Prenuptial Agreement: Brokerage Account Not A Bank Account

Is a brokerage account a bank account when the term “bank account” is used in a prenuptial agreement? “No,” says the Fourteenth Court of Appeals. When the parties chose to use the phrase “bank account,” they meant bank accounts only. In re Marriage of McNelly, No. 14-13-00281-CV (Tex. App. – Houston [14th Dist.] May 15, 2014) (mem. op.).

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Prenuptial Agreement

Before husband and wife married, they signed a prenuptial agreement. Among other things, the prenuptial agreement stated that if either spouse deposited money into a joint bank account, that money would be considered community property regardless of its source.

Husband’s Business

Before marriage, husband owned a business called “Rockin R Gasworks.” Because he owned the business prior to marriage, the business was his separate property. Not long after marriage, husband sold the business for $1.3 million. He deposited $100,000 into joint bank accounts and the remainder into joint brokerage accounts, $600,000 with Charles Schwab and $600,000 with Fidelity. Upon divorce, the trial court considered the $1.2 million in the brokerage accounts to be community property under the premarital agreement.

Bank Accounts Aren’t Brokerage Accounts

The court of appeals disagreed with the trial court’s characterization of the brokerage accounts as bank accounts because brokerage accounts are not bank accounts. Citing Black’s Law Dictionary, the court reasoned that a “bank” is “a financial establishment for the deposit, loan, exchange, or issue of money and for the transmission of funds.” But a broker isĀ “an agent who acts as an intermediary or negotiator, especially between prospective buyers and sellers; a person employed to make bargains and contracts between other persons in matters of trade, commerce, or navigation.” Thus, held the court,

These definitions illustrate that banks and brokers are distinguishable, particularly with respect to the scope of their respective services; banks tend to offer a broader spectrum of financial services than brokerage firms.

The court went on to quote many statutory provisions describing banks and brokerage firms, noting the differences between the institutions.

Parties’ intent

The court also observed that in a recital of the prenuptial agreement, the parties intended “to retain the separate-property character of their already-exisitng separate property.” As to husband, the premarital agreement stated:

[T]he parties intend that all income arising from [husband’s] separate property, and all of the fruits of his time toil, talent and labor shall be the separate property of [husband] and shall remain under the sole ownership, management, and control of [husband] during this marriage, as well as upon dissolution of this marriage by death, divorce, or annulment, unless such separate property is otherwise transferred to [wife] by will or other written instrument voluntarily executed by [husband].

The court of appeals reversed the trial court’s characterization of the brokerage accounts as community property and remanded the case for a redivision of the community estate.

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