If you are getting married for a second time, you may both be bringing sizable assets and debt into the marriage. You may also have children from a prior relationship. These circumstances can raise significant financial issues and conflicts in marriage. That’s why it is critical to protect your separate assets. This can be accomplished with a prenuptial agreement or postnuptial agreement which allows you to set forth how you will handle your individual and joint finances, assets, and liabilities during marriage and in the event of divorce or the death of one spouse. A trust can also be used to safeguard specific property. These strategies can address a wide array of concerns but it’s best to consult an attorney about how to protect your assets in a second marriage.
Why Should You Have a Prenuptial or Postnuptial Agreement for a Second Marriage?
A prenup or postnup is valuable in most marriages because they force parties to discuss their finances (assets, income, and liabilities) and expectations so they avoid disputes later. However, these agreements are particularly useful for second marriages, which often have more complicated issues. For example, one party may have received property in a divorce settlement that should be protected in the event the second marriage also ends in divorce. One of the parties may also have responsibilities to pay money to a former spouse and children, which can significantly impact the couple’s finances.
Absent a prenup or postnup, your new spouse may have rights to your sole assets or any assets you share with them and could disinherit your children depending on how your will reads. A prenup or postnup allows you to designate what property is separate and therefore, not subject to division in divorce. This can help to ensure that your sole assets are protected and set aside for children from a previous marriage in the event of divorce or death.
How Can You Use a Trust to Protect Your Separate Assets in a Second Marriage?
A trust offers added protection for your assets because property transferred into a trust is no longer owned by you and never becomes marital property. This tactic is particularly useful when there are significant assets, one party owns a business, or there are children from a prior marriage.
As an example, if you want to ensure your children inherit if you die, you can set up a trust for them. If you don’t have significant assets currently, you could take out a life insurance policy and have the death benefit paid to the trust. However, it’s important to consult an attorney because some states like New York give spouses an ‘elective share’ meaning that you cannot totally disinherit your spouse. Instead, your spouse is entitled to a certain share of your estate unless they waived that right in a prenup or postnup. Depending on the state you’re in, the law may calculate the share based only on probate assets or include non-probate assets. In New York, the elective share does not include life insurance so your spouse would not be able to take a share of the insurance proceeds left to your children. However, this is also an example of why it may be best to have both a prenup/postnup and a trust to ensure your assets are protected.
Can You Sign an Agreement or Create a Trust After You Are Married?
If you have already married, you can still sign a postnuptial agreement. There is no time limit. A trust can also be created at any time. The best thing to do is to speak to an attorney to help you understand your options.
If you are considering the best way to protect your separate assets and income for yourself and your children, contact us for a consultation.