My client is getting married (or married again)

When getting married for the first time, you might blame a lack of financial planning or preparation on youth, inexperience or optimism. Yet planning can be lacking even with second or “other than first” marriages, which often occur later in life, when financial and personal situations are more complex. This is especially ironic when you consider that remarriages often follow divorce, during which the client may have personally experienced the pitfalls of poor planning (or, less often, the benefits of foresight) in this regard. 

As a trusted financial professional, you are in a position to motivate soon-to-be-wed clients to address financial and estate planning issues before the big day. If your client is planning to get married, these key questions can help guide the conversation and get the new marriage started on the right financial foot. 

Is the couple financially prepared for a new marriage?

As with any major life event, transparency and communication are key to addressing premarital finances. Before saying, “I do,” the couple should be able to answer a few other questions: 

• How’s your new spouse’s financial picture? It is important for your client to have a firm grasp of what his future spouse* owns, the extent of any debt, and any other income sources (such as a beneficial interest in an irrevocable trust). 
• What about alimony or child support from a previous marriage? When do these obligations terminate, if at all? 
• How will we divide joint and individual expenses? Sorting out who pays what in the new relationship and how funds will be comingled or combined is especially important if you’re dealing with a blended family with young children. 
• How will my new spouse’s estate planning documents provide for me? This becomes particularly relevant when the spouse is bringing substantial assets to the marriage, or if joint children are a possibility in the future.

Has a prenup been considered?

If you think of prenuptial agreements (or prenups) as nothing more than financial blueprints for what happens in case the marriage ends, whether by death or divorce, these documents can serve an important purpose. Using a prenup can also help your client and new spouse manage expectations. Although the negotiations bring up difficult issues, they can also make couples aware of future friction points and allow them to address these issues with less emotion. 

There are two primary reasons prenups are invalidated: (1) the agreement was finalized too close to the wedding day, and (2) one of the parties had inadequate representation. Because prenuptial negotiations are often sticky and drawn-out, your client may want to begin the process several months before the scheduled nuptials; ideally, the prenup should be finalized and signed before the invitations are sent. State law governs the validity of prenups, so it is essential that both the client and the future spouse each have their own competent local legal representation.

A financial blueprint for marriage

If you are looking for a simplified way to explain prenuptial agreements to clients, here’s an easy overview you can share:

Source: Capital Group

Has the estate plan been updated?

A new marriage brings new obligations and concerns regarding family and finances, so the client should review and update all current estate planning documents. The most important thing is that the client has an experienced estate planning attorney to navigate through the process, but you can prepare your client for this process with some key questions to work through with the attorney:

• Have we incorporated prior divorce decrees, as well as any prenup? Both types of agreements may include obligations that should be included in estate planning documents. These types of obligations are usually considered contractual and enforceable, so even if they are not part of the estate planning documents, they will most likely still be fulfilled. However, as with most things involving death and money, it is better for everyone — and all documents — to be on the same page. 
• Does the estate plan address the possibility of divorce? If the client includes the new spouse as a beneficiary or fiduciary under the estate planning documents, the client should consider whether those rights should end if the marriage ends. Either way, the conditions should be addressed explicitly in the estate planning documents. Depending on the situation, some clients may want the spouse’s rights and benefits to terminate upon the filing of any separation or divorce petition, as opposed to the actual event of divorce (which can occur long after the marriage is actually over). 

Do blended family issues need to be addressed in the estate plan?

Second and third marriages often result in blended families. Your client should consider how to provide upon death for everyone in the “new” family as well as ex-spouses and any children from prior marriages. It can be a lot to think about, but here are a few topics your client may want to address with an estate planning attorney: 

• How will new children be provided for? Depending on the age of the client, he may want to consider restructuring the estate plan in the case of death while the children are still minors. If new children are assumed to be independent adults, the approach will be very different. The new spouse should be involved in this conversation. 
• Can we handle blended family tensions in the plan? If your client anticipates tension between the surviving spouse and the children from the client’s prior marriage, your client can prepare for it. Depending on the relationship between the client’s children and their stepparent, as well as the ages of the various family members, providing for separate pools of assets may be the best solution. Even if relations are generally amicable, if the spouse and the children are not separated by a “traditional” parent-child age gap, leaving everything to the spouse (even in the protected environment of a marital trust) to then pass on to the children after the spouse’s death is a recipe for disaster.
  One common way to create a separate pool of assets to manage this type of situation is to use an insurance policy or a separate irrevocable trust to provide for the surviving spouse or even the children outside of the client’s estate.

• Where do my new spouse’s children fit in? If the client’s new spouse has children from a prior marriage, does the client want to provide for them separate and apart from the spouse? If the client has a close relationship with the stepchildren, he or she may want to include provisions for the stepchildren in the estate planning documents — depending on their ages, the spouse’s financial situation and the client’s relationship with his or her own children.
  It is important for the client to consider the relationship between his or her own children and stepchildren in structuring these provisions. Again, creating separate pools of assets without any cross-involvement or comanagement may be the best option. The client should also decide whether the provisions for stepchildren should be conditional based on the status of the current marriage, or if he or she wants to provide for them even in the event of divorce. 

When clients get remarried, they add layers of complexity to life: new family members, additional financial obligations and a whole host of unpredictable dynamics. As your client’s trusted advisor, you can bring awareness to the potential pitfalls that accompany this type of familial and financial complexity. 

By addressing the questions on the previous page with your client before the I do’s, you are giving him or her the tools to set expectations, establish boundaries, help manage risk and, most importantly, give blended-family harmony a fighting chance.  

Vow to-do list

When meeting with a client who is getting remarried, consider using this financial and estate planning checklist or download our Remarriage and estate planning: Discussion checklist to use with clients.

STEP 1: Spouse’s financial picture

• Assets, income sources, liabilities, beneficial interests
• Alimony, child support or ongoing financial obligations from prior marriage
• Sharing of joint expenses
  

STEP 2: Prenup

• Used to set and manage expectations
• Importance of timing and representation

STEP 3: Estate plan

• Coordination with divorce and prenup
• Contemplation of future divorce
• Beneficiary designations

STEP 4: Blended family

• Possibility of joint children
• Surviving spouse vs. children from prior marriage
• Providing for stepchildren, future children
  

Source: Capital Group.