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Remarriage Finances: Planning For A Family Merger--Not A Hostile Takeover

 

Part 10--Private Trusts and Premarital Agreements In Remarriage:

A Minefield of Conflicting Feelings And Interests

 

By: Joseph Warren Kniskern, Esq.

 

[PRELIMINARY NOTE: This article (and the one to follow) as to private trusts and premarital agreements is, perhaps, one of the most controversial sections in this entire series on remarriage finances.  However, as a Christian, and as a lawyer, I believe it is important for you and your remarriage partner to be fully informed and wise as to your options and alternatives.  Then you will be in a better position to determine how best to plan for your future and make your own decisions.  In presenting this material, I do not take any position on the advisability of using such private trusts and premarital agreements.  My intent is simply to present the issues, examine the pros and cons, and then leave the final decision to you as to what you and your mate want to do about it.  In all events, never proceed with using a private trust or premarital agreement without first receiving spiritual and marital counseling, as well as advice from a competent family lawyer.]

 

 

Newlyweds gingerly tiptoe around the subject.  Usually it takes a family crisis or divorce to become brutally honest.  What am I talking about?  It is the practical question nearly everyone dreads: "What happens to our family and assets if one of us dies, becomes disabled, or even if our remarriage fails?"  It is an inevitable spin-off of the separateness issue we discussed earlier in this series of articles.

            In 1970, prior to enactment of the "No Fault" Divorce Laws, the vast majority of individuals who married were wedded for the first time.  But now the numbers are almost equally split between first marriages, and spouses entering a remarriage according to the Census Bureau.  And a growing majority of remarried couples are using private trusts and/or premarital agreements.  Perhaps this is why the best-selling book in Amazon.com's marriage category in 1999 was "How To Write Your Own Premarital Agreement."

In any event, if you are considering remarriage, using a private trust and/or a premarital agreement is an option for your consideration—especially if one or both spouses has children from a previous marriage, owns a personal residence, has retirement benefits accrued over many years, or has substantial savings and investments through family inheritances or otherwise.  Never mind that Donald Trump believes that any wealthy individual who marries without a premarital agreement should be institutionalized.[1]  Forget about those who justify themselves by stating that there is a time when romance must yield a little bit to a dose of realism.  You must make your own decision about this matter, especially in light of God's Word and the material regarding biblical attitudes on wealth and possessions, discussed in the first article of this series.

It is true that some couples considering remarriage in recent years are using private trusts and premarital agreements to make their expectations and intentions clear from the beginning of the relationship and thereby minimize any misunderstandings later on.  But such trusts and premarital agreements are an emotional powder-keg for some people.  If the emotional upset and psychological distress of agreeing on these issues is too much for either or both spouses, these trusts and premarital agreements may cause more harm than good, as we shall see.

 

What Are Premarital Agreements?  A premarital agreement between spouses considering remarriage outlines how property is to be divided, spouse support and other matters in the event of any future divorce.  When spouses are not financially equal, such agreements also can protect spouses (and their lawyers) from exploiting each other.[2]  But, as we shall see, there are many other purposes for such agreements.

Premarital agreements are a fairly recent development among married couples.  Throughout the history of common law, courts generally would not recognize contracts between a husband and wife, based in part on society's interest in the family and the belief that marital rights cannot be subject to fair and imbalanced negotiations.  But courts also began realizing the benefit of marital agreements dealing with spousal rights if death terminated a marriage.  This led to using such agreements for other marital situations as well.

Then, in 1983, the National Conference of Commissioners on Uniform State Laws noted the increasing frequency of multiple marriages and growing popularity of premarital agreements.  After addressing the concerns of many lawyers regarding the uncertainty and lack of uniformity in enforcement of premarital agreements, the Commissioners adopted the Uniform Premarital Agreement Act (UPAA).[3]   Adopted in a majority of states as of 2002, this Act provides that virtually everything, except for child support and custody matters, may be contracted for in a premarital agreement, as long as it is, in the words of the Act, "not in violation of public policy".

 

What Are Private Trusts?  We have already discussed some forms of these trusts in the estate planning section earlier in this series (Part 7).  Trusts generally are legal agreements providing for dividing the ownership of assets from management of those assets.  These trusts can be revocable trusts, where the person setting up the trust reserves the power to amend or revoke the trust, or irrevocable trusts, where this power has been surrendered.

