Legal Insights

Overlapping Issues of Family Law, Trusts and Estates

The article title, “Overlapping Issues of Family Law, Trusts and Estates” is meant to reflect the importance of considering these areas of law together.  We have experience in Trusts and Estates, as well as in Family Law.  Deborah B. Miller has been a member of the Montgomery County Bar Association Family Law Section for many years.  You can see the overlap of the family law and estates 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 his/her spouse or suspect she or he may divorce soon?

If you are interested in these types of issues, you may want to read on to get a sense of how they may 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 an Agreement to Protect Assets from your Spouse or Partner

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 an agreement protecting your inheritance from your spouse or partner.  Perhaps in the absence of such an agreement, the inheritance will be placed in a trust to be controlled by a trustee, rather than controlled directly by you.

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. 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?

Most people have heard about prenuptial agreements, but may not understand how a prenuptial agreement can help them avoid a long and costly divorce and protect an inheritance for children of a prior marriage.   A agreement can  protect your estate plan, your business, your salary, your pension and your retirement account from claims related to a divorce.  It can state how a marital home is to be handled in the event of divorce, and what property is your 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, however, cannot address the day-to-day issues as to any children born of the second marriage, such as child support and custody.

A prenuptial agreement can 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 an agreement with your spouse or partner, you must effectuate it by ensuring that your estate planning and your day-to-day finances match up with what your agreement says.  This means, check your Will and Trust, and update them if necessary.  Check your beneficiary designations, deeds and the titling of bank and investments accounts to ensure they match with the terms and intentions of the prenuptial agreement, your Will and your Trust.

What if your prenuptial agreement defines salary and income as marital property, but your spouse puts all extra income in a 401K that she has beneficiary designated to her children from a first marriage?

What if your spouse owns the home in which you both reside?  Are both of you required to contribute towards mortgage and taxes?  What if you help pay for a new roof and siding and then die?  The money you put into the house is now owed by your spouse.  Will improvements be retained by the spouse owning the property?  Did you earn any right to equity in the marital home?

You could 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.

Second Marriage Finances – Do You Want Your Money to Be Left to Your Children?

A well-written prenuptial agreement and Will plus careful attention to your beneficiary designations is a solid method to prevent your Estate from unintentionally 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 planning…so what happens when Mom dies with $200,000 brokerage account in her name and owns the $400,000 home in which she and Bob reside.  Mom does not have a Will or beneficiary designation pertaining to the brokerage account.  A $600,000 probate estate.

If Mom is a resident of Pennsylvania, we need to consider Bob’s statutory right of election.  This legal right allows Bob to ignore Mom’s Will and “elect” to take 1/3 of Mom’s probate estate.  That’s right.  Even if Mom’s Will leaves Bob only her wedding band, Bob can still demand 1/3 of Mom’s estate.  The only way to cancel the right of election is by agreement between Mom and Bob, such as a pre or postnuptial agreement.

The Will leaves Bob a wedding bank, but Bob realizes he can “do better” by electing against the Will.  So, Bob chooses to elect against Mom’s Will.  This means he will receive 1/3 of Mom’s assets that pass through her Will.  The $600,000 estate will be divided–Bob $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?

Depending on other circumstances and concerns, simple solutions might include placing assets in a Trust, or Mom gifting them to son and daughter before her demise.  Or Mom and Bob at any point before or after marriage could enter an agreement mutually waiving their rights to each other’s Estates, including a waiver of their statutory right to claim an Elective Share.

In the event Mom does not want to leave Bob without anything, Mom and Bob can explore options that express loyalty and respect for both her children and Bob.  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.

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 wanted 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 on disposition of her remains.  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?

It depends.  For example, if your intended spouse has separate assets such as an investment account, but is also paying off a school loan, a prenuptial agreement can protect salary earned during the marriage from paying down your spouse’s school loans.  What if you use salary earned during the marriage to pay down your spouse’s school loans, and then he files for divorce?    Or you can agree to combine salary earned during the marriage and allow each spouse to use a certain amount either to pay down a school loan or for separate savings.

Second Marriage with Young Children

In the case of couples who remarry with children from a prior marriage, planning might address thorny issues of how income, obligations and assets will be allocated among children and step-children for things ranging from medical expenses to college tuition to child support.

The above is not an exhaustive list of issues nor is it legal advice.  It is a sample of concerns that hopefully raise awareness of issues that may arise in our lives.

Family Law Negotiation and Litigation

And, if a marriage or partnership goes awry, you may need to confront the possibility of litigation.

We encourage a Step-by-Step Approach:

Step one.    Collect information; discuss rights, obligations & claims.

Step two.    Explore opportunity for resolution.

Step three.  Proceed to court if and to the extent necessary.

Step four.    Remain open to resolution along the way.

Please be in touch for a common sense evaluation of your situation.

The information posted on www.strongfirm.com is for general information and is not to be used as or considered legal advice.  For more information, please contact Emory A. Wyant, Jr. ewaynt@strongfirm.com, or Deborah B. Miller at dmiller@strongfirm.com.