Written by P. Mark Accettura

It is only natural to miss the intimacy and companionship of a good marriage. The growing number of mature singles, combined with our changing attitudes about marriage, contributes to a growing marriage rate among the mature. If you are considering marriage, congratulations! However, before you send out wedding invitations or purchase the Hawaiian honeymoon package, you need to consider what would happen if the marriage doesn’t work out, or you die.

The fact that nearly half of all marriages in this country end in divorce is well publicized. Interestingly, the divorce rate in second marriages is substantially higher at nearly 60%. Essentially, the stresses that contribute to divorce among the mature are no different than those of the general population.

Added concerns for mature couples include determining who is responsible for the cost of an extended illness or long-term nursing home care. Further, in the event of your death, you must be careful to balance the needs of your spouse with those of your children or other loved ones.

From a moral or philosophical standpoint, your children are not “owed” anything at your death. However, if you love your children you need to keep their interests in mind as you enter your new marriage. Stories of children who have lost a parent and are left to wonder whether their stepparent will leave them anything are legion. Such children are left with a legacy of pain, hurt, and mistrust.

At the same time, the needs of a surviving spouse should not be ignored. He or she should be treated with respect and dignity. With proper planning, you can accommodate the needs and allay the fears of all parties. By clearly establishing the entitlements of your spouse and children, you will create an environment where all parties can get along.

Certainly, the stakes are higher in a second marriage. Your net worth is likely to be significantly higher than it was when you first married. You also have far fewer years to rebound from a financial setback such as divorce. Fortunately, you can protect yourself and your family with a little advance planning. What is required is open and frank discussion about financial matters prior to marriage.

Although such discussions may be somewhat awkward, it is important to identify sensitive issues before they ripen into full-blown conflict after marriage. It has been said that money is the last thing that people talk about before marriage and the first thing they fight about after the wedding. In fact, approximately 70% of all divorced couples cite disagreement over financial matters as the reason for the demise of their marriage.

Rather than leaving your financial future to chance, you should commit your financial understanding to writing in a “prenuptial agreement,” and your revocable trust should be consistent with the terms set out in your prenuptial agreement. The combination of these documents will ensure that your lifetime and post mortem wishes are realized.

All fifty states now recognize the validity of prenuptial agreements that meet the following general conditions:

1. the agreement must be in writing;
2. each party must make full disclosure of his and her personal financial information, including assets and income;
3. each party must be represented by separate independent legal counsel;
4. the agreement must be voluntarily entered into without fraud, mistake or duress (to prevent the appearance of duress, the prenuptial agreement should be executed before wedding invitations are sent out); and
5. the agreement must be fair when entered into.

Prenuptial agreements override state law with respect to the division of property both in divorce and at death. This is important considering that State laws grant significant rights to spouses. In divorce and at death, your spouse could be entitled to up to one-half of your estate. Worse, depending on how your assets are titled and beneficiaries designated, your spouse could be entitled to your entire estate at death.

In your prenuptial agreement, you can agree as to who is responsible for ordinary day-to-day living expenses as well as extraordinary expenses such as long-term care. Through full disclosure, you can clearly identify the owner of all assets and the responsible party on all indebtedness. At death, you can agree to divide your estate as you wish.

Example: You might agree to leave all of your assets to your respective children at death, and little, if any, to your spouse. This might be the case where you each brought substantial assets to the marriage. Absent a prenuptial agreement, state law would grant your spouse the right to take his or her “marital share” of your estate (see Chapter Seven), at the expense of your children. Alternatively, you might agree to leave some of your assets, like your principal residence, outright to your spouse, with the balance to be held in trust for your surviving spouse’s lifetime use.

Under this scenario, the remaining trust assets would pass to your children at your spouse’s subsequent death.

You might provide your surviving spouse with access to some or all of your assets after death to allow him or her to maintain the lifestyle you enjoyed together. If that is the case, the shared assets should be held in trust and an appropriate successor trustee appointed to oversee investment and disbursement of trust assets.

A trust allows for the use of your assets after death without granting the survivor an ownership interest in trust assets. As noted in Chapter Seven, the trustee you appoint has a fiduciary obligation to strictly apply the terms of the trust. Typically, the trustee has wide discretion in making distributions of income and principal.

It may be appropriate for the surviving spouse to act as successor trustee. That would be the case in long-term second marriages, or second marriages where the spouse has a parent-like relationship with children not of the marriage.

On the other hand, a new spouse may not be a suitable successor trustee considering the broad discretion granted under the terms of the trust. It could prove quite costly to reign in a spouse/trustee who is mismanaging trust assets. To avoid trust mismanagement and potential conflict between family members and the spouse, a neutral third party, like a bank or brokerage house trust department, should be considered as trustee.

If you do not favor corporate trustees, you might make your spouse a co-trustee with another family member. Since you will both be bound by the same prenuptial agreement and will likely each have your own revocable trust, you will have to agree on a solution suitable to both of you, since “what’s good for the goose, is good for the gander.”

The trust you create should be qualified as a Qualified Terminal Interest Property (“QTIP”) trust. QTIP trusts, discussed in detail in Chapter Seven, were created during the Reagan administration specifically to address second marriage situations.

A QTIP trust allows the surviving spouse to enjoy the income and principal of the marital trust (a sub-trust for larger estates discussed in Chapter Seven in detail) during his or her lifetime, with no power to appoint the balance remaining in the marital trust at his or her later death. The result is that the you may provide for your surviving spouse, and at the same time be assured that the balance of the marital trust assets remaining at the surviving spouse’s death will pass to your children. As an added bonus, QTIP trusts also save estate tax.

Special planning is required for retirement plan (such as company sponsored pension, profit sharing and 401(k) plans, and IRAs) assets. As noted in Chapter Six, retirement plan accumulations are subject to both income and estate tax.

To achieve the best income and estate tax result, it is usually advisable to name your surviving spouse as the primary beneficiary of retirement benefits. Although naming your surviving spouse produces the best income tax result, naming your spouse as primary beneficiary in a second marriage situation may defeat the interests of your children.

As primary beneficiary, your spouse could simply roll the retirement plan assets over into his or her own IRA and name a new beneficiary of his or her choice.

Choosing a retirement plan beneficiary necessarily involves a tradeoff between the best possible income tax result, and assurance that your children will inherit the retirement plan proceeds.

In light of the complex legal and tax issues involved, you should consult with an estate planning attorney before naming your beneficiary.

Special language must be included in the prenuptial agreement to waive an interest in a company retirement plan. Federal law grants spouses special rights that can only be waived after marriage.

Since, by definition, prenuptial agreements are executed prior to marriage, a waiver of company retirement benefits in the prenuptial agreement is not effective. To make the waiver effective, the spouses must agree in the prenuptial agreement to affirmatively waive such rights after marriage.

Even if you marry without a prenuptial agreement, you may be able to accomplish your objectives with a “postnuptial” agreement. In most states, the same rules that apply to prenuptial agreements also apply to postnuptial agreements.