According to data from the U.S. Census Bureau, 42 million Americans have been married more than once. Historically, nearly 75% of people who divorce remarry. Of those remarriages, approximately 65% involve children from a prior marriage. This can make estate planning complicated.
Individuals entering into subsequent marriages have often had many years to accumulate assets and may have more to lose financially in the event of another divorce. Additionally, children from different marriages may not be treated as intended with respect to inheritance rights and the interests of surviving spouses may be in direct conflict with those children, causing friction within a blended family. Because of this, proper planning is essential, of which a marital agreement (“prenup” or “postnup”) can be a vital part.
A prenup serves to clearly identify the separate property assets each party brings into the marriage, and what, if any, community property they intend to create during the marriage. This can help reduce the risk of later disputes between the blended family members.
When entering into a prenup, certain practices should be followed for the agreement to have the greatest likelihood of enforceability, including:
- Start the process early and complete it well in advance of the wedding.
- Each party should be represented by individual counsel of their choosing.
- Each party should provide a full disclosure of their assets and finances, and the prenup should include a comprehensive plan for handling finances going forward, such as:
- How income from separate property will be characterized;
- How wages, salary, or other compensation will be characterized;
- The treatment of debts, both incurred before and during marriage;
- The issue of spousal support upon divorce;
- The division of assets upon divorce or death.
Another important place for marital agreements in the planning process is with respect to trusts. Particularly marital, family, and descendants’ trusts. Requiring that a beneficiary must execute a valid marital agreement in order to receive (or continue to receive) certain trust distributions is an excellent way to protect your assets from any failed marriages of your beneficiaries.