News and Commentary

Financial Tips when Walking Down the Aisle a Second Time by Kathleen Marteney, CRPC®

According to the Pew Research Institute, first-time marriages are on the decline, while a growing number of unions involve spouses who said “I do” at least once before. When individuals enter into second or third marriages, they are more likely to have children from a prior marriage as well as a retirement nest egg, a home or a business, all of which can complicate efforts to blend their emotional and financial lives together. Do they understand what will happen to their premarital assets when their spouses pass away? Can they protect the inheritances of children from a first marriage while also providing for a new spouse, step-children, grandchildren or even children from the new marriage? Can they continue to receive Social Security benefits from a previous spouse?

By failing to address these issues, individuals may unintentionally relinquish control of their assets. For example, in some states, such as Florida, surviving spouses automatically are entitled to one-third of their deceased spouses’ entire estates, including trust assets, life insurance proceeds and jointly titled accounts, regardless of what the decedents specified in their wills. Consequently, assets can bypass decedents’ children and go directly to their surviving new spouses. To help couples avoid these risks, they should engage the counsel of financial advisors to start the money talk and help develop appropriate estate-planning strategies on which both spouses can agree. Following are four considerations that couples should address sooner, rather than later.

Prenuptial and/or Postnuptial Agreements

One of the best ways to safeguard premarital assets and ensure equitable distribution in a future divorce and/or after death is to work with an attorney to draw up pre- or postnuptial agreements. Not only do these contracts allow couples to address the future division and distribution of specific assets, they also go a long way toward reducing the likelihood of future legal disputes between family members.

Risks of Commingling Assets

It is increasingly popular for married couples to maintain their own separate premarital financial accounts in order to avoid the possibility that one spouse will lay claim to the assets of the other either in a divorce settlement or as part of the probate process. Other strategies that avoid the commingling of marital assets can also help to protect each spouse from becoming responsible for the other’s debt.

To safeguard premarital assets for the benefit of one’s children, it is recommended to avoid holding assets in joint tenancy with the other spouse or naming the other spouse as a beneficiary on assets. Similarly, if both spouses are named on the deed of a premarital home, that residence will pass to the surviving spouse and not to the deceased spouse’s children, unless both spouses previously agreed to waive their rights to that property.

Beneficiary Information on Financial Accounts and Insurance Policies

There is no law requiring decedents to pass assets to their children. Moreover, when a decedent’s will calls for his or her rightful heirs to receive estate assets, there is the possibility that a surviving second spouse will contest the will and disinherit the decedent’s children. To avoid this scenario, couples should independently review and update the beneficiaries they name to receive life insurance proceeds and assets held in brokerage accounts and retirement plans, including 401(k)s and IRAs. The named beneficiaries on those policy contracts and retirement-savings accounts will supersede any instructions for asset distribution contained in an individual’s will.  In order to allow assets to pass to heirs outside of probate while also avoiding any potential conflicts with a new spouse over what can be considered marital assets, individuals may consider making testamentary gifts of life insurance proceeds to children named as beneficiaries.

Benefits of Trusts

Second marriages and the blending of families can be complex even without consideration of any financial issues. However, when addressing the division, distribution and disposition of a couple’s premarital and marital assets upon divorce or death, the process can become even more complicated.

Trusts provide couples in second marriages with the flexibility to customize their estate plans and ensure that assets go to each spouse’s children and grandchildren as intended, often with additional tax-saving benefits. For example, with a qualified terminable interest property (QTIP) trust, individuals can provide income to a surviving spouse while also preserving the underlying trust assets as an inheritance for the benefit of their children. By funding the trust to provide income for a surviving spouse, the grantor may qualify for an unlimited marital deduction for which no federal estate or gift taxes will be incurred. Similarly, an individual may consider funding an irrevocable life insurance trust (ILIT) for which life insurance proceeds will pass directly to children free of gift and estate taxes.

While second marriages and blended families can complicate the estate-planning process, proper planning in advance of walking down the aisle can help to bring about harmony and avoid potential catastrophes in the future.

About the Author: Kathleen Marteney, CRPC, is a financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. She can be reached at (800) 737-8804 or via email at info@provwealth.com.

 

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Kathleen Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.

 

Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.


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