The prenuptial agreement provides self-protection in the event of divorce and ensures the intended distribution of property should the marriage end in death. It is an important wealth management tool for couples with the foresight to use one.
Prenuptial agreements usually deal with major themes. How is property from previous marriages dealt with at death or divorce? How is property acquired during the marriage dealt with at death or divorce? Will my lifestyle change if my spouse dies? After the death of my spouse, is it fair to expect the lifestyle that I had before the marriage or the one I had after the marriage? Where will we live, and how will the home be purchased?
Property brought into the marriage is routinely treated as separate property, not subject to division as marital property upon divorce and not distributable to the surviving spouse upon death. Property acquired during the marriage is usually treated as marital property, divisible upon divorce and distributed to the surviving spouse upon death, although this may differ depending on the wealth and age of the spouses.
Younger couples with more modest estates tend to treat acquired property as joint property equally divisible upon divorce, with all passing to the surviving spouse upon death. Older or wealthier couples may specify that acquired property is kept separate and not shared at either divorce or death, but divided in some other way.
It's also important to address the expected lifestyle and the capital necessary to maintain that lifestyle in the prenuptial agreement. A person whose lifestyle improves during the marriage will not want to return to a lower standard after the death of the spouse, so the prenuptial agreement should deal with this to ensure the welfare of the surviving spouse.
Life insurance is an excellent financial tool to ensure that sufficient capital is available to the surviving spouse. Life insurance proceeds can also be placed in a trust for the surviving spouse and distributed to the children upon the death of the surviving spouse.
One of the most difficult issues in a remarriage is deciding where to live. Even though each spouse may already own a home, those homes are usually sold and a new home purchased. The new home can be owned in the same proportion as each contributes to its purchase and divided in that proportion if divorce occurs.
At death, the home can be transferred to the surviving spouse free of any obligation to the estate of the first to die, or a mortgage or lien representing the deceased's ownership interest can be retained by the estate of the first to die during the period the surviving spouse occupies the house. If the property is financed, the prenuptial agreement should address payment of the mortgage. Will one party handle it all, or is the payment split in some fashion? Another option for older couples may be to investigate the benefits of renting or living in a retirement community.
While some prenuptial agreements are very detailed and provide terms governing the minutest details of daily life, most leave the practical issues to be worked out during the course of the marriage. However, this can be a costly mistake. Heath care costs and health care insurance should always be dealt with in the prenuptial agreement, as should expenses such as home maintenance and utilities.
Many couples assume these details will work themselves out over time; unfortunately, it's the details that often cause the most problems in a remarriage.
Michael A. Sweeney is a partner at Brouse McDowell. Reach him at (330) 535-5711 or firstname.lastname@example.org.