been signed, it is important to decide how to file your federal income taxes, especially if one spouse makes significantly more than the other.

If two spouses enter into a partition agreement that they have signed, executed and notarized, it usually does affect how we would advise them to file their tax returns. For example, if a couple has nothing but community property, community income and few debts, there is little reason not to file jointly.