First marriages are occurring later in life; second (or subsequent) marriages are more common; and both partners are likely to be earning their own wealth.
Not surprisingly, there seems to be an increasing recognition that good planning makes good sense.
Sure, a prenuptial agreement is as unromantic as it sounds. It determines the disposition of property in a marriage, as both partners disclose all the assets that they are bringing to the marriage and agree on how the property will be divided in the event of divorce or death. It doesn’t rule out happily-ever-after, however – it just makes things easier, especially when one spouse brings considerably more assets to a marriage or other factors need to be considered, such as existing trusts, future inheritances and, of course, blended families.
For young couples with relatively simple financial lives, the consideration of a prenuptial agreement may not be necessary. If assets – whether received or earned – have been properly segregated and titled, that may be enough to protect the status of property. That’s why many families establish trusts for their children; to prevent their assets from becoming subject to a prenuptial agreement, as well as to provide for general creditor protection. Individuals can also establish a self-settled trust to maintain clear records for separate property assets and income. Early financial literacy can help young people make wise decisions in planning for their own financial futures. (Click here to view upcoming educational events at Evercore Wealth Management.)
For second (or subsequent) marriages and for blended families, the issues become more complex. New marital agreements and estate planning documents should be coordinated and reconciled with prior agreements, including any previous divorce settlements and existing family trusts, to ensure that the property will flow in the manner that the family intends, and to minimize the risk of future litigation.
Many questions have to be asked and answered. Should a new spouse be appointed as agent, power of attorney or fiduciary in estate planning documents? Should he or she be appointed as a future trustee, executor or conservator? Would this give the new spouse the authority to make decisions that impact pre-existing family trusts? And does the proposed division of wealth make sense in the first place? In the case of second and subsequent marriages, the spouse with the greater assets often chooses in the planning stage to leave the marital home to his or her new spouse, usually including the tangible personal property. This seemingly thoughtful and appropriate plan can backfire in a big way if, for example, subsequent decorations (which would be considered tangible personal property) include the couple’s $5 million art collection. Careful planning with periodic reviews is essential.
These are sensitive subjects for couples – and their families – to address at a time when celebrations seem more in order. But the emotional aspects of wealth can strengthen or divide an expanding family. Expectations of preserving or spending wealth, different definitions of fairness, and perceptions of competition or favoritism are common challenges in even the happiest of families.
Consulting with a lawyer who specializes in marital agreements is a good starting point for all couples (and each partner), regardless of their ages or assets, to secure a full understanding of the relevant property laws, including separate property, joint property, and the features of income earned and property accumulated while married. California and a few other states recognize community property as well as quasi-community property.
Honest discussions, expert advice, and ongoing education can set appropriate expectations and minimize conflict during times of family transition – and enable everyone involved to enjoy the big day.
Kirsten Weisser is a Managing Director, Wealth & Fiduciary Advisor at Evercore Wealth Management. She can be contacted at firstname.lastname@example.org.