Private trusts serve important practical purposes.  For example, in the case of Roger and Vickie and use of the life insurance proceeds belonging to Vickie's children (discussed in Part 4 of this series), Vickie (or her deceased husband) might have made these funds "untouchable" by putting this money into an irrevocable private trust for the sole benefit of their children with a bank or other trusted person serving as trustee.  The children would then be the rightful owners of these funds, but the trustee would have control over how those proceeds were invested and spent until the time came for the purpose of the trust to be fulfilled (paying for each child's college education).  A private trust of this sort might have taken some of the pressure off Vickie in resisting Roger's demand that they dip into these funds to save his business.  It would have been easier for Vickie to say, "But Sweetheart, we both knew in advance that neither of us would ever use this money for anything else but for the children.  It's in trust for them—we can't touch it."  Without any such private trust, the choice for Vickie was a lot more clouded and difficult to manage.

There are a number of different private trusts of this sort to choose from, with different income and estate tax consequences.  Be sure to check with an experienced and competent estate planning advisor as to your options in this regard.

 

What Purposes Do Private Trusts And Premarital Agreements Serve?  Here are a few possibilities:

 

·         Spouses can agree on what each will bring into the remarriage and how it will be shared.  Remarried couples will have many different ideas about how they want to account for the assets each brings into the marriage.  They need to resolve how their personal premarital assets will be used and enjoyed.  If a couple chooses to "throw everything into one pot," which would be most unusual in many blending family situations, then use of a premarital agreement may be appropriate for spelling everything out in writing, so there is no future misunderstanding.  If some personal assets are to be set aside for specific persons or purposes, then a private trust could be helpful.

For example, a couple may agree that property titled in each spouse's name will remain the same after remarriage and always be the property of the titleholder.  But what if the non-titleholder spouse does something that makes the titleholder spouse's property dramatically increase in value beyond mere passive appreciation through inflation and normal market increases?  The couple may want to reward that non-titleholder for his or her efforts in some way.  Premarital agreements could serve this purpose.

What about each spouse's individual retirement plan?  Will each person's retirement plan remain their own asset?  How will additional contributions be made from joint or personal funds?  The couple can specify this in a private trust or a premarital agreement.

If the couple purchases a new home in their joint names, but each spouse contributed unequal amounts of premarital funds to buy the home, they could agree that they would share in any appreciation in value in the same proportion as they contributed to the purchase price.  For example, if the husband contributed 60 percent of the purchase price, while the wife put in 40 percent, on any resale of the home they would split the appreciation in the same percentages.  Or they could agree to just reimburse themselves for their contributions and then split the appreciation 50/50 after that.  All of these planning measures and agreements are appropriate in premarital agreements.  The law does not help much in deciding these issues for you.

How will the spouses treat untitled assets, such as furniture, jewelry and other property?  Will these be kept by the spouse bringing the item into the remarriage, or divided equally whenever they are sold?  If all of these matters were spelled out in a premarital agreement, or even in a non-legal letter agreement of understanding, it could help avoid misunderstandings and conflict later on.

·         Spouses can agree as to how premarital debts will be handled.  For example, both spouses could agree that each person is responsible for his or her own debts, incurred prior to the remarriage, as is typical in most premarital agreements.  Or one spouse may commit to helping his or her mate pay off premarital debts in specified ways under certain conditions.  There are many options available, as long as both spouses are fair and considerate of each other.

·         Spouses can protect their children.  Just as a private trust might have helped Vickie and Roger's situation, many older couples want to protect and provided for their children, and perhaps even grandchildren, from a prior marriage.  They may not want anyone else to receive assets or monies earmarked for those children.  Premarital agreements can list and categorize the non-marital property, and designate which particular children will have the right to receive those assets upon any disability, death or divorce.  Alternatively, private trusts can keep these assets separate for the exclusive benefit of the children.

 

·         Protects family businesses.  With the greatest intergenerational transfer of wealth in history to occur in the United States over the next decade, an estimated $10 trillion dollars is expected to be passed along from parents to baby boomer children, with much of this wealth tied up in family business stock.  Because of this fact, more and more private business trusts and premarital agreements are being designed and used to keep family businesses from becoming the spoils in divorce cases.

