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 New York, the concept of community property does not apply as New York is an 'equitable distribution' state rather than a community property state. This means that during a divorce or separation, marital property is not automatically assumed to be owned equally by both spouses. Instead, the court divides marital property equitably, which may not necessarily be 50/50, based on a set of factors such as the duration of the marriage, the income and property of each spouse, and any written agreement between the parties (like a prenuptial or postnuptial agreement). While New York law does allow for marital property agreements that can include the division and distribution of assets, these agreements must be in writing, signed by both parties, and acknowledged in the manner required to entitle a deed to be recorded. Such agreements are subject to similar enforceability issues as described for partition or exchange agreements, including concerns about voluntariness and unconscionability. If a spouse claims that an agreement was not signed voluntarily or was unconscionable, the courts in New York will review these claims and can decide to invalidate the agreement if such claims are proven. Recording a property agreement involving real estate with the county clerk's office can provide notice to third parties and protect the interests of the parties as specified in the agreement.
