This is a composite account of many cases we have worked on over the years. The names and events have been changed to avoid disclosing confidential client information.
Frank Sinatra says that love is wonderful the second time around, but the couples’ estate planning can be complicated. Often, each person has an established career and/or significant assets. While each of them may be ready for the emotional ties of marriage, the economic ties give some pause for thought. The good thing is that people entering into second marriages often have “both feet on the ground” and are able to talk openly and objectively about how they want to manage their finances during their marriage, and the provisions they want to make for each other and their heirs at death.
Premarital agreements are common in remarriages ”“ a couple can clarify what each has, how they want to handle living expenses, how they may acquire assets together, and what happens to each of their assets at death or divorce. Frankly, whether a couple signs a premarital agreement or not, it is critically important for them to discuss the financial side of their marriage. The community property laws can complicate things for remarriages. Often it makes sense for couples to agree to keep not only their assets separate, but also their income. For example, without a premarital agreement, a person’s salary is community property. Thus, post-marriage employee benefits and contributions to retirement accounts and the growth of those contributions would be community property, while the account balance on the date of marriage plus growth would be separate. This can create an accounting problem in the event of death or divorce. Another problem is making sure the survivor of a married couple has sufficient assets to live comfortably, while also taking care of your children and grandchildren or other heirs.
When kids have to wait for their step-parent to die to get their inheritance, it can be awkward for the step-parent and the kids. Our experience is less that the kids’ begrudge the step-parent the use of the assets, but rather they fear those assets will end up with the step-parent’s family. Yet, often your spouse needs access to your assets to live comfortably, and this is when good planning can minimize suspicion and/or hard feelings between your spouse and your heirs. An example of a bad plan would be for dad’s Will to give everything outright to step-mom, as dad’s children will have little assurance of receiving their inheritance and they may be tempted to challenge dad’s Will. A better plan is to use a properly drafted trust for the step-parent administered by an independent trustee. Such a trust can allay a lot of suspicion and fulfill the dual goals of providing for your spouse and your children.
These are many important issues to consider the second (or third . . ) time you fall, but consulting with competent counsel will help assure that you’ll be glad you met “the second time around.”
