Second Marriage Issues - Considerations with new partners, kids and assets
While second, or more, marriages are not at all unique, the financial and estate planning issues they raise can be. In first time marriages, the couple usually comes to the marriage with themselves, their assets and their debts. There may be some family obligations, or disproportionate wealth, but that can be easily handled though some sort of preempting agreement.
With second marriages, the issues multiply, as well as the opportunity to fail to plan. Consider these unintended scenarios from my own practice from an asset distribution perspective:
- Scenario - You never changed your beneficiaries on your retirement plan or life insurance and they still name your ex-spouse; not your children or your new spouse. The proceeds will pass to your ex-spouse, or perhaps to your minor children outside of any appropriate trust. Better Idea - Review all your beneficiary designations now and plan for where the assets should go.
- Scenario - You changed your beneficiary on your life insurance, but have a requirement in your divorce agreement to provide an insurance benefit to your ex-spouse. Your ex-spouse has a claim against your estate for the full amount of the death benefit. Better Idea - Purchase a term insurance policy and have your ex-spouse own it and be the beneficiary. You pay the premiums. If you miss payments, the ex-spouse can pay. He or she will have a claim against you for the missed premium payments, but that will be less than the full death benefit.
- Scenario - You created a Will upon your divorce leaving everything to your kids. You didn't change it after you got married. Upon your death, regardless of the terms of your Will, your current spouse has a claim to take approximately 1/3 of your estate (the "Elective Share"). Better Idea - Purchase an insurance policy for your spouse to satisfy his or her Elective Share as well as executing a pre-nuptial agreement and/or a new Will.
- Scenario - Your second spouse and children get along fabulously. You leave all your assets to your second spouse in your Will under the theory that they will get along and the new spouse will provide for your children. After your death, the new spouse: becomes ill needing expensive care, remarries, has a falling out with your children, develops a gambling habit, dies leaving a Will leaving all assets to his or her family (fill in the blank). Better Idea - Leave all your assets in trust for the benefit of your spouse and children, with a third party Trustee able to allocate the trust funds in accordance with your wishes. Upon the second spouse's death, the remaining funds pass to your children.
- Scenario - Your second spouse and children begrudgingly share the same room on holidays, but that is it. You don't want to create a Will for fear of antagonizing one of the two most important people in your life. If you don't create a Will, in New Jersey 1/2 passes to the spouse and 1/2 if left to children outright. This is not what you want either. Better Idea - Create an insurance Trust to satisfy one faction, and leave your other assets to the other faction. This way,you control who gets what and when, and each party receives an inheritance, but they are not administered jointly.
Planning an estate plan in the context of a second marriage requires a more thorough examination of the party's intent and assets then a first marriage with common children. An attorney may only be able to represent one spouse, not both. Insurance should be considered to alleviate some of the common issues. Tax planning must be done because where there are not common beneficiaries between a couple, tax allocation clauses can cause unintended results.
For other issues to consider in terms of the financial considerations of a second marriage, see the MSN Money - Make marriage No. 2 -- and the finances -- work.