The topic heading, “Family Law and Estates” is meant to reflect the importance of considering both of these areas of law together. We have experience in Divorce, Support and Custody, as well as Estates and Trusts. You can see the overlap of these legal issues in divorce cases: what happens if someone inherits money and then files for a divorce? You can see the overlap in spousal and child support cases: can you use a trust to protect assets from being considered available for child support? You can see the overlap in estate planning: what if you want to leave money to your adult child but do not trust her Husband and suspect they may divorce soon?
If you are interested in these types of issues, you may want to read on to get a sense of the how they play out in the limited context of a prenuptial agreement.
Protecting Your Assets From Your Spouse
From a personal perspective, prenuptial agreements are not very appealing, but from a common sense and legal point of view, they can be essential. Getting married is the biggest financial decision in most people’s lives, but many do not consider the financial entanglements that marriage creates. Just ask anyone who has lost a house or retirement plan in a divorce.
Despite reading articles about the importance of using a prenuptial agreement as a tool for planning, plenty of people feel uncomfortable with prenuptial agreements. Luckily, there are secondary measures, not all as good as a prenuptial agreement, but perhaps more in line with your personal views and the realities of your relationship. For example, there are ways to structure corporate documents to insulate your business from divorce proceedings, whether your own divorce or that of a business partner. Buy-sell agreements among shareholders and corporate insurance policies in the event of a forced buyout can be effective tools to protect the business. Likewise, postnuptial agreements are an option, even if the prenuptial agreement seemed awkward at the time of marriage. A postnuptial agreement can be all encompassing, or it can be limited to a spouse relinquishing claims on an interest in a business, a retirement account, or the increase in value on an inheritance.
Awkward: Asking For a Prenuptial Agreement
How to avoid awkwardness in asking your loved one for a prenuptial agreement? Blame it on someone else.
Blame your Mom. Maybe Mom’s will is written such that it requires you to provide her Executor with a valid and in-force pre/post nuptial agreement in order to inherit money from her outright, otherwise, it is left in a trust to be controlled by a trustee.
Blame your business partners. A prenuptial agreement can be a mandatory prerequisite for ownership in a business, essentially forcing all owners to enter either prenuptial or postnuptial agreements to protect the business from divorce. This can be effective, as the pressure to enter such an agreement is external, and the blame for needing a postnuptial agreement can be shifted to the attorney for the business.
Second Marriages, Blended Families – What Can A Prenuptial Agreement Do for Me?
Everyone (whether married or not) should make sure their estate plans are up to date and there are a variety of situations in which prenuptial agreements should part of those estate plans. The most important of these situations is in a second marriage, or in a blended family where at least one spouse has children before the marriage.
Let’s start with what happens in a second marriage from a social perspective. Some statistics tell us that 2 out of 3 second marriages fail. Yet hope springs eternal, as does love, and plenty of divorced folks will remarry. Those who remarry are more experienced than the first time around, having learned either personally or through a friend the expense and stress associated with a difficult divorce. Most people have heard about prenuptial agreements, but may not understand how a prenuptial agreement can help them avoid a long and costly divorce, while also protecting their Estate for their children. Essentially, a prenuptial agreement should streamline a divorce in the event the marriage does not work out, having resolved the marital financial issues before the marriage. The prenuptial agreement, however, will not address the issues as to any children of the marriage, such as child support and custody. With that exception, what it can do for you is to protect your business, your salary, your pension and your retirement account from claims related to a divorce. It can state how the marital home is to be handled and what property is separate property. The significance of protecting your business from equitable distribution during a divorce, and your salary from years of alimony cannot be understated.
A prenuptial agreement can also set forth the financial parameters of the marriage from the day of the wedding up through and including how your Estate is handled after you die. It can state whether your spouse has a right to an interest in your retirement benefits and your business. It can state whether or not your spouse waives the right to claim spousal support or alimony. Some couples do not agree on a straightforward waiver of rights, but instead agree on a sliding scale—the longer the marriage lasts, the greater a dependent spouse’s entitlement to a portion of specified marital property. Other couples agree to limit the scope of their prenuptial agreement to certain assets or rights.
Make Them Match Up – Your Prenuptial Agreement and Your Estate Plan
Once you finalize and sign your prenuptial agreement, you must effectuate it by ensuring that your estate planning matches up with what your prenuptial agreement says. This means, check your Will/Trust, update it if necessary. Check that your beneficiary designations, deeds and the titling of bank/investments accounts reflect the terms and intentions of the prenuptial agreement and your estate planning. You will have a serious clash if your prenuptial agreement says plaid, your Will say stripes, and your beneficiary designations say polka-dotted.
Yes, this seems like a lot of work. But without it, your assets could be left to someone who, not so long ago made you smile while holding hands at a movie, but today kills your appetite when he slurps milk out of his cereal bowl.
For Piecemeal Planners -What’s Your Main Concern – Divorce or Death?
Best practices tell us that clients should execute a seamless and complete personal plan including all recommended agreements and documents and review their plan regularly and in the event of major life events and changes in the law. But, reality sometimes comes into play, even in the practice of law. Some clients do not have the funds, the legal freedom (perhaps due to an ongoing divorce), or the time to ensure a robust, complete and up-to-date personal plan. Thus, a client may pick and choose among which planning aspects he will accomplish this year. So which to pick?
