Blending families can be extremely joyous, but also stressful – emotionally and financially. Pre-planning can take much of the financial stress away. Before remarrying, consider the following items:
A prenuptial agreement is useful to address what happens to your assets and debts in the event of a divorce or death. The prenuptial agreement may address divorce and/or death. From an estate planning perspective, the prenuptial agreement may allow a person to waive the elective share (described below), dictate which premarital assets are to stay in the family, and so forth. Contrary to popular belief, prenuptial agreements can actually strengthen marriages, especially when blending families, as it forces the couple to have difficult discussions up front and takes the “what if’s” off the table so everyone is more relaxed and knows what to expect.
Even if you don’t elect to have a prenuptial agreement, identify what’s yours, mine, and ours. Premarital property should often be kept separate. This also helps the engaged couple ensure they know each other’s financial situation going into the marriage, so there are no surprises after saying “I do.” Working with a financial advisor can also be quite helpful in identifying assets and guiding what could otherwise be an uncomfortable conversation. A financial advisor will ask questions to determine your long-term retirement goals, and hearing your fiancé’s answers, as well what his/her preference is for market risk tolerance, spending expectations, etc., are all good things to openly discuss. A financial advisor can help identify any gaps in your plan.
The elective share should be discussed. Regardless of titling, in Iowa, a spouse can elect a share of your estate (generally 1/3), upon the death of the other spouse. A prenuptial agreement can circumvent this by having the spouse waive his/her right to the elective share of the estate.
Titling assets with beneficiary designations can transition assets to the appropriate person. Before and after blending families, be sure to review your beneficiary designations on all assets such as life insurance, financial accounts, CD’s, retirement accounts, stocks and bonds, and so forth. These assets will pass automatically to the named beneficiary, rather than what you have set forth in your will or trust.
Titling assets is extremely important because title gives ownership. Consider joint versus individual bank accounts. Also, real estate, upon marriage, immediately gives the spouse a right to it, due to the elective share (e.g. even if you don’t add a spouse to the house deed, you cannot sell the house without your spouse’s signature and consent).
When selecting beneficiaries on IRA’s, if you do not elect your spouse, the spouse must sign off on the beneficiary form, acknowledging he/she is not a beneficiary. If you have IRA’s, consider this as part of your pre-marital estate planning.
If you receive an inheritance or gift, consider keeping that asset separate, and do not commingle it with your spouse’s assets. Gifts and inheritance are generally non-marital property so long as kept separate. Once you commingle, it’s “fair game” in the event of a divorce. Use payable on death designations for these assets. Even if you want the gift/inheritance to pass to your spouse, you can keep it separate during your life and it will be paid to your spouse upon your death as long as you name your spouse as the beneficiary.
When creating your Wills or Trust, you might consider a QTIP Trust. This gives your spouse the benefit of the assets during his/her life, but at your spouse’s death the assets pass according to your wishes. This protects family assets and your children’s inheritance in case of remarriage following the other spouse’s death.
Check your social security benefits. While you might be entitled to Social Security benefits based on your ex-spouse’s work record, this could change upon remarriage.
Discuss remarriage with your children. This is often not easy, but it’s important to have the conversation with your children or other loved ones who may have an emotional stake in the blended family.
The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel. You should not act or rely on any information herein.