“I Do … I Do … I Do”

Men marry women with the hope they will never change.

Women marry men with the hope they will change.

Invariably they are both disappointed.” ― H.M. Harwood

 

Every so often I call on our local Funeral Directors as part of my Estate Planning research. My goal is to learn 3 things:

 

  1. What is the current average cost of a funeral?
  2. What preplanning they’ve seen that makes the funeral & estate settlement process go very smoothly for survivors?
  3. What they’ve seen take place to make the funeral & estate settlement process a nightmare for survivors?

 

During one such visit, I found the Funeral Director on the telephone. The person on the other end of the line was yelling so loudly that I could make out the conversation from 15 feet away. Standing not far from the Funeral Director were some very unhappy people who looked as though they were about to unload on him as well. We quickly rescheduled our meeting for the next day.

When we met, I asked him if everything was o.k.? He explained that a man had married & had children before his wife unexpectedly passed away. The man later remarried and had children with his second wife, who also died. The man lived the remainder of his life as a single man and now, many years later, he was dead. The man had 2 sets of adult children by different mothers and there was a very nasty fight over where he was going to be buried; next to Wife #1 or next to Wife #2. He was certain that the issue would soon go to court.

This is just 1 of dozens, maybe even hundreds, of nightmare stories I can tell you about the fallout that always seems to come with having more than 1 spouse. It doesn’t appear to matter whether it was divorce & remarriage or death & remarriage, during life or after death; the fallout seems to be inevitable.

 

A lot of people have asked me how short I am.

Since my last divorce, I think I’m about $100,000 short.”

– Mickey Rooney

 

One of the most common mistakes I’ve seen people make is remarrying without completing preplanning. It doesn’t matter how or why you became single or who you are marrying next, a failure to preplan can, and in my experience usually does, lead to terrible financial consequences for you or someone very important to you.

If you are contemplating remarriage, a Prenuptial Agreement is a must have document. If you are already in a 2nd, 3rd, 4th, ….. marriage, hopefully you had the good sense to obtain a Prenuptial Agreement. If not, the situation can be remedied with a Postnuptial Agreement.

Any good Divorce Attorney will tell you that these documents are relatively easy to obtain while both you and your (prospective) spouse are on good terms with one another, but arriving at mutually agreeable terms during the throes of a divorce are nearly impossible. My advice is to sort out everything while you are still deeply in love and truly care about one another.

In doing so, both you and your (prospective) spouse need to hire different attorneys, specifically Divorce Attorneys. This is a very complex area of the law and each of you needs, independent, objective, advice from an experienced, knowledgeable, and skilled specialist.

In discussing the terms of a Pre/Post Nuptial Agreement, there are 5 parties you will need to consider; yourself, your spouse, your children, your spouse’s children, and any children you may have together.

I know somebody is reading this and thinking to themselves; “My spouse & I are very happily married. We’ll never divorce, so I don’t need to do any of this.”. If you are thinking this, you are wrong.

Statistically, 25% – 50% of all American marriages will end in divorce (dependent upon your generation & when you were married). I’ve never met anyone who enters a marriage planning to divorce. Even so, we all know how easily, and quickly, it can happen. Especially those that have been through it. If you’ve been through a divorce, or are close to someone who has, you know that a divorce can become very ugly very quickly. A wise person understands the statistics and will prepare for a divorce while hoping it never happens; basically, hope for the best but prepare for the worst.

I know people who have had more spouses than I’ve had vehicles. I’m 45 and I’ve owned a lot of vehicles. Only a fool would go into their 4th, 5th, 10th marriage without a rock solid Prenuptial Agreement.

Those marriages that don’t end in divorce will end in the death of a spouse. Let’s face reality. Sooner or later one spouse is going to die, ending the marriage and leaving the survivor free to remarry. When your surviving spouse remarries, your children (parents, nieces, nephews, etc …) could easily be left out in the cold as all of your hard earned assets find their way into someone else’s hands.

Someone is reading this and thinking; “My spouse knows what I want and they would never do anything to harm my children.”. You are probably wrong, but even if you are right, bear in mind that your spouse doesn’t have to take steps to intentionally inflict financial harm on your children. They just have to fail to take steps that will protect your children.

For example, if your spouse remarries without a Pre/Post Nuptial Agreement and fails to execute a valid Last Will & Testament, when (s)he dies, the new spouse will inherit everything, leaving your children out in the cold. Or, what if (s)he divorces and the new ex-spouse walks away with your children’s inheritance? There is almost no end to the ways your children could potentially lose their inheritance after you die.

Someone else is reading this and thinking; “My spouse & I don’t have enough assets to worry about it.”. Warren Buffet wasn’t born into wealth. The same goes for most billionaires. While you may never become a billionaire, the authors of The Millionaire Next Door tell us that most American millionaires are self-made. Just because you don’t own much now doesn’t mean you won’t own a lot later.

So basically, everyone who marries more than once should complete some serious planning.

 

She cried – and the judge wiped her tears with my checkbook.”