Premarital agreements even include confidentiality clauses, which bar divorcing spouses from revealing family or corporate secrets.  No family wants to have its business destroyed over a personal failing of one child and his or her spouse.[4]

·         Spouses can agree to exceed what the law requires of them.  For example, courts have the authority to require parents to support a child only until that child reaches the age of majority or is otherwise emancipated.  But what about a child's college expenses?  Private agreements help spouses mutually commit to expand their obligations beyond legal requirements by agreeing on such matters as: (a) how the expenses will be shared between the spouses (and the child, if desired); (b) whether there are any limitations on subsidizing college, such as choice of school, whether college must be completed by a certain date, minimum grade expectations; and (c) whether college expense commitments continue after the death of either or both spouses.  The law will not help you map out all of these decisions, but premarital agreements can do it as you and your spouse mutually agree.

In blending family situations, a stepparent usually has no legal duty to support a stepchild during a marriage or after his or her death or divorce.  But remarried spouses in this case can assume various obligations in various private agreements that courts will recognize and enforce if it becomes necessary.

There are numerous options and possibilities as to what remarried couples can agree upon, as long as the issues are not against public policy.

 

Advantages Of Private Trusts, Premarital Agreements And Other Private Agreements.         

 

·         Guard against future misunderstandings among remarriage partners.  Guidelines and restrictions in private trusts and premarital agreements can resolve issues in advance—before emotions are running high after a death, disability or divorce occurs. It may make sense for a couple to decide these matters at the start of a remarriage, when each party is lovingly cooperative.  Many believe it is better if a couple discusses these matters early in a serious dating relationship.  This is especially true in states where the laws are not fair to both spouses.   Partners begin with a partnership agreement.  From a legal and economic standpoint, a remarriage partnership may be no different, as each "partner" brings in unequal assets and commitments into the relationship.  If spouses resolve property matters in advance, divorces would be over in a short time.  In fact, such agreements help insulate a couple from destruction of the marriage since many divorces thrive in situations where spouses are "surprised" by uncertainties and unrealistic expectations.
 

·         Allow you to tailor your lives to your own family circumstances.  Private trusts and premarital agreements provide you and your spouse with a wide range of options to consider in deciding how best to plan for the future.  For example, one couple agreed in their premarital agreement that each spouse would keep separate bank accounts and trust funds but share living expenses.  But if either spouse became ill and depleted his or her funds, the other would pay for the ill spouse's care.  Another spouse wanted to ensure that his elderly parents and children from a first marriage were provided for in the event of his death.  His premarital agreement provided for leaving his estate to his parents and children, but also required him to secure and maintain a suitable insurance policy in favor of his second wife.  The possibilities are almost endless.

·         Reduce interference from lawyers and courts.  If you do not have such any such private agreements, you are conceding authority to dispassionate judges and warring lawyers who will decide your affairs during a low and most vulnerable time of your life (divorce) with little or no input from you!  Therefore, you may want to retain some control over your life, by voluntarily expressing your desires in advance.  You can express how you wish to use your resources, rather than having some judge say you must do something against your will.

If there is no Will, private trust, premarital agreement or other private agreement stating to the contrary, State laws can override the intent of a remarried couple.  This might occur if the couple truly wanted to elevate the interests of a stepparent in connection with a stepchild, if the biological parent dies for example.

 

Disadvantages Of Private Trusts, Premarital Agreements And Other Private Agreements.  
 

·         Bring an element of doubt into the remarriage.  This single factor alone cannot be overemphasized—it is an extremely important disadvantage.  To a couple in love, the entire issue can communicate "I don't trust you."  The underlying message is that you are planning for a remarriage that may not last "until death do we part."  It is one thing to enter a remarriage with the realistic understanding that, "Yes, divorces can happen, even to committed Christians like us."  It is quite another to prepare for that eventuality with such an agreement.  It can have the emotional effect of saying, "I'm hedging my bets on this marriage," a potentially cancerous message and attitude.

Perceived mistrust also can become a self-fulfilling prophesy.  If a spouse perceives mistrust, he or she may act accordingly.  To spouses who are business-oriented, an agreement may be good.  Although not pleasant to think about, planning is prudent—like making a will or buying life insurance.  But there is no doubt that the emotional side of these agreements can be emotionally devastating to the most mature and secure person.

For Christians, premarital agreements can send an even stronger negative message.  Christians can, and should, view the remarriage as lasting for life.  But, as we know all too well, Christians are not immune to the divorce disease—many times, because of hard hearts.  If an agreement can be sensitively discussed by a couple before marriage, it may useful if needed in circumstances.  However, if the agreement only fosters bitterness and emotional turmoil just before a remarriage, the couple will have to weigh whether using an agreement is worth the price, or even if pursuing the relationship is appropriate.
 

