Remarriage Means Revisiting Your Estate Plan
With one in three first marriages and one in two second marriages ending in divorce, perhaps the biggest risk to your estate is not a GFC, it is poor estate planning. This is exacerbated by the increase in the number of blended families with ex-spouses, step-children, half siblings, etc. that create a whole new financial picture.
The old saying is that love is blind, so if you’re contemplating getting married again, there are conversations that should be had to ensure that we explore the planning opportunities and pitfalls that your impending marriage offers.
Yours, Mine, Ours?
By your third marriage, if not your second, if you still have any assets left then it’s likely to be the result of either “marrying well” or good planning!
Often I don’t see people until after their marriage, but it’s a little known fact that you can make a Will in contemplation of marriage. This makes the pre wedding stage a great time for full disclosure and getting on the same page. We can review what you’ve accumulated individually and decide how to put those assets to use to help you achieve your new financial and estate planning goals. You’ll also want to think about how much each of you will contribute if there are disparities in income and to what accounts, as well as how you’ll pay for your children’s needs and bills you incur as a family. This may seem unimportant while you are enjoying that “purple patch” of new love, but the harsh realities of the financial world are never too far away.
Although it’s not a glossy topic, like the wedding venue or bridesmaids’ dresses, you should review your estate planning documents before you say “I do”.
If you are a couple that is likely to argue over who to invite to the reception, imagine how you might solve issues such as guardianship of young children, life tenancy, powers of attorney and the children from the previous marriage that don’t get along with your future spouse!
Before walking down the aisle, you have an opportunity or perhaps even an obligation for each of you to review your Will, family trusts and beneficiaries, life insurance and superannuation.
Often the plans include moving into a house owned by one person while the other cashes up their assets to tip into the family asset pool. However, you might want to consider that as house values continue to rise while interest rates remain low, should you set up a situation where one side of the blended family is likely to be ultimately better off? They will eventually receive the house while your children receive what is left of the cash.
You may also choose to buy a property jointly, in which case you also need to determine how your property will be held (as joint tenants or tenants in common – which, if done properly, can be a very effective estate planning tool).
With second marriages and blended families, not everybody will get along. Unless the marriage imitates a Steve Martin movie, yourself, your ex and your new spouse will need come to an understanding as to which family will pay for certain expenses for all the children.
Laws exist to preserve the rights of children and many couples assume that these will be adequate… but it doesn’t always work that way. Invariably, there will be many discretionary or lifestyle expenses that are met while you are alive but it’s important to decide now which family will be responsible for this support should you pass away. If these expenses are to be funded from your estate, then you will need to review your estate plan and not leave this to chance or to the discretion of your widow.
Has Divorce Smashed Your Retirement Plans?
As you consider the financial realities of your new life, it may be time to dust off the Will to ensure that your estate will have the level of assets needed to adequately meet your estate wishes.
If you have received majority of the family assets, this certainly suggests that some estate planning is in order, even if only for the family pooch.
If you have been less fortunate and no longer own all the assets you intended to bequest to specific children, then it’s certainly time to review the Will. Don’t forget to factor in any debts, as the last thing you may intend to do is bequest an asset that is highly geared.
What about Binding Financial Agreement (BFA)?
Even if you and your new spouse jointly decide to exclude each other from inheriting each other’s assets, your spouse may be entitled to a specific share of your estate. This is unless you stipulate otherwise in a valid, well-drafted BFA, colloquially known as a prenuptial agreement.
It should come as no surprise that prenups are becoming more common with people “reeling” from the financial effects of divorce. Although these initially appear as a sound document to prepare, it is worth seeking advice because they can be subject to legal dispute despite assertions to the contrary.
Alternatively it may just be prudent to make allowance for your new spouse in your estate plan rather than risk part of your assets being chewed up in a costly legal dispute after your death.
Death And Taxes
Even if we can prolong life by physical and mental exercise, the taxman still waits patiently for his slice of the pie. Be it having a sustainable retirement or tax effective estate plan, there are always “Do’s and Don’ts” from a tax perspective. In this circumstance, good tax advice is not a five minute exercise. It often requires some detailed investigation and estate planning to avoid costly mistakes. If the tax office wins, it will be the beneficiary of your estate that lose.
Till Death Do Us Part
As you consider merging your lives together, for better or for worse, take into account that second marriages and blended families add complexity to your financial and retirement planning (even as they bring emotional richness to your life). The key is to balance the complicated issues that blended families face with careful planning.
It’s important to work with your loved ones and Paris Financial to establish ways to preserve assets in a way that makes sense for you and your family, whatever form it takes. In any new marriage, you’ll need to establish your joint financial priorities and set the wheels in motion to try to achieve them.
Steve Wildes, Partner, Paris Financial