– Tommy Manville

 

A good Divorce Attorney will have a comprehensive list of issues to consider and discuss. For our purposes though, let’s take a high level view of some more common areas.

Divorce

Statistics say that for every 4 marriages, there will be at least 1 divorce. Decide ahead of time how assets will be split if you are among the unlucky who divorce. What happens to the assets you owned before you married? What happens to the assets you acquired after you were married?

These are easy enough decisions to make now and they are easy enough to make during a divorce. The difference is now, your fiancé may agree that everyone walks away with whatever they owned before the marriage and 50% of what was acquired during the marriage. Later, during the divorce, your soon to be ex-spouse may decide that (s)he wants to walk away with 50% of what was acquired during the marriage plus 50% of what you owned before the marriage.

For example, you & your fiancé agree that in the event of divorce, that everyone walks away with whatever they owned before the marriage and 50% of what was acquired during the marriage. You entered the marriage with a $500,000 401(k). You contribute $1,000/month to your 401(k) and earn 12% over the next 12 months. One year later you divorce owning a $576,222 401(k).

Does your spouse get $38,111 (50% of $76,222) or does your spouse get $6,405 (50% of $12,000 earning 12%/year for 1 year)? There is a huge difference. Most of the profit was earned on money you owned before the marriage, but it was earned during the marriage. I’d bet dollars to donuts that you will claim your spouse should receive $6,405 while your spouse claims (s)he should receive $38,111.

Even decisions that seem easy now are more complicated than they appear on the surface.

What if you inherit that beautiful 67’ Camaro your daddy spent 20 years restoring to cherry condition? You came into the marriage owning the Camaro, but your spouse has a better driving record. You placed him/her on the title to get a better rate on your insurance. Now you are divorcing. I’d bet dollars to donuts that you will claim that the Camaro was an inheritance you owned before marriage, while your spouse claims that (s)he acquired it during marriage when you placed his/her name on the title.

Again, these issues are very easy to sort out ahead of time, but become nearly impossible during a heated divorce when both spouses are feeling slighted, cheated, and hurt.

Asset Titling

How will assets be titled; both assets owned before marriage and assets acquired after marriage?

If you take joint title, upon your death, the asset will most often flow directly to your spouse. Your spouse could change their Last Will & Testament to disinherit your children and/or other heirs. If they remarry, their new spouse may pressure them to do so, or their new step-children, or their own children. Perhaps your spouse never changes their Last Will & Testament, but they place their new spouses name on the title to everything. Or maybe they placed their children’s name on some deeds and titles as co-owner. Either way, when they die your children’s inheritance will be non-existent.

I’ve watched time and again as widowers and widows walk down the aisle for the second time. They’re happy. The kids are happy. The grandkids are happy. Everyone’s happy. They didn’t do any formal preplanning, but they both agreed that when they die, their respective property goes to their respective children. Then someone dies and we learn that they inadvertently placed assets in joint title; real estate, vehicles, bank accounts, etc …. and there is little to nothing left to bequeath to the deceased heirs. I’ve watched as the survivor begins with the intent of fulfilling what (s)he agreed too, but his/her children quickly step-in, exert influence during an emotionally vulnerable time, and insure that never happens. I’ve watched as the survivor begins with the intent of fulfilling what (s)he agreed too, then discovers that (s)he will use up his/her estate tax exemption in the process. Everything comes to a grinding halt, because nobody is going to take care of your children at the expense of their own children.

You can each title assets in your respective names, but that creates its own complications. Unless specifically waived, spouses have asset rights, especially to a primary residence. The issues and complexities do not go away.

Even the happiest and best intentioned of couple’s can inadvertently cause financial havoc for their heirs by failing to preplan before a second marriage.

POA & HCPOA

Who is going to be your Power of Attorney? Who is going to be your Healthcare Power of Attorney? If one is required, who will be your Guardian?

If you are unable to make your own business decisions, who do you want to make those decisions for you? Your adult child that is fuming mad you are remarrying? The child who absolutely hates your fiancé? Your fiancé, who is coming into the marriage broke and relying solely on your wealth?

What about healthcare decisions? Who is going to make life or death decisions for you? The step-child who thinks his mom should have never remarried? Your child, who is just waiting for you to die so he can receive an inheritance? Your broke spouse whose only means of support is access to your assets? There are multiple well documented cases of suffering people being kept alive at all costs so that spouses and/or their children can reap financial benefits. There are just as many cases of pain medications being withheld, and so forth.

Who will be your Guardian and determine where you live, with whom you live, and who has access to you? Will your children and grandchildren be allowed to visit you or check-up on you? Will your spouse be permitted to sit with you and hold your hand?

Sort out these issues ahead of time, because if you find yourself in need of one of these documents, it is probably too late to get it.

Executors & Trustees

When you do die, who will be your Executor? Your spouse? (S)he will have a lot of important, discretionary decisions to make. Will (s)he be fair with your children and grandchildren or will (s)he show favoritism towards his/her own children? If I had to choose between my children and your children, your children will lose every single time. That is human nature.