From the perspective of protecting personal assets from a spouse, if you do not wish to or cannot take care of all angles of attack (i.e., (1) will/trust, (2) beneficiary designations and asset titling, (3) pre/postnuptial agreement), consider what you can accomplish with your existing time, budget and emotional constraints.
The order of importance for critical planning tools in marital and estate planning depends on whether your concerns are more focused on death or divorce. Young folks without children may be more likely focused on how to deal with assets that will accumulate during a marriage, just in case they later divorce. So their most important concern might be a prenuptial agreement. Older clients may be more interested in updating or preparing a Will/Trust and double checking their beneficiary designations and how assets are titled.
Second Marriage Finances – Most of Your Money Is For Your Children
A prenuptial agreement is the best tool to prevent your Estate from ending up in the hands of someone else’s children, while also setting the financial parameters of your marital relationship.
Let’s consider Mom, who at 65 looks great. Last year, she married Bob. Mom has a son and a daughter, but Mom did not get around to having a pre-nuptial agreement…so what happens when Mom dies before Bob and she does not have a will? If Mom is a resident of Pennsylvania, we need to consider Bob’s statutory right of Election. This law allows, but does not require, Bob to “Elect” to take 1/3 of Mom’s Estate. The right of election exists whether or not Mom has a Will, and regardless of what Mom leaves Bob in her Will. The only way to cancel this right is by agreement between Mom and Bob, such as a pre/post-nuptial agreement.
If Bob Elects against Mom’s will, he gets 1/3 of Mom’s assets that pass through her Will. Let’s say Mom’s Estate assets are a $200,000 investment account, and her house worth $400,000—a total of $600,000—essentially the money Dad made through hard work and careful saving. This means that Bob gets $200,000, Mom’s son inherits $200,000, and Mom’s daughter inherits $200,000. Did Mom want Bob to get $200,000 from her Estate? Didn’t Mom always say she would leave everything to her children 50/50?
A simple solution would have been a prenuptial agreement stating that Mom and Bob mutually waive their rights to each other’s Estates, including a waiver of their statutory right to claim an Elective Share. Or, if there was no prenuptial agreement, a post-nuptial agreement is another option. The agreement to waive the elective share need not occur before the marriage.
In the event Mom does not want to leave Bob without anything, Mom and Bob can explore options that express loyalty and respect for her late husband and their children, as well as for Bob’s well-being after she dies. For example, Mom may wish to grant Bob a life estate in her home, so long as he pays upkeep and taxes. Or, she may want to fund a testamentary trust from which Bob can obtain income and support after her death. Depending on Mom’s wishes and the situation, this can be accomplished in a prenuptial agreement, a Will or by Deed.
Second Marriage – Mom’s Remains:
Who Decides Burial/Cremation, New Husband or Children?
After Dad died, Mom married Bob. Mom’s children know that Mom and Dad want to be buried in the family plot in Pennsylvania. However, if Mom does not make her intentions as to her remains firmly known, then Pennsylvania law allows Bob as the surviving spouse the unfettered right to decide where she will be buried. Bob might want her to be buried in Florida near his winter condo. To resolve this issue, Mom can state her intentions as to her remains in her Will.
Marriage: Dealing with Creditors and Bills
Can you avoid your spouse’s Debt, and, if yes, how?
A prenuptial agreement won’t be of much help here. For example, a prenuptial agreement cannot protect Mom’s Estate (after she dies) from bills owed to third parties who provided Mom with “necessaries” such as a hospital care. Nor can a prenuptial agreement protect Mom’s Estate from the Commonwealth of Pennsylvania seeking reimbursement for Medicaid benefits provided to her late Husband.
Something as simple as how the Deed to your home is titled could be important in dealing with creditors. Let’s say, for example, your new Husband is not financially responsible. In that case, maybe his name should not be on the Deed to the marital home. First, you will not likely qualify for the lowest interest rates on a mortgage if his credit score is part of the mortgage application. Second, if you and your new Husband’s name are on the Deed as husband and wife by the entireties, and you die before him, the home you paid for out of your earnings and assets may be taken by his creditors. Sometimes, however, having the Deed titled in your name alone may not protect you entirely–in Pennsylvania, spouses can be held responsible for each other’s basic support.
In additional to being careful about how you title your assets, depending on your circumstances, there are estate planning tools that can be used to address various concerns about protection from his creditors, including gifting or placing monies in an irrevocable inter vivos trust.
Second Marriage With Young Children
Second marriages involving younger couples are fraught with their own types of financial concerns that benefit from a prenuptial agreement. In the case of younger couples who remarry with children from a prior marriage, the prenuptial agreement might consider addressing the thorny issues of how income and assets will be allocated to children and step-children for things ranging from medical expenses, to college tuition, to legal fees for custody and child support proceedings.
The articles posted by Deborah B. Miller, Esquire of Strong, Stevens Miller & Wyant, P.C. on www.strongfirm.com are for general information and are not to be used as or considered legal advice. For more information, please contact Debbie directly at firstname.lastname@example.org.