Divorce, Death, and Remarriage: Protect Your Assets From Your Spouse

Divorce, Death, and Remarriage: Protect Your Assets From Your Spouse

Ed. Note: This article first appeared in TheTimesHerald

Our estate planning discussions have reviewed leaving an inheritance to your spouse. But what if you do not want to leave anything to your spouse after you are gone? It could be the second marriage for both of you and you each want to leave what you have to your own kids from your first marriage. Or it could be family money that is going to follow the bloodline and be left to your descendants.

Every marriage ends. About half end in divorce and the other half end in death. Is it not wise to plan for it? You may not want a "Honey, I love you" plan, which is "Honey, I love you; I leave it all to you. Our other beneficiaries get it when we are both gone."

You may be single again after the death of your first spouse, or maybe after a divorce. Maybe you're getting married for the second, or third time.

You have accumulated some assets before your current marriage. Is there a way that you can protect those hard-earned assets for your children and keep them out of the hands of your new, and often much younger, spouse? With proper planning, the answer is yes.

If you do not have a will, upon your death, your new surviving spouse would have a right to take a share of your estate under the laws of intestate succession.

Your new surviving spouse would be entitled to take the first $150,000 of your estate, in 2017, and the remainder would be split 50/50 between your surviving spouse and the children from your prior marriage(s).

For example, I saw one case where a fellow was widowed after his wife of more than 30 years passed away. His children from that marriage were all grown up and out of the house. He met someone, fell in love and remarried.

Two weeks after the remarriage, he died. He had not prepared an estate plan, will, or trust. His estate was in excess of $800,000. Because he had left no instructions, his wife of only two weeks received nearly half a million dollars from his estate, whereas his children only received a little over $300,000.

This is probably not what he intended, but we will never know because he had no plan.

If you do have a will and don't leave your spouse more than a certain statutory amount, upon your death, your surviving spouse could elect to take against your will and receive a larger share of your estate. Your surviving spouse also may have a homestead allowance, exempt property allowance and/or a family allowance.

Michigan law does allow these spousal rights to be waived by your new spouse. All you would need to do is have your new spouse sign a contract, agreement or waiver of all of his or her rights in your estate after a fair disclosure of your assets. This can be done with a prenuptial agreement or postnuptial agreement.

In your pre- or post-nuptial agreement, you and your (soon-to-be) spouse, would agree to waive all rights in each other's property upon each of your deaths.

You would each have to disclose the nature and extent of your property to the other. With this agreement, your new spouse would no longer have any of the rights or allowances or claims against your property or your estate upon your death. It could go all to your children from your first marriage.

But how do you get your new spouse to sign a prenuptial agreement? Firstly, as soon as things start getting serious between you and your soon-to-be spouse, start discussing how you want to leave your assets and property to your kids. Springing it on him or her right before the wedding probably is not the best time to present it or expect it to be signed.

You also could plan for it long before you need it and when you and your first spouse are still living. Both you and your first spouse would each create a fully-funded trust with specific instructions in the event of a remarriage after the death of one of you.

Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it's putting your stuff in your trust.

Once all of your assets have been properly funded into your trusts, they would be subject to the instructions you each have put in your trust to protect those assets from claims of a new spouse if the survivor if you were to be remarried. This is called remarriage protection.

For example, in my trust, I have a provision that says if after I die, Emily marries Thor, her Swedish personal trainer, discretionary distributions out of my trust to Emily will stop, unless Thor signs a pre- or postnuptial agreement.

I have specified that in this pre- or postnuptial agreement, Thor would have to waive all of his rights to Emily's assets.

This provision has two main benefits. First, it protects all of Emily's assets from claims by Thor upon Emily's death. Even though Thor would never have a claim against the assets in my trust, without the pre- or postnuptial agreement requirement in my trust, Thor could have a claim against Emily's assets and the assets in Emily's trust.

Second, it takes the pressure off of Emily from asking Thor for a pre- or postnuptial agreement, because I am asking for it in my trust. Emily could say to Thor: "Thor, my love, that dead guy Matt says that I get no distributions from his trust unless you, Thor, my love, sign a pre- or postnuptial agreement."

Well, Emily said fair is fair, and put Bambi protection in her trust. If after Emily dies, I marry Bambi, my aerobics instructor, Bambi has to sign a pre- or postnuptial agreement or discretionary distributions to me from Emily's trust, stop. These provisions in our trusts protect our entire marital estate in both of our trusts for our children, Luke and Elizabeth.

But what if your spouse or spouse-to-be won't sign a pre- or postnuptial agreement or you do not want to disclose assets to your new spouse? Effective March 7, 2017, with the Michigan Qualified Dispositions in Trusts Act of 2016, you can set up an irrevocable trust, which if certain legal requirements are met, shields your assets from your spouse and other creditors.

This domestic asset protection trust may be used in addition to or as an alternative to a prenuptial agreement. If you are getting married and want to protect your assets, you do not need consent from your future spouse.

You do not need to tell him or her what assets you own. The trust property is not considered marital property, directly or indirectly, so long as the property is either transferred to the trust more than 30 days before marriage, or you and your new spouse agree.

You can protect your hard-earned assets for your children and free of any claims by Thor or Bambi.

With proper planning, you can control your property while you are alive and well, provide for you and your loved ones in the event you are mentally disabled, and after you are gone, you can give what you have to whom you want, when you want, the way you want.

Posted by: The Trust Advisor

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