Financial Success

Estate Planning and the Divorced Spouse

In planning estates over the years, the question has been frequently asked, “What happens to my property if I divorce my spouse? …. If I divorce my spouse, are there any changes I have to make to my will and existing estate plan to protect my property?”

The answer to both questions is that in most states, and certainly in Pennsylvania, a former spouse has the right to receive some portion of the “marital property.” “Marital property” may include much of the property (including pensions, stocks, business interests and real estate) acquired by both parties during marriage. A “marital property settlement agreement” is an agreement between the parties indicating a division of the “marital property” which modifies the former spouse’s right to the marital assets. In situations where the divorcing parties have signed a “marital property settlement agreement”, that agreement may have very important implications to each spouse’s future estate plan and should be considered when revising a will and planning for heirs, including a second spouse.

Why plan your estate in the first place? A spouse without an estate plan may die without a will or with an out-of-date will. If the property comprising the estate and the ownership of estate assets have not been treated in the will, the estate plan will not accomplish its purpose. Some unintended results of an unplanned estate may include the transfer of assets to the “wrong” beneficiaries; the transfer of property to a beneficiary incapable of handling the property; the transfer of portions of a parent’s estate to children, leaving the surviving spouse with insufficient funds; unnecessarily high estate taxes which diminish the estate; unnecessarily high estate administration costs and legal fees; and a lack of cash requiring the forced sale of estate assets to raise money to pay expenses and taxes. The unfortunate result is that the decedent’s survivors, including the surviving spouse, in addition to the normal trauma caused by the death, may experience family bitterness and reduced financial security.

Second marriages present unique and sometimes problematic estate-planning challenges. The trouble arises because many people have children from their first marriage and want to assure that all or most of their estate goes to those children. Alternatively, if there are children from one, two, or more marriages, making sure the children and the current spouse are all taken care of can be very difficult. The best way to plan for a second marriage is through the use of a marriage contract. Most property ownership problems are capable of being solved using such a contract. If a marriage contract was overlooked prior to marriage, a marriage contract prepared during marriage may offer relief. In the absence of a marriage contract, the second spouse acquires essentially the same property rights as a prior spouse under Pennsylvania law.

 How might your estate plan include your second spouse? Your second spouse, after your death, may, under Pennsylvania law “elect” against your will and perhaps even your trust. There are two methods generally used to allow spouses to assure themselves that their spouses will not successfully elect against their wills or trusts. The first technique is called a pre-marriage contract. Attorneys refer to this contract as a pre-marital, or ante-nuptial, contract. The second technique is called an after-marriage contract and is referred to by attorneys as a post-nuptial agreement. A pre-marriage contract is used by persons who wish to marry but who also wish to establish their right to leave their property to their loved ones prior to taking their marriage vows. The right of potential spouses to enter into pre-marriage contracts is recognized in Pennsylvania. Premarriage contracts have been in use for centuries and are used more than ever today, particularly in second marriages. In order for these agreements to be valid, the following requirements usually must be met. Each party must be bound to the agreement and consent to it. Each party must totally disclose all assets. The agreement must be in writing. Both parties must understand what they are signing. Pre-marriage contracts make it possible for the spouses to protect the inheritance rights of their respective children by prior marriages and, as a result, prevent strife over the disposition of their estates. The law of Pennsylvania favors these contracts if they are properly prepared.

After-marriage contracts may also be used to set forth the spouses’ inheritance wishes. They are not legally recognized to the extent that pre-marriage contracts are. Post-marriage contracts require that they are negotiated in good faith and are reduced to writing; there is complete and frank disclosure of all the economic facts of each party; the provisions must be fair and reasonable; and the circumstances leading up to the signed agreement must be free of fraud, duress, and undue influence of any kind. After-marriage contracts are looked upon with suspicion by courts and, as a result, must be entered into very carefully. Because of this suspicion, the requirements of an after-marriage contract, where permitted, are much more complicated and rigorous. Given a choice between signing a premarriage contract or an after-marriage contract, you should always opt for the former; they are valid and binding, if fair, and fairly made, and have always been favored in law.

You and your spouse should each have your own separate estate plan. Your estate plans may be identical, but they are not required to be. You and your partner may have different ideas as to how your property is to be used upon your disability. You may each have different feelings as to who should receive your property or how it should be provided for on your death. You may have different beneficiaries, beneficiaries of different ages, or beneficiaries who have widely varying needs. You may also be subject to different divorce settlement agreements, perhaps even subject to different state laws.

In second-marriage estate planning your initial step is to grasp your situation. You should examine your goals and desires for your heirs in detail and determine what you really want to accomplish. Some issues will be very difficult to resolve. The fairness and rivalries and all other human aspects of planning for loved ones may affect your decision-making. You should attempt to simplify your possible plan to several primary goals, then make your choices. You will not achieve perfection, but by optimizing your choices you actually do something and avoid leaving your estate to chance and fate.

This article is intended as a general review of some practical and legal considerations for estate planning for the divorced spouse. It is not intended as a substitute for sound legal advice rendered by an attorney competent in the areas of divorce, estate and tax planning who is familiar with your specific situation. Should you find yourself in need of answers to your estate and divorce matters, we recommend that you consult such an attorney.