What about your children? Will they be fair with your spouse? We’re talking about your children’s inheritance. Are they really going to act in your spouse’s best interest or in their own self-interest?

Should you make a child Trustee for your spouse or your spouse Trustee for your child?

It is very easy for an Executor or Trustee to legally transfer wealth away from your intended beneficiary and to themselves or their heirs. Is it wise to place those you love in a position to have to make that decision about someone else you love?

Figure all of these things out ahead of time, because once you’re gone, you’re gone. There will not be any do-overs.

Heirs

How will you take care of those that are important to you after you die? You may want to take care of both your spouse and your children, but how to do so? What about charitable bequests? You’re a grumpy old veteran who wants to leave assets to a veterans organization, but your spouse is a peacenik and there isn’t much chance that (s)he’d agree to do so (opposites really do attract).

How about physical assets? What will happen to the knife grandpa carried when he stormed the beach at Normandy? Who will end-up owning great-grandma’s china? Will your son really inherit the 67’ Camaro you & he have spent years restoring in the garage? Will your granddaughter really receive your mother’s wedding ring?

If your spouse and your children do not get along with one another, there is little chance that your spouse is going to allow them to come into his/her home, rummage through everything, and take what they want. You’d better sort this out ahead of time.

Attorneys have repeatedly told me “possession is 9/10’s of the law”. What they mean is that if someone has possession of a physical asset, it is very, very hard for someone else to obtain ownership of that asset. You and your new spouse had better decide ahead of time who is going to get what. When they will get it, how they will get it, and where they will get it.

This area is probably where is see more arguments, fights, and lawsuits than any other. If someone has an emotional attachment to an asset, they will fight tooth & nail to possess that asset. And it doesn’t have to be worth very much money. I once saw a drawn out and expensive interstate fight over a collection of worthless, ceramic figurines. Those figurines could have literally been replaced for less than $1,000, but both sides spent in excess of $100,000 fighting over them.

Estate Tax Deductions

If you have enough money to be concerned about estate taxes, you have enough money to do some preplanning. Who will get your estate tax exemptions? Your spouse or your children? Executors make those decisions. If you don’t decide ahead of time, who is your Executor going to favor?

For example, if you die with a $10 million estate, taxes could be as much as $1.6 million. Your spouse is your Executor, but the money will eventually go to your children and grandchildren. Your spouse, as Executor, can pass those estate taxes on to your children. By doing so, (s)he keeps his/her exemption intact for her children so that they don’t have to pay any estate taxes. So, the $1,600,000 question is; who do you think your spouse will chose to give that $1.6 million dollar bill?

 

These are just a few, out of many, considerations. Hopefully you can see just how easily financial situations can go awry in a second marriage, even for those who have wonderful, long-term second marriage where everyone loves each other.

And the thing to bear in mind is that your spouse will not be making decisions alone. Your step-children, step-grandchildren, and all of their spouses, will be applying a lot of pressure on your spouse. Neither will your children make decisions alone. Your grandchildren, your daughter-in-law, and your-son-in-law will be twisting arms behind the scenes. If you think your granddaughter’s husband is going to put your step-great-grandson ahead of his own children, you’ve probably lost your mind.

In addition to all of the assets that can (and do) go missing; in addition to all of the heirs that can (and do) become inadvertently disinherited; there are attorneys. It doesn’t take much for family to sue one another during a emotionally trying time, especially when they are only loosely connected by a marriage. Believe when I say that there doesn’t even have to be much money involved. All that needs to occur is for someone to feel slighted or threatened; or for the wrong person to sense an opportunity.

I’ve seen multiple estate’s eaten up by legal fees until there is nothing left for anyone to inherit. I’ve seen people so bitter that they would rather receive nothing than watch as the other party receives something. And don’t forget about minor’s and incompetent heirs.

It is not unusual for laws to require that guardians and/or custodians prosecute a case on behalf of a minor beneficiary or incompetent beneficiary. Those same laws can also preclude a settlement which in any way diminishes the inheritance of a minor or incompetent person.

People are people. They can and do fuss, fight, argue, and take advantage of other’s. It’s better that you and your soon-to-be new spouse settle every potential dispute in advance. If you are already in a second marriage, a Postnuptial Agreement can still be had. Failure to do so could literally cost you, or your heirs, everything.

Let’s circle around to where we started. The last I heard, the siblings had hired attorney’s and gone to court. The children were spending untold sums of money on attorney’s and other fees. A less than sympathetic judge was caught in the middle trying to make a reasonable decision. Out of necessity, dad had been cremated, placed in an urn, and stored in a safe. As far as I know, he’s still in that safe.

 

These comments aren’t to say that the author has failed in his duty to advise clients. Rather, he is usually pulled in by friends & neighbors in such situations. Occasionally, he is also drawn in by clients who are connected to such cases, usually as heirs, custodians, or guardians. Only in a handful of situations has he had clients ignore his advice to the extent that he finds himself directly involved.

 

Sapiat Asset Management is an independent registered investment advisor, specializing in financial planning based, asset management for Gen X Individuals & Families and their Trusts & Businesses.

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