Although second marriages are more common than ever, developing an estate plan for couples in second marriages can be complicated and challenging, especially when one or both spouses have children from prior relationships as well as an accumulation of wealth and assets that each spouse has brought to the marriage. As an attorney who settles estates, I often find that spouses in second marriages have not done any planning to address how their assets should be allocated between their surviving spouse and their respective children. This can lead to disagreement and litigation as the surviving spouse and children of the deceased each attempt to determine the deceased spouse’s intentions.
While there are a variety of reasons individuals and couples procrastinate in completing an estate plan, I have found that many times spouses in second marriages have simply made the incorrect assumption that if they keep the assets that they have each accumulated prior to the marriage in their separate names that they can easily and seamlessly leave assets to their respective children without involving their spouse. Unfortunately, this does not work under Wisconsin’s marital property laws.
Why does planning matter?
Under Wisconsin law, all property of spouses is presumed to be marital, regardless of whether spouses hold assets in their own names or keep their assets physically separate. This means that spouses are only free to leave half of all marital property to their children, since their spouse is presumed to already own the other half. This can have disastrous consequences to an intended distribution upon death, particularly when naming the spouse or children on a life insurance policy, retirement account, or other financial account as a direct beneficiary. These designations do not take into account that both the children and the spouse are each entitled by law to a portion of the assets, regardless of the beneficiary designation.
Fortunately, spouses are free to opt out of marital property law by executing a marital property agreement. While we often think of marital property agreements as a contract spouses enter into in case they divorce (also called prenuptial agreements), marital property agreements are widely used in estate planning to create a clear plan and obligations about the distribution of property upon death. A marital property agreement coupled with a Will or Trust that spells out the decedent’s intentions is important to make sure that both the surviving spouse and the children of the prior relationship receive those portions of the estate as intended by the decedent.
What if you are in a second marriage but do not have a marital property agreement?
If there is no marital property agreement and a spouse dies without a Will (called dying “intestate”), the assets automatically go to the living spouse. However, in second marriages where there are children from a prior relationship, the children from the prior relationship are entitled to one-half of the deceased spouse’s individual property and all of the deceased spouse’s interest in marital property. Surviving spouses are often surprised to find that one-half of the property that they brought to the marriage is also a part of the deceased spouse’s estate, and that the children from the prior relationship may be entitled to half of the value.
This is where things can get complicated and why estate planning documents (like marital property agreements, wills and trusts) are so important in second marriages. After death, disputes commonly arise about property division. This can lead to a lack of trust and damaged relationships among the survivors. Furthermore, either the spouse or the children may be the only ones to have access to relevant financial information while others don’t. It is important to make sure you have Powers of Attorney for healthcare and finances in place so spouses can name who may make decisions on their behalf in order to avoid spouses and children battling for control through the courts.
While estate planning for couples in second marriages can be more complicated than for first marriages, advanced planning to make sure that your intentions are clear goes a long way to avoid litigation, financial and emotional fallout for all parties involved.