·         Bring lawyers and legal concerns between a couple in love.  Cartoonist Leo Cullum pictured a young woman seated at a bar addressing a young suitor, "I feel we're ready to take the next step, Michael.  This weekend I'd like you to meet my attorney."[5]  Another cartoon shows a couple at a wedding appearing before a minister reading from a script prepared by a lawyer standing by his side: "And now Mr. T.A. Hester of Fulton, Hestor & Parker will read a brief synopsis of the prenuptial agreement."[6]  Still another cartoon shows a couple speeding down a highway with "Just Married" signs and dragging the traditional cans on the road while passing a bride driving another vehicle in the opposite direction plastered with a sign, "Just Read Prenuptial Agreement" and dragging her screaming tuxedoed groom behind her car![7]

Legal matters like private trusts, premarital agreements and similar private agreements can be scary and intimidating.  There are few couples who want to tangle with the hassle and expense of financial self-protection issues and lawyers at a time when weddings and relationships are on everyone's mind.

·         Even extended family members can unreasonably pressure a couple into private agreements.  Some parents are even going so far as insisting that their sons and daughters use private trusts and premarital agreements, or forfeit any stock in the family enterprise—often called "scotchguarding a business".  Sometimes parental pressure becomes overwhelming.  Billionaire financier Ronald O. Perelman, chairman of Revlon Inc., in a much-publicized feud, boycotted his son's wedding ostensibly because he refused to secure a premarital agreement from his bride.[8]

 

In our next installment, we'll investigate further into the significant psychological factors affecting these private agreements, as well as the many legal issues involved, and also suggest some practical ways to help take some of the "sting" out of these arrangements.


 

Next: Private Trusts and Premarital Agreements In Remarriage--Psychological and Legal Concerns.

 

 

Joseph Warren Kniskern is a Christian attorney, mediator, and author of "When The Vow Breaks: A Survival and Recovery Guide For Christians Facing Divorce," and "Making A NEW Vow: A Christian Guide To Remarriage And Blending Families," both available from Broadman & Holman Publishers, Inc. in Nashville, Tennessee.

 

 



       [1] "Prenuptial Agreements Can Be Essential for the Wealthy," Tampa Tribune, August 20, 1997, at Page 7.

       [2]  For example, if one spouse has more assets or higher income than the other, a premarital agreement protects the wealthier spouse from "golddiggers."  Sometimes parents of a bride or groom feel uncomfortable about their future in-law for some reason.  If they want to continue a gift-giving plan to their natural child, concern may arise about possible exploitation of their generosity by the stranger coming into the family.  No one wants to see hard earned gifts fall into the grasp of unintended beneficiaries.

   [3]  9B Uniform Laws Annotated (Master Edition) 369 (1987).  The full text of this Act can be found on the Internet at http://www.law.upenn.edu/bll/ulc/fnact99/1980s/upaa83.htm.

      [4]  One common destructive scenario in which a divorcing spouse can wreak havoc on a family business occurs when a patriarch gives a large block of stock in the business to his son and, in exchange, gives the son a lower salary.  When the son divorces, his wife argues that she's entitled to a stake in the company because her husband sacrificed higher income for stock that he is keeping.

      [5]  Barron's Magazine, August 14, 2000, Page 36.

      [6]  The Florida Bar News, October 15, 1998, Page 9.

      [7]  The Florida Bar News, September 15, 1997, Page 6.

      [8]  Anita Sharpe, "Prenuptial Pacts Shield Businesses from an Heir's Ex," Wall Street Journal, June 19, 1996.

 

 
Comments ( 8 )
 
Add your Comment
 
#8: by Karen on 07.09.2008 @ 04:18pm CDT

By the way, it also stated my kids get nothing either...another reason to hold onto my house for them. So I can see this will be a major cause of future problems as he wants me to sell my house to avoid 2 house notes in the family.
#7: by Karen on 07.09.2008 @ 04:14pm CDT

