By Laurie Israel, Esq.
Divorce rates have been decreasing since rising to record levels in the early 1980s. But divorce rates among Baby Boomer couples – even those in long-term marriages — have been increasing. A Pew Research Center report says that the divorce rate among people over 50 has doubled since 1990.
And the divorced Baby Boomers (those born in 1946 through 1964) are remarrying in record numbers. People are now using the term “gray” divorce for divorces of people in their 50s, 60s and even older. Many of these people have assets, retirement assets, homes, businesses, and children from their prior marriage. Understandably, they are very concerned about the financial consequences of the new marriage. They may want to consider having a “gray” prenup before they remarry.
Typical concerns of Baby Boomers when remarrying.
Very few people have a prenup when they marry the first time. People tend to be relatively young the first time around, usually without much in the way of assets. Having and raising children (and educating them) is part of the joint venture of the typical first marriage. Another aim of a first marriage is to develop and save marital property, such as retirement accounts and other assets, in order to provide financial security to the spouses as they retire and age.
When people remarry later in life, typical concerns are:
- Supporting the new spousal unit through retirement and old age.
- Payment of expenses and accumulation of marital property if the spouses have retired.
- Leaving assets to one’s children if the new marriage is ongoing at the time of death.
- Balancing the needs of the new spouse with the desire to assist one’s own children.
- The financial results if the marriage fails.
- How to ensure a peaceful divorce process if the marriage fails.
These are all concerns that can be addressed in a gray prenup.
What Gray Prenups can do.
In a prenup, a gray couple can decide how they will support themselves during the marriage. They can make a cohesive plan for withdrawing retirement assets, depending on their relative wealth. For instance, if one of the spouses has a very large retirement plan, and the other does not, the couple can make a mutual decision to rely more on the larger plan, and just withdraw required minimum distributions (RMDs) from the smaller plan.
The couple can commit to spending household expenses equally, or in proportion to their income or assets. Many couples do this informally, and can make decisions without wishing to memorialize them in a prenup. Having some discussions about these issues (and sometimes a written commitment in a prenup) can be useful for couples.
One problem with prenups stems from the strict distinction between “separate property” and “marital property.” Separate property is usually defined as all property brought into the marriage, as well as all past and future inherited property. Marital property is built up through the efforts of the spouses, usually by lifetime earnings in the workplace.
But what if the parties are retired and there is no chance to accumulate marital property and one of the gray spouses does not have adequate separate property to provide for his or her retirement? That spouse may feel totally unprotected in the case of divorce. This can create bad feelings that fester throughout a marriage. Prenups can change this dynamic and provide a fair result and a soft landing should the marriage fail, or if a more wealthy spouse predeceases a less-moneyed spouse.
In a gray marriage, people often wish to leave money to their children when they die and also want to provide for their new spouse. A prenup can specify the estate plan to be put into place by gray couple after their marriage, in order to end up with the result they desire. Assets of the deceased spouse can be divided between the surviving spouse and the deceased spouse’s children.
Some assets can be placed in a QTIP trust or credit shelter trust to benefit the surviving spouse during his or her lifetime. The remainder can go back to the children of the first spouse after the death of the surviving spouse. In a gray prenup, a couple can also plan together how they might financially help their children during the couple’s lifetime.
Prenups can avoid litigation.
A very attractive aspect of prenups is that they can define the legal process to use if the gray marriage ends in divorce. Most people understandably would like to avoid litigation, which is generally costly, protracted and disturbing.
A prenup can require an alternative dispute resolution (ADR) method if there is a divorce, or if there is a clash between the heirs of a spouse and the surviving spouse. These methods include mediation, collaborative law, and arbitration.
The dangers of prenups.
A prenup is not a silver bullet that can solve everything. Sometimes, prenups may have the opposite effect and cause problems. The process of negotiating a gray prenup can put a damper on the love between the new couple. Some couples even break off their engagements as a result. This situation is not helped by attorneys who view prenups purely as a business transaction.
People want the best for the person they love – that includes providing security and a fair financial result even if the marriage ends in divorce. Marriage relies on a great deal of mutual consideration and trust. Planning for a thoughtful and equitable prenup is giving your intended spouse “consideration” in the broadest sense of the word.
© 2018. Laurie Israel. All rights reserved.
Laurie Israel is Massachusetts attorney who works with high net worth clients planning for second marriages. Her writings on prenuptial agreements have appeared in the New York Times, the Wall Street Journal, and the Huffington Post. She is the author of the recently published book “The Generous Prenup: How to Support Your Marriage and Avoid the Pitfalls.”