Marital Agreements as an Estate Planning Tool

A number of unique challenges arise when balancing the inheritances of a spouse, children from different relationships, and stepchildren. Unfortunately, the difficulties can continue after death, as lawsuits involving challenges to estate documents are more common in blended families than traditional families. A marital agreement (also known as a postnuptial agreement) can help prevent bad feelings after the death of a remarried parent.

Marital agreements (i.e., postnuptial agreements) are an essential tool for estate planning, especially for blended families. They are useful to clarify intent as to sharing assets upon the death of the spouses among the respective children of each of them. Marital agreements can put this intent into effect, if the spouses had not entered into a prenuptial agreement prior to the marriage addressing this issue. In many cases, developing a postnuptial agreement can eliminate conflict between the spouses, and among the children.

When people remarry, they tend to say things like, “I’ll keep my assets for my children, and you can keep your assets for your children.” However, an informal arrangement like that is difficult to administer and is legally unenforceable. Separate property can easily become comingled during the course of a marriage. “Mine” and “yours” becomes more difficult to define the longer a couple stays together. More significantly, the law will not uphold the verbal agreement without contractual documents reflecting the intent to keep property separate.

Many states have enacted “Spousal Elective Share” laws. These laws were designed to prevent a spouse from being completely disinherited, and also guard against substantial disinheritance. The surviving spouse has the option to receive whatever assets were designated in the estate plan or a predetermined percentage of the estate that is established by state law. The percentage a surviving spouse may elect to inherit ranges from a life interest in 1/3 to 1/2 of the estate. That means the property would be put in trust, and the surviving spouse would get the income from the investments for his or her life. In some states, the spousal elective share applies to both probate and non-probate assets, such as trusts.

Under the Uniform Probate Code, the asset distributions to an electing surviving spouse are much more complex, and may take into account other property, the length of the marriage, the existence of step children, and other factors. Some laws provide additional protections, like the ability to remain in the marital home for a certain amount of time regardless of who the house is devised to under the estate plan. The surviving spouse does not automatically inherit the larger amount, and must request application of the protective laws from the court that is overseeing the probate process.

Postnuptial agreements allow the parties to define exactly what they want, and can specifically state that the spousal elective share will not apply. There are many reasons why a nontraditional spousal inheritance might make sense: your spouse may have sufficient assets to provide for him/herself; property transfers made during your life might provide for your spouse; your spouse could be the named beneficiary on non-probate assets, such as life insurance; or the disability of your child or other loved one may compel you to leave a substantial inheritance to provide for that person. Because postnuptial agreements are mutually negotiated, the decision as to what happens to assets after death is a mutual one.