It is not uncommon for an individual to find love again and remarry after a divorce or the death of a former spouse. However, people entering a second, third or even fourth marriage typically bring to these unions a unique set of emotional and financial baggage, including children from a prior marriage and pre-marital assets, such as an existing business, a home and/or retirement savings. Before walking down the aisle once again, couples should ask the following questions: What will happen to premarital assets upon the death of one of the spouses? How can an individual protect the inheritance of children from a first marriage while also providing for a new spouse, step-children, grandchildren or even children from the new marriage? Is an individual financially liable for the support obligations his or her new spouse has from a prior marriage? Can a remarried individual continue to receive Social Security benefits from a prior spouse?
Individuals who fail to address these issues could ultimately relinquish control of their assets and allow federal and state laws to make decisions for them. For example, in states such as Florida, a surviving spouse is automatically entitled to one-third of a deceased spouse’s entire estate, including trust assets, life insurance proceeds and jointly titled accounts, regardless of what the decedent specified in his or her will. Moreover, those assets can subsequently bypass a decedent’s children and go directly to the new husband or wife of a remarried surviving spouse. To help avoid this scenario and ensure that assets are protected and passed to intended beneficiaries, soon-to-be-betrothed individuals should meet with financial advisors to develop or revisit an existing estate plan and pay attention to the following.
Create Prenuptial and/or Postnuptial Agreements. One of the best ways to safeguard premarital assets and ensure that they are distributed equitably in the case of a future divorce or in the way an individual intends after his or her death is to work with an attorney to draw up a pre- or postnuptial agreement. Not only do these agreements allow couples to address the future division and distribution of specific assets, they also go a long way toward reducing the likelihood of legal disputes in the future.
Understand the 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 a spouse will lay claim to those assets, either in a divorce settlement or as part of the probate process. In addition, avoiding the commingling of assets helps to protect each spouse from becoming responsible for the other’s debt.
Another way to safeguard premarital assets for the benefit of one’s children is 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.
Review and Update Beneficiary Information on Financial Accounts and Insurance Policies. There is no law requiring a decedent’s assets to pass to his or children. Moreover, when a decedent’s will calls for his or her rightful heirs to receive estate assets, there is the possibility that his or her 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 assign to receive life insurance proceeds and money saved in brokerage accounts and retirement plans, such as IRAs and 401(k)s, upon their deaths. The individuals named as beneficiaries on those account and policy contracts will supersede any directives contained in an individual’s will. In fact, individuals may consider making testamentary gifts of life insurance proceeds to children named as beneficiaries and allow those 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.
Establish 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 each spouse intends, often with additional tax-saving benefits. For example, a qualified terminable interest property (QTIP) trust allows an individual to provide income to a surviving spouse while also preserving the underlying trust assets as an inheritance for the benefit of his or her 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) that would allow life insurance proceed to pass directly to his or her 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 financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. She can be reached at 800-737-8804 or via email at email@example.com.
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Kathleen Marteney, CRPC®, is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members FINRA/SIPC.
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