Love may be lovelier -- but it is also a whole lot more complicated the second time around.
Record numbers of us will, one day, be in a second marriage. The pool of eligible second marriage candidates is vast as a result of both the high divorce rate and increased longevity.
But before saying "I do" (again), there are a few legal issues that merit consideration.
How should the new spouse be provided for in the estate plan? The competing interests here are typically one's adult children and the new spouse. There is an expectation that assets accumulated in the first marriage will, in some measure, inure to the benefit of the children of that marriage. On the other hand, the new spouse may not have sufficient assets to provide for retirement needs in the event that he or she is widowed.
Historically, the compromise solution was to provide that the estate be held 'in trust' for the lifetime benefit of the surviving spouse. During widowhood, the surviving spouse received income from trust assets. Some trusts also provided for distributions of principal, in the discretion of the trustee. Then, upon the survivor's subsequent death, the trust terminated and all remaining assets reverted to the adult children of the first to die.
Right of Election
The laws of every state seek to prevent a spouse from being totally disinherited. Absent an explicit waiver, a surviving spouse is entitled to the greater of $50,000 or one-third (1/3) of the entire estate. The only asset not counted for purposes of calculating the elective share is life insurance. Every other asset, whether passing through the will or directly to a named beneficiary, will be counted. For example, if an estate worth $900,000 consists of a 401K of $400,000 and CDs of $500,000 and adult children are the named beneficiaries, the surviving spouse can lay claim to $300,000 of the assets.
As of 1992, the so-called elective share portion must pass outright to the spouse as opposed to being held in a trust. Anyone considering using such a trust to provide for the surviving spouse must now get their written consent ahead of time in the form of a valid pre or post nuptial agreement. This consent is also required if the estate plan contemplates totally disinheriting a spouse.
A Roof Over One's Head
In a second marriage situation, the primary residence is commonly titled in one party's name. Thought must be given to the survivor's living arrangements upon death of the owner. The most common (but imperfect) remedy is to grant the non-owner survivor a life estate in the home. Then upon the subsequent death of the survivor, the home will revert to the adult children or other beneficiaries of the first to die. This approach makes intuitive sense but can sometimes have unintended consequences.
A life estate for the survivor quite literally means that he or she is the de facto owner until death. The family would, therefore, be unable to sell the home or otherwise use it regardless of whether the survivor gets remarried, moves away or winds up in a nursing home for years. To add insult to injury, the nursing home would be entitled to require that the property be rented out and the income used toward the survivor's care.
A better solution would be to grant the surviving spouse a 'Right of Occupancy' in the house. With this, we can specify events in addition to death which will have the legal effect of terminating the survivor's right to reside in the property. For example, the right of occupancy might terminate upon the earlier of the survivor's death, remarriage, voluntary vacatur, or absence from the property for a continuous period in excess of four months. This specificity will prevent the adult children from being stuck with an asset that they can't sell or otherwise use. It is also critically important that the Will or Trust creating the right of occupancy clearly spell out who is responsible for what expenses.
Prenuptial Agreements
It is estimated that the divorce rate for second marriages exceeds 60 percent. Hammering out the legal and financial issues ahead of time can prevent much costly legal wrangling later.
Beyond establishing who gets what in the event of death or divorce, prenuptial agreements are increasingly being used to address financial issues within the marriage. These so-called 'lifestyle clauses' can be used to establish spending priorities and parameters. For example, the parties may wish to place limits on financial assistance given to their respective family members. Record numbers of baby boomers are caught in the squeeze between helping their adult kids who are unemployed or under employed and helping aging parents cover the cost of long term care. While generosity is admirable, if one party goes into debt to pay for a daughter's lavish wedding, this will certainly have an impact on both spouses. It is better to address this issue on the front end . The same goes for a party who signs a personal guarantee at his mother's nursing home. This action has the potential to compromise both parties' retirement security.
Postnuptial Agreements
For generations, married couples having problems had only two choices: Grin and bear it, or leave. This is because legal contracts between married people were not recognized under common law. Today, married couples in 46 states now have the right to contract with each other in order to resolve or prevent a whole host of problems. Increased legal acceptance has resulted in matrimonial attorneys everywhere drafting more of these agreements than ever before.
Postnuptial agreements can be used to settle a wide variety of marital disputes. Financial disagreements, housekeeping issues and vacation selections are common components of these contracts. Some couples even ask to include a 'sex schedule' within the document. Though it is doubtful that this schedule would be legally enforceable in a court of law, (thank goodness) it may serve to clarify expectations between the parties.
Postnuptial agreements are also useful in times of marital crisis. When the cheating spouse is groveling for a second chance, the aggrieved party can now ask for more than just his or her word that it won't happen again. Monetary penalties for future indiscretions are commonly incorporated into the document.
The 'post-nup' is also gaining ground amongst happily married couples in first marriages. In the context of estate planning, everyone should give some thought to the (depressing prospect) of the surviving spouse remarrying. Where should the couple's assets go upon the subsequent demise of the remarried spouse? The inevitable response is "to our children". Without an agreement in place, however, the new spouse will have elective share rights (discussed above) to the estate. Moreover, even if the widow or widower doesn't remarry, he or she may develop a cognitive impairment and be prey to con-artists as well as an assortment of financial liabilities. The post-nup can require the surviving spouse to adhere to the estate plan originally agreed upon.