Estate planning can be tricky when you or your spouse have had multiple marriages. This is especially true if you or your spouse have children from prior relationships or have specific assets you want to keep separate.
Estate planning traditionally involves leaving everything you own to your spouse — but this could result in your children being excluded from an inheritance. If you want to avoid a situation like this, here are some estate planning considerations when you or your spouse have had multiple marriages.
Estate planning after divorce considerations
It’s important to be aware that leaving your estate to your spouse outright could result in your children being disinherited. In the case of a second spouse, they might choose to leave some or all of your assets to their own children or other desired beneficiaries.
To avoid this situation, consider establishing a spousal trust. That way, your assets are placed in a trust for the benefit of whoever you choose. You can designate the trustee or co-trustees of the trust to manage the distribution of your estate, leaving some money to your children and the income from the trust to your spouse.
You can also provide that the trustee make distributions of principal to your surviving spouse for specific expenses that fall under the HEMS standard — health, education, maintenance, and support. When your spouse later passes away, you may choose to have the trust assets revert to your children or other beneficiaries.
Be aware that a spouse cannot be disinherited and is typically entitled to at least one-third of the deceased spouse’s estate. The only way for a spouse to be disinherited is with a prenuptial agreement stating each spouse waives their claim to the other spouse’s estate.
It’s important to carefully consider who you want to make your financial and medical decisions if you cannot make them yourself. Some people want their new spouse to make those decisions, while others prefer leaving their adult children with that authority.
Estate planning for divorce: questions to ask
It’s important to talk to your spouse about estate planning, especially if either of you has been married before. Some questions to discuss together include the following.
- Do you want to combine assets or keep them separate?
- Which specific assets will you hold as individuals versus jointly?
- What assets will be left to each of your children?
- Will any individual assets be retitled into both of your names?
- Are either of you bringing debt into the marriage?
- What estate planning documents do each of you currently have?
Divorce and estate planning tips
Take inventory of your finances
Something to do with your spouse right away is to take an inventory of your finances, for example, each of your assets and debts. It’s crucial to touch base on life insurance policies and retirement plans, as these assets will likely impact them directly.
Once you gain clarity on your finances, consider communicating with your spouse and children about your wishes for your assets so there are no surprises when settling the estate. It’s important to get the conversation out of the way early, so you are on the same page. Delaying the conversation could lead to conflict and confusion regarding how to handle your estate.
Some topics you want to cover with your spouse include:
- What your wishes are in the event you become incapacitated
- How you want them to handle matters after you pass away, including how and when to communicate the provisions of your estate plan to the relevant parties
You will not be around to mediate any disputes or disagreements between your current spouse and the children of prior relationships, so put safeguards in your estate plan to protect your spouse and children.
Update your beneficiaries
If you’re divorced, it’s essential to review your life insurance policies, annuities, bank accounts, retirement plans, and other assets that may have your ex-spouse listed as the beneficiary (unless you intend to leave your money to them).
Though it may seem tedious, it is crucial to check with all your financial institutions to ensure your beneficiaries are up-to-date and reflect your wishes.
Create a trust
Trusts can be a helpful estate planning tool for couples with blended families. For example, you can create a marital trust, which goes into effect upon the death of the first spouse. Creating a trust allows you to specify not only the who (beneficiaries) and what (amount of money) of your estate but also the how (distribution instructions).
Consider a prenup
Many couples opt for prenuptial agreements, especially those who marry later in life and aren’t each other's first spouse. Though prenups may be deemed “unromantic” or “tacky” by some, it’s a smart estate planning tool that has become more widely accepted. Prenups are completely customizable, and if you and your spouse decide to waive the legal right to each other's assets, prenups accomplish that.
Bring in a professional
Consider hiring a financial planner to act as a neutral third party to help mediate the estate planning discussion with your spouse. You can stick with your current advisor or find a new one together, but try to work with someone that charges by the hour to ensure objectivity. A good financial planner will help you understand the consequences of multiple marriages on your estate plan and overall financial situation.
Estate planning for blended families can be complicated, but it’s possible to protect your spouse and children with the right tools. Though it’s not the most romantic conversation to have with your new spouse, it’s a loving gesture to ensure they are provided for and that their wishes and needs are honored.