It seems almost every day we hear about another couple breaking up. Recently Desperate Housewives star Eva Longoria filed for divorce from basketball star Tony Parker. This underscores the importance of taking divorce into consideration when doing estate planning.
Even if clients are blessed with a long-term, happy marriage, there are protections that the prudent estate planning attorney can incorporate into the plan. For example, you can leave assets in trust for the surviving spouse rather than outright. Further, you can encourage or require the surviving spouse to get a prenuptial agreement before remarrying. The trust can provide that the surviving spouse loses benefits in the family trust or marital trust if they do not do so. (Of course, in order to qualify for a marital deduction, the marital trust must still provide all income to the survivor.)
By doing so, you can protect the client from future divorces. Similarly, you can protect children from divorcing spouses by leaving assets in trust.
As estate planning attorneys, we try to anticipate and plan for every contingency. But, as estate tax planning in the last decade has shown, we really do not have a crystal ball. When the assets pass to the surviving spouse or to the children, we cannot foresee what their spouse would be like. It is possible that their future spouse might be a wonderful person whom they’d be lucky to partner with. However, it is also possible that their future spouse might be seeking to obtain half of the assets that your clients worked hard to accumulate.
A little planning now can prevent disaster down the road. When the surviving spouse is anticipating remarriage, a future breakup will likely be the farthest thing from their mind. A clause which penalizes the surviving spouse for failure to execute a prenuptial agreement might be just the excuse they need to go to their fiancé(e) for a prenuptial agreement. You can imagine the conversation now, “I trust you completely, but the trust requires me to ask for a prenup…”
While estate planning attorneys cannot envision every possibility, breakups are common enough that it is prudent to plan for that possibility. How do you protect the surviving spouse from divorce upon remarriage? Do you penalize the surviving spouse if they do not execute a prenuptial agreement prior to remarriage?
Stephen C. Hartnett, J.D., LL. M
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
6050 Santo Rd., Ste. 240
San Diego, CA 92124
(800) 846-1555
www.aaepa.com
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Stephen: Financial planners and estate planners help their clients plan for future taxes, economic crises, disability, loss of job, and retirement but sometimes not divorce. And yet divorce is one of the largest wealth redistribution events that roughly half of them will encounter in their lives.
James, You are so right! This is why it is so important to have a qualified estate planning attorney involved in the process. They make sure that there are provisions in the plan to protect the client and their beneficiaries in the event of divorce. Of course, it is also important for a couple who is going through a divorce to revisit their plan in light of their new divorced status.
Thanks again for your very relevant post!
Steve