By: Jay J. Lander, Esq.
My wife\'s grandmother used to say, \"When money troubles come in the door, love goes out the window.\" While this axiom may apply to first marriages as well as second, it generally recognizes that there are unique financial issues to face the second time around.
Estate planning for the second spouse usually begins before the wedding. Assuming there are children from the first marriage, each person is concerned about protecting the family assets for their children, or at least to create a balanced estate plan that recognizes the obligations to both spouse and children from the prior marriage. The most common response to this dilemma is the prenuptial agreement. Under Massachusetts law, an agreement between prospective spouses before the marriage ceremony regarding the division of marital assets in the event of death or divorce may be legally enforceable if there is a full disclosure of each parties\' assets, the opportunity for separate legal representation and if the terms of the agreement are fair, both at the time of the execution of the agreement and when it is implemented.
At the heart of most prenuptial agreements is the creation of certain economic benefits for the prospective spouse in exchange for an agreement to accept such arrangement in the event of divorce and an agreement not to challenge a deceased spouse\'s will or to waive the will and take a spouse\'s \"statutory share\" under state law, which in Massachusetts would be one-third of the value of the probate estate up to $25,000 outright, and the income for life on the balance of said third, assuming there are children of the deceased spouse.
What do you do if you have already married your second spouse and have never executed a prenuptial agreement? It is generally held that such an agreement executed after the marriage ceremony is unenforceable due to lack of consideration, although the case law is not totally settled on that question. In that situation, you could draw a will making whatever provision you wished for your second spouse and cross your fingers and hope that he or she does not challenge your will after you are gone.
At one time clients would try to reduce their probate estates that would be subject to a surviving spouse\'s statutory share by transferring substantial assets to a living trust prior to death. The Massachusetts court, however, has held that such transferred assets will still be taken into account as if they were part of the probate estate for the purpose of computing a surviving spouse\'s statutory share.
Another approach would be to provide for a second spouse in your will in a significant but limited way, such as income for life from assets held in trust, with the principal to pass to your children from the prior marriage after the death of the surviving spouse. This, coupled with an \"in terrorem\" clause, which says that if a spouse challenges the will, he or she loses all of the benefits provided for in the will, may be sufficient to discourage a challenge after your death.
One of the dilemmas faced for many years by a wealthy spouse in a second marriage was the desire to protect the children of the prior marriage while at the same time being able to minimize estate taxes by qualifying the estate for the marital deduction. Until 1981 the creation of limited income rights in a second spouse would not qualify for the marital deduction and therefore substantial estate taxes would be incurred. Since 1981 a trust of an income interest for a spouse, which is know as a QTIP trust, will qualify for the marital deduction, thus creating a meaningful solution to the goals of balancing the interests of a second spouse and prior children, while at the same time achieving substantial estate tax savings.
In any event, it is never too soon to face up to these delicate financial issues when contemplating a second marriage; but to quote my wife\'s grandmother, \"lock the windows first.\"