Marital Agreements as Part of an Estate Plan
Written by Jim Worthington on September 8, 2019
For many clients, a prenuptial agreement is an important part of their estate plan. People often think of prenuptial agreements as planning for divorce and think they spell doom for the marriage. That’s a short-sighted view. Talking through a carefully considered prenup is a healthy way for a couple to make sure they are on the same page about vitally important financial issues.
Without a prenup (or a postnup), state law generally gives a surviving spouse specific rights to a share of the deceased spouse’s property. This is true even if the deceased spouse leaves a more restrictive will. In other words, one may not disinherit one’s spouse without the spouse’s consent. Thus, in some circumstances, it is very important for a couple to have a prenup to spell out the surviving spouse’s rights at death. Some couples for whom this is important include ones in the following situations:
- At least one partner has children from a prior marriage.
- At least one partner is likely to inherit significant family wealth that is designed to stay in the bloodlines.
- At least one partner is part of a family business or farm that is intended to stay in the bloodlines.
No one anticipating a second marriage wants tension between children and the new spouse. One source of that tension could be after the parent’s death when children feel their stepparent is spending “their” money. Having a prenup that spells out what one will leave to her spouse and what she will leave to her children can avoid that tension.
Sometimes, a family has a strong preference that its wealth or particular assets be inherited along bloodlines. If a less wealthy person marries into that family, it is important for him to understand these family expectations about inherited wealth. At the same time, having left a more modest background to enjoy a more elaborate lifestyle, it is also fair for that person not to be left out if the wealthier spouse dies. For example, will the less wealthy, surviving spouse have to leave the family home? What if the couple had young children living in the home?
The final situation that calls out for a prenup is where there is a family business, farm, or other unique family property. A client who builds a business with her children rarely intends for her sons-in-law and daughters-in-law to be its future owners. Having a prenup as well as appropriate shareholder, operating, or partnership agreement provisions can avoid that undesired outcome.
This post also referred to postnups. It may be possible to include these provisions in an agreement reached during the marriage.
For both prenups and postnups, each of the spouses should have her or his own attorney. It is essential that the couple gives full disclosure to each other. And while there is a business element to it, the couple should also remember that their marriage reflects their common values and mission so the negotiations should be harmonious not acrimonious. The couple should reach their common interest rather than take inconsistent bargaining positions.
Because of recent changes by the 2017 tax law, it is especially important now that clients entrust drafting their prenup or postnup to an experienced lawyer, such as one who is a member of ACTEC, the American College of Trust and Estate Counsel.