Tying the knot, whether officially or informally, the second (or third, or….) time around might well leave some loose ends that still need re-tieing, potentially disastrous minefields that we’re unaware of. We touched on some of the family and relationships dynamics and family business issues last time.
Today, let’s highlight some commonly neglected financial and property issues that affect our newfound bliss, and sooner or later can impose ugly reality surprises on the union and on the families.
Next time, we’ll explore how it all impacts on our estate planning and administration, and some fixes.
‘Druthers and documents
So, now you’re proudly going to tell me: “Yes, of course we’ve shared all of our vibes with each other, let it all hang out, brought up and worked out all of the issues. Full disclosure! And we know that it’s vital to write all the conclusions and decisions down.
So, we’ve papered all the revelations and agreed solutions into our pre-nuptial, and even post-nuptial, agreements, a whole new set of estate plan instruments and their explanatory ethical wills and memoranda of instruction, all the personal beneficiary and pay-on-death designations that aren’t frozen by commitments to former partners and others, and the ownership and titling records for all the assets. It’s now all documented on paper, legally validated and executed where appropriate.
We recognize that the key re-partnering instruments to prevent those ugly surprises are our nuptial agreements, covering all of the potential issues, on which all of our plans and other instruments are based, and committing us personally to honor our agreements, no matter what. There are so many issues, especially if one or the other of us is bringing significant assets into the marriage or expects to inherit them or a business someday, or has children — even if all the relationships including the ex’s seem to be amicable.
We also expect to create more nuptial agreements to handle emerging issues as we go.
We’ve thoroughly examined, and are synched about such as:
▪ Each other’s and our joint goals and expectations for the future.
▪ Keeping assets ‘on track’: Who gets what upon divorce, incapacity or death, and who (often advisedly a third party) is to be in fiduciary charge of handling it?
▪ Whose income pays for what expenses, both now and later when living gets expensive, and still bequeathe equitably to all the loved ones.
▪ Whether to file income taxes as jointly, married filing separately, or just to live together and file as singles.
▪ Which assets are to be co-mingled and/or marital, and which not.
▪ Which marital rights are to be relinquished to the other’s family and which are to be protected from their assaults.
▪ Which children (regardless of age) are to receive what benefits and from which sources, and how to protect their interests.
▪ The pre-existing legal, marital, child-support, contractual, fiduciary and financial obligations ‘baggage’ that accompanies both of us into the union and who and whose assets are to be responsible for it.
▪ Custody issues, present and potential future, and their solutions.
▪ The benefits and entitlements that will be knowingly sacrificed because of the new union, and any arrangements to compensate for that.
Yep, we’ve done all of that!
I’ve harangued you about beneficiary and pay-on-death designations. Now it’s the loving, sweet gesture of joint ownership’s turn, especially when the right of survivorship is added.
▪ You can’t keep spousal jointly-owned assets in “blood line.” When you die the other joint owner gets them by law.
▪ On the other hand, the entire asset is vulnerable to the other joint owner’s creditors’ claims, even if New Beloved blithely contributed them to the union in expression of commitment, not to cover the other’s debts — or ex’s claims!
▪ Titling non-marital assets into spousal joint ownership makes them marital, subject to statutory marital rights and beyond the reach of otherwise intended successor owners, no matter what other documents say.
Non-marital assets contributed to the new marriage, or newly acquired but intended to be kept non-marital, should not be co-mingled with marital ones, especially when one partner’s contribution is substantially larger than the other, thus disturbing its line of future inheritance. Instead, they should be titled separately and managed by someone else, their status reinforced by nuptial agreements. Their earnings shouldn’t even be co-mingled, and even the act of actively managing them during the re-marriage risks unwanted “marital property” exposure. All of this is to prevent marital laws and ex-spouse (including the new one if the union fails) claims from overriding one’s intentions. It also makes the business of managing them cleaner and simpler, and simplifies estate planning and administration.
Co-mingled or not, some other forms of ownership are:
▪ Tenancy in common: You both own shares of the asset, but the law treats each share as separate property.
▪ Life estate, or right to occupy: Someone else might own or inherit, but the person has full rights to occupy, possess, and enjoy the asset until a specified event happens.
▪ Partnership shares: Like a business partnership, but still vulnerable to one shareholder’s whims and liabilities.
▪ Fee simple: “Plain vanilla” outright ownership by one person.
▪ Trusts and corporations: A galaxy of variations, but legally an artificial person separate from (even if owned by) the individual. Some are insulated from claims against the person.
They’re handy in addressing the special laws governing disposition of the family home. Personal trusts, especially revocable intervivos (“living”) ones are popular and resilient solutions to many issues. Irrevocable trusts with third-party trustees often are the way to insulate assets from spousal rights claims and from spousal or ex-spousal control while effectively reserving the assets and their earnings for the children.
When your assets are located (“sited”) in community property states, even if you aren’t, you’ve got an additional set of rules to work with and around, to avoid past, present, and future marital rights headaches.
Come to think of it…
We noted last time that information abounds on the Internet. There you’ll find the experts – They expound all of this, and a great deal more. Surely, and they agree, as we equip ourselves with knowledge from there and various other sources, we learn to appreciate the important vital contributing role of our marital-affairs, elder-affairs, and estate-plan-oriented attorneys.
Contact Gary Newman at email@example.com. Your ideas and comments are always welcome.