Yesterday, Tuesday, I was presented with a prenup by my fiance as we were on our way to get the marriage license to be married this Saturday. I was shocked to see that it wasn't just about divorce.(I could deal with that as I wanted him to know I wasn't a gold-digger because he has more money and assets)...but it stated that I get nothing at all in case of divorce or separation or death. Which means if I am married 40 years and he passed away then I'm on the street after selling my own home as he wants me to do? I was so upset that he could have asked me to sign that. He said he didnt know it said that and we went to his lawyer who supposedly is making a will out so I will be be left his house in event of his death. I went ahead and signed the prenup to show him I love him. I didn't have money for my own lawyer anyway and wanted him to know I wasn't marrying him for his assets. Now I feel like he's holding all the cards. He gets a free pass to walk away even if he cheats and I will get nothing. So there has been a terrible price paid here...he gets the knowledge that I'm not a gold-digger and I get the knowledge that he ultimately doesn't trust me. I will have to look out for myself and keep all my assets separate in this marriage. I feel like I should now keep my house in case he divorces me as I will now be entitled to nothing. I just feel so depressed now at what should be a happy time.
#6: by Warren Kniskern on 04.25.2008 @ 10:38pm CDT

Thanks for commenting, Carol. This isn't an easy question to answer. But your approach is a reasonable and appropriate one. You and your husband should have estate planning completed for many good reasons. I would think this exercise would prompt full disclosure of everything. If your husband blocks your effort in this regard, this could indicate a deeper marital problem. He seems to be sensitive to inquiries into the possible existence of the trust. It begs the question as to why this is happening. Does he not trust you? Does he feel the need for self-protection? If he is not making full disclosure to you of his assets, he could be on a slippery slope legally. No matter what reasons he may have, however, I would urge you and your husband to get marital counseling. Also, I would not recommend pushing too far on the legal front without counseling unless you want to put your marriage at risk.
#5: by Carol on 04.25.2008 @ 06:24am CDT

My husband of several years has a large trust fund as well as his children. I have seen tax statements, but he denies everything. When I approach him about this he becomes very angry and distance and tells me that there is nothing there. My heart is heavy and burdened over this and has been for a long time. I want an attorney to have a will put in place but how can I prove that this is in existence if he will not be open and honest with me? I want to protect and provide my children too.
#4: by Warren Kniskern on 04.08.2008 @ 05:40pm CDT

Very valid question, Jan. Leaving and cleaving is the essence of what marriage is all about. This certainly is easier to accomplish in a first marriage involving just a husband and wife. I wish the Lord had told us more about how leaving and cleaving applies to remarriages with stepchildren, ex-spouses and in-laws, child and spouse support, wills and trusts of deceased spouses, etc. It isn't an easy situation when a couple is compelled to consider factors--financial and otherwise--beyond just those applying directly to the two spouses! (Re-read Roger and Vicky's story in Part 4 of this series, as one of many examples of the problems remarrieds face.) Yet we cannot ignore these significant responsibilities, nor would the Lord want us to!

For those interested in this matter, there are some other options to consider. Stay tuned for that information coming up in the next installment of this series. Thanks again for your feedback!
#3: by Jan Sexton on 04.04.2008 @ 09:40am CDT

What about the Covenant of marriage taught in Genesis? This covenant carried out is two becoming one flesh ("putting on" the other person and giving up independent living), becoming responsible for one another and all we possess being held in common? This is difficult in a first marriage and even more so in remarriage, but do we disobey God's commands for marriage just because of difficulty? I wouldn't think so.
#2: by Warren Kniskern on 04.02.2008 @ 03:43pm CDT

You have accurately expressed the very common tug-of-war many engaged individuals experience between the emotional and legal aspects of using prenuptial agreements, Tonya. Given the much greater risk of emotional turmoil going into most remarriages, bringing additional doubts and desire for self-protection so early on into the relationship can erode the foundation of couplehood and make planning for divorce a self-fulfilling prophesy. Counseling is a must! Thanks for your comment!
#1: by Tonya on 04.02.2008 @ 11:22am CDT

I signed a prenup before going into my second marriage. When asked by my fiance' if I would be willing to sign one, I immediately said I would. He had accumulated a lot of wealth and owned two family businesses. I knew I wasn't marrying him for his money and I felt that this was one way to prove that to him. I wasn't prepared for the feelings of humiliation when we were in the lawyer's office. I felt he was telling everyone that he didn't trust me and he had to have a legal document to protect himself from me. I also wasn't prepared for the feeling of what I felt was selfishness on his part. After all, if he really loved me wouldn't he want to share his blessings with me? It was as if he was saying, "I love you but this is mine and all mine and you can't have any of it." I have definitely put a wall up and I don't want it this way. I would highly recommend counseling in conjuction with a prenup.

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