Should You Have a Prenup for Your Second Marriage?

By: Laurie Israel

 

You were young, in love, and stars were in your eyes.  It seemed like you’d be together and happy forever.

For many (a little less than half of married couples), this turns out not to be the case.  For many reasons – boredom, personal changes, lack of connection – you name it – you realized that your marriage was at an end.

Hopefully, your divorce was peaceful, and during the divorce process, you remembered the good times and the kindnesses you did for each other during those 10 or 20 (or 30) years of marriage.  Perhaps you were lucky and experienced your divorce as the final caring act and combined effort of your marriage, leaving you both in good personal and financial shape.

A small percentage of you may have had very difficult divorces, with harsh litigation, and fighting over limited resources – and perhaps even the children.  Luckily, alternative ways of obtaining a divorce (such as mediation and collaborative law) are becoming much more well-known and recognized as options. With women becoming less financially dependent on men due to strides made in the workplace, the percentage of litigated divorces is lessening. This is a good thing for divorcing spouses, and for the children of a marriage.

Right now, you may not be thinking of re-partnering, but there is that possibility that you may eventually find another person you wish to marry.  Some divorcing people have already found that other person they choose to, this time, hopefully, spend the rest of their lives with.

I am a former divorce lawyer now concentrating my practice on prenuptial agreements. [http://www.laurieisrael.com] Having a prenup in place may not be the right choice for everyone, but it can be a very helpful step toward creating a strong second (or even third) marriage.

Here’s what a Prenuptial Agreement can do:

• A prenup can incorporate a non-litigation requirement. This will provide a couple with many steps that can prevent litigation if the marriage does not work out. Typically, my non-litigation terms specify that the couple must engage a mediator first. If the points of contention are not settled by that process, then the couple will need to try collaborative law.
• Finally, if settlement is still not achieved by any of those methods, the couple would be required to resolve any disputed issues through binding arbitration.
• Arbitration is an out-of-court process that is usually much quicker and less expensive than litigation. Its aim is to have the court issue a decree on the divorce, without having to go through the court process. (Note that binding arbitration is not available for child-related issues, over which the courts retain ultimate jurisdiction.)
• Many people in second marriages struggle to balance loyalty and love for their new spouse with devotion and protection toward their children from their prior marriage. This usually amounts to a desire to leave at least some of their assets upon their death, to their own children. This desire to protect their children’s financial situation may be stipulated and spelled out by the terms of their prenup.
• It’s important for new “gray marriage” couples not only to think about their own security and that of their children but also to consider the security of their new spouse, whether their marriage ends in divorce or death. Love is about caring, and part of caring is making sure your spouse is OK financially.
• Couples going into second marriages often are motivated by a need to have some certainty of what happens to their assets if their marriage were to end in divorce or death.
• A prenup should contain a well-thought-out plan of how to handle the couple’s assets –and how to handle and share income from assets and any earnings generated during the marriage — in order to achieve and sustain living expenses and reasonable financial security for both
• If the couple is retired and receiving social security and/or other retirement payments, a prenup can help them think through how that income will be used during the marriage.
• Many people entering into second marriages are actively engaged in businesses that they (or their parents) have created. You may be very concerned about possible claims your new spouse might make against the business if there is a divorce. A prenup can have provisions that will treat your new spouse fairly in terms of sharing earned income from the business, as well as restricting spousal rights to ownership interests in the business that might develop over time during the marriage.
• One possibility to address this would be to specify that any gain in the value of the business might be shared with the non-owning spouse in some other way, such as by distributing other assets to them in the case of divorce.
• You or your new spouse might have inherited wealth. This may be in the form of assets in the new spouse’s name, or by being beneficiaries of trusts. This type of access to wealth should be analyzed and planned for in the prenup process. The prenup can have provisions relating to payments and support from third party trusts.

Some caveats and things to think about:

When planning for a prenup, be mindful of the new retirement distribution rules set up by the federal SECURE Act of 2019.  In part, the Act requires that if your children are beneficiaries of your 401(k) and IRA retirement accounts, the entire account balance must be withdrawn by the beneficiaries within 10 years of your death.  All the funds that are withdrawn would be fully taxable to the beneficiaries.

On the other hand, a surviving spouse may withdraw money from a retirement account during their entire lifetime. This usually results in a much longer deferral of income tax.  A prenup can plan for this by giving your surviving spouse more retirement assets upon your death, and your children more of some other non-retirement assets.

Note that a prenuptial agreement should also always contain the skeletal requirements of a basic estate plan. This is due to the fact that an estate plan may be changed at any time – including up to the day of your death. This situation would not provide any certainty to you or to your surviving spouse, therefore your commitment to the financial well-being of each other should be secured by the terms of the prenup.

To balance the needs of your spouse and your children from a previous marriage, QTIP trusts can be established.  These trusts can hold funds to be used for the benefit of the surviving spouse while living, with the assets that remain upon your death, going to the children of your previous marriage. This can be a useful approach to protecting all of those whom you love – your current spouse and your children.

If you are deciding to enter into a prenup, think about the process you may wish to utilize in order to achieve that goal. Many couples start the prenup process through mediation.  In this way, the couple can work together with a mediator (usually an attorney who is familiar with prenups, tax law, marriage, and divorce) to help collaboratively set the financial terms of their upcoming marriage.

The mediator is a neutral facilitator who can guide the couple through what can be difficult conversations about how they will handle their finances.  The mediator can also help by suggesting options that may be included in a prenup that help the marriage run smoothly and without financial discord. It is encouraged for any couple opting for this process, to each engage their own attorney to look over the terms they have decided upon.

Whatever process you choose, do think initially about whether having a prenup for your second (or third) marriage is right for you. Will having a prenup support your marriage, or detract from it? Will it create peace or foster friction? Every couple has different values and financial specifics about their situation. Consider these when deciding on a prenup and the process you may wish to employ.

 

© 2023 Laurie Israel.

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Laurie Israel

Laurie began her involvement in the area of prenups as a representative for clients negotiating their agreements. She has experienced first-hand how couples can harm each other during the negotiation process in a way that may not easily be forgotten. Laurie believes that if not dealt with in an equitable manner, the content and process of some prenups can do irreparable damage to a couple embarking on marriage. The message in her book “The Generous Prenup” (Amazon) is that prenups are not to be taken lightly and should be used only when absolutely necessary, and when both parties are comfortable with the entire process and the resulting prenup. She believes the professionals involved should be keenly aware of the issue of fairness to both parties and consider the ultimate health of the ensuing marriage. Laurie’s website is laurieisrael.com, and she can be reached by [email protected]