RSM Resources

Whether a marriage is the first or the third, issues abound around budgeting, savings, investments, insurance, integrating employee and retirement benefits and property ownership. Many times, the most overlooked aspect is estate planning, especially when there are children from previous marriages.

Adult children present special concerns. In particular, you need to carefully plan your estate to avoid conflicts that can erupt if your adult children resent your current spouse or fear that he or she will inherit or mismanage your estate.

Upon remarriage, you should review your life insurance policies beneficiary designations. An ex-spouse may still be the beneficiary or may be entitled to a survivor’s benefit from your pension or retirement plan. Of course, you may not be able to change beneficiary designations subject to a court-ordered award or decree.

When there are minor children, you should consider what will happen to them in the event you or your spouse dies. Do you want to provide for the children in the event that you die, even though the children may be your spouses from a previous marriage? If your spouse dies, will the children live with you or with their other parent or family member? Because child custody issues can be complicated when the person who wants custody isn’t biologically related to the child, you’ll need an attorney’s advice on this issue.

Blood may be thicker than water
Don’t assume your spouse’s children will love you as much as your spouse does. They may see you as a competitor or a villain, taking their place in your spouse’s heart and in his or her will. Whether this is actually true is irrelevant. After your spouse is gone, they can make your life complicated unless you plan ahead. For example, plan for your estates to be distributed according to your wishes and both spouse and children must clearly understand what those wishes are. You and your spouse may want to set up one or more trusts for your children and one another or you may want to execute a prenuptial or postnuptial agreement along with your will. You could agree to leave a specific amount to the surviving spouse and the rest to any surviving children or you may want to use life insurance to provide for your children or your spouse.

Ensure rights with a marital agreement
Prenuptial and postnuptial agreements are contracts used by couples to define rights, duties and obligations during marriage and to determine what happens in the event the couple separates or divorces or one partner dies. Remarrying couples should consider using marital agreements if they have substantial assets or children to protect and want to avoid some financial trauma that could occur if the marriage ends. The marital agreement spells out what assets and liabilities each partner is bringing into the marriage and determine how assets brought in — and acquired during — the marriage will be divided. The agreement will help make sure your children retain the right to those assets in the event that you and your spouse divorce.

Clearly, a prenuptial agreement is written prior to marriage (it’s also known as a premarital agreement, antemarital agreement or prenup), and if it’s written during marriage, it’s called a postmarital agreement. Whichever contract you choose, both should include you and your spouse’s decisions in four basic areas:

• Assets and liabilities — Who owns what property and what will become marital property? Will gifts and inheritances received be shared or kept separate?
• Divorce — What will happen to assets brought into the marriage, assets purchased through joint funds, etc.?
• Estate — What will go to children from a previous marriage and children you may have in the future? Who gets what after either spouse dies?
• The contributions of each partner — Are there any special circumstances that need to be considered?
  

What was fair the day you were married could be completely unfair a few years later. For instance, the birth of children that requires one spouse to leave work or a move that’s advantageous to one spouse and detrimental to the other. Once the balance shifts, a judge is likely to void the contract, and his or her determination of fairness — not yours — will prevail.

Prenuptial agreements are far less likely to damage relationships between couples and their families when they’re negotiated for people who have been previously married and who have children from previous marriages. In these cases, each party has loyalties to third parties — usually their children — and each has a legitimate interest in protecting the rights of their children to inherit his or her estate.

Like any legal contract, a prenuptial agreement can be amended or modified to meet your or your spouse’s needs as conditions change during marriage. As a precaution, review and update the agreement every few years or following significant events such as a change in economic circumstances or the birth of children.

Robert Eichten, CFP®, PFS, is a director with RSM McGladrey Wealth Management. For more information, contact him at robert.eichten@rsmi.com.