A marriage is a joyous occasion for all, especially a remarriage. Bringing a family together with its newest members is a heartwarming experience, and is a welcome event after divorce or widowhood. This newer, bigger family may be a joyous group, but with time, family relations change. Especially after the bride or groom passes on, unanswered questions have a way of bubbling up to the surface. For many, the largest of these questions is financial in nature: With this new woman or man in my parent’s life, what will happen with the family finances? Tying two family trees together, each with their own needs and intentions, can create a messy situation for those who enter this arrangement without proper planning.
Welcoming a New Family Member
A new spouse should be brought into the family with open arms and hearts, but some tricky financial laws regarding inheritance make this difficult for some individuals over the long-term. The nicest man or woman could turn out to have an interest in their new family’s finances, no matter how well-intentioned or good their own finances look. No one can tell how a new spouse will act in one, five, or ten years, let alone when their partner passes on. This uncertainty gives way to fear within both clans, who wonder how the assets meant for them are protected given this new twist.
The fear is a legitimate one. In almost all states (except for Georgia), any spouse has a legitimate claim on their deceased partner’s assets. Regardless that they can contest a will anyway, state law in most places gives them the right to disregard any language that intentionally cuts them out. While this general truth applies almost universally, the definition of which property the new spouse has a right to differs by state.
It Pays, Literally, to Prepare for the Inevitable
If the patriarch of a family gets remarried and dies before his new spouse, will she respect the wishes that he has for his finances? What is the extent of her control over her deceased husband’s money? If they were together for many years before he died, to what is she and her nuclear family entitled?
The answer to each of these questions depends on the state that the happy couple live in. Laws that entitle spouses to certain assets change when one crosses the border. Knowing the laws ahead of time makes it easier to plan and balance finances accordingly. Some states give a spouse a flat percentage of the family’s assets, while others give specific assets like the house. Retirement accounts are generally always accessible by the spouse, but IRAs and other investment vehicles can be hidden away. Additionally, some states have “community property” laws, which makes it possible for a new spouse to have access to property that was purchased before the marriage commenced.
It’s smart to study state law in the early days of your marriage, or hire a lawyer to do so before getting married. This will have an impact on the changes that one makes to their estate-planning documents, and make no mistake, changes need to be made.
Adjusting for a New Partnership
It’s critical to update your estate when you get remarried. The simple addition of a new person in the family alters the structures that were already established, due to the high place a spouse holds in the eyes of the law.
There are a few reasons that arrangements need to be changed. The ex-spouse, if they are alive, is likely still mentioned in the will. This could give them power over the eventual distribution proceedings, which may be unwanted. It might be inevitable regardless as certain accounts (like a retirement fund or life insurance plan) must keep the same beneficiary for a predetermined period.
Other considerations include whether to add the new spouse as an executor of the will or trust, whether to hold assets jointly or individually, and if their name should be added to the mortgage or house deed (if they live there). There are pros and cons to each argument. For example, while keeping a new spouse’s name off the deed to the house might prevent them from taking it out of turn, it would also prevent them from even living there after their partner dies. It’s a delicate balance and requires the aid of an estate lawyer.
For couples that want to share everything, the solution isn’t difficult. Begin moving money into a single account and make it a joint account, add the new spouse to the deed to the house, the life insurance policies, and the will or trust (or both). For those who want to keep their finances separate, there are many things that must be done to ensure a proper partition is built.
The first and most important step is the prenuptial agreement, which is a contract that both spouses sign before getting married. It ensures that, in the case of divorce, the assets acquired before marriage are not eligible to be split among both parties, but rather go to their original owner.
Trusts are another great option to keep finances between spouses separate. Essentially, a trust is like a will but more enforceable and harder to change. Instead of leaving instructions for an executor to follow after one’s death, a trust transfers all relevant assets from the estate to the trust immediately, which then becomes the responsibility of a trustee. Trusts are much harder to alter and contest than a will, and can be as flexible or specific as one desires.
It also helps to get the assistance of an estate lawyer, who are especially adept at creating airtight contract language that make one’s intent clear, even if they aren’t around to enforce it. While these legal and contractual tools help define clear boundaries for a couple’s marital finances, the first crucial step is to have a candid conversation with your new spouse.
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