There’s a lot of talk these days about “gray divorce,” the phenomenon of older couples divorcing, and the implications for these couples who are nearing or already in retirement. But there’s much less attention paid to “gray marriage.”
Planning for the financial implications of marriage when a professional’s practice and net worth are well established and producing significant income, with retirement on the horizon, is key to protecting what you’ve worked so hard to build.
In my experience, these gray marriages often involve two successful spouses. Both want to protect their life’s work and savings and provide assurance that their children or grandchildren from prior relationships will benefit from their success. Both also want to strike a balance between those concerns and caring and providing for their new spouse.
However, sometimes only one partner has built a practice and acquired significant assets. In those cases, one prospective spouse has more to think about than the other. Whatever your status, if you’re considering a gray marriage, it’s all about protecting your practice, your savings, and your future income without killing the relationship in the process.
Marriage: Right for You?
Before we delve into how to protect yourself if you get married, perhaps you need to think about whether getting married at this point makes sense. I recently met with a client approaching retirement who wanted some pre-marriage planning. In discussing her needs and goals, she didn’t mention any goals that required marriage.
I asked, “So why do you need to get married?” Her head tilted. One eyebrow arched. She paused. Then she said, “I’m not sure.”
As I explained to her, from a legal perspective, the safest thing you can do to protect yourself may be to not get married. Many jurisdictions (including my own) provide little or no protection for unmarried partners when the relationship ends. So if you don’t get married, you’ll avoid many of the legal and financial risks you otherwise need to manage.
But for many, the pull of tradition and religious beliefs and the symbolic power of marriage make it a necessity. Nonetheless, it makes sense to ask yourself whether the legal relationship created by marriage, as opposed to simply living with someone in a loving and committed relationship, will meet your needs.
If that answer is no, you may want to consider a cohabitation agreement. The fall of marriage rates and the rise of nontraditional family structures and unmarried partners living in the same household have required attorneys to find ways to protect these couples as the laws struggle to catch up. These agreements can address many of the same issues as a prenuptial agreement for unmarried couples. If you want the predictability of predetermined outcomes but don’t intend to get married, a cohabitation agreement may be wise.
That being said, if marriage is the plan, then there are four categories of legal documents you need to consider: prenuptial agreements, estate plans, corporate documentation, and deeds.
Prenup: Your Primary Defense
Prenuptial agreements, aka premarital agreements or prenups, are a primary tool for determining how the marriage will operate and what will happen with income, assets, and debts if the parties separate or divorce. Prenups are valid in all 50 states. As of 2019, 28 states have adopted the Uniform Premarital Agreement Act, with slight variations among states.
Alimony is a big point of contention in divorce, has unpredictable outcomes in court, and therefore presents a great deal of risk. Alimony fuels lengthy and expensive legal battles. A prenup can dictate in advance whether someone will pay alimony later, at what amount, for how long, and the conditions that would terminate the payments. However, keep in mind that if an alimony waiver in a prenuptial agreement leaves a spouse on public assistance, the government can still require you to financially support your spouse.
Your legal practice, or your ownership interest in it, is an asset that can be valued and distributed in a divorce. Unlike alimony, most states have fairly clear laws about how property and debts are divided upon divorce. But your prenup can predetermine who gets what. And more importantly, the prenup can provide very clear rules for the division of property or debt that’s obtained during the marriage and the appreciation of, and income from, your practice upon divorce.
Complex issues for law practices arise where your spouse works in the practice during the marriage and where your practice appreciates or depreciates during the marriage. Valuations of law practices for divorce purposes are expensive and fuel litigation when experts disagree on values. A prenup can dictate how those issues will be determined in advance, saving untold time and money on the back end.
An often-overlooked issue to address in a prenup is whether you’ll each be named as the death beneficiary on retirement accounts, life insurance policies, and other payable-on-death accounts. Those rights can often be predetermined so that you can each name your adult children or grandchildren as beneficiaries of those accounts.
A Difficult Conversation
Even if you know a prenup is right for you, the hard part remains: Talking about it! The trick for prenups is in broaching the topic and then discussing it in a way that honors each other and the relationship without ruining things before the wedding.
Pre-marital counseling is a great way to broach the topic. As a divorce lawyer, I can say that an ounce of prevention is worth several pounds of cure. Some religious institutions require pre-marital counseling. Financial counselors, certified financial planners, and other financial professionals can help you plan for future financial issues, and a prenuptial agreement is a natural part of those discussions. Another natural place for a prenup to come up is in talking to your respective estate planning attorneys.
Even if you both agree to use a prenup, negotiating its terms can be delicate. Traditional legal models aren’t well suited to prenup negotiations because the traditional tactics of bluff, puff, demand, leverage, threat, and secrecy can easily destroy the relationship. Interest-based negotiations used in collaborative law and by some mediators are designed to support sensitive negotiations while protecting the relationship between the parties.
Corporate Documents can Help
Many business owners, including attorneys, don’t realize that corporate documents can offer protections from divorce. Nonalienation provisions and mandatory buy-sell agreements in shareholder agreements, operating agreements, and other appropriate corporate documents prevent ownership interests from being transferred to spouses or other third parties to help ensure that the business stays with the owners.
So it makes sense to have these completed before the marriage, if it’s possible. Your business attorney can help you determine the best strategies for these protections.
If you practice as a sole proprietor, then your practice will be just another asset to be addressed in a divorce. A prenup may prove your best tool for protection in this scenario.
Estate Planning before Marriage
Estate planning documents are an integral part of the documentation needed to prepare for marriage in later life. That includes a will and health care power of attorney. It can also include a general power of attorney, trust instruments, and other documents that ensure that your estate goes where you want it to go later.
One of the primary needs I hear from clients who are getting married later in life is that their children benefit from their success, instead of their new spouse’s children. Estate planning documents are crucial to ensuring your wishes are carried out.
Many states have laws designed to protect spouses in the event of the death of the other. These include laws that mandate that certain percentages or amounts go to the surviving spouse upon death, life estates, and similar protections. But these rights can frequently be waived in a prenup or other document, allowing more freedom for both spouses to dispose of their estate in the way they see fit.
And your plan may only be part of the picture. Coordinating estate plans with your future spouse can be necessary to make sure that everyone’s expectations are met down the road.
Consider Titles to Property
Deeds are another important document to consider before marriage. There may be reasons both for and against jointly titling real property upon marriage. Protection from creditors, wanting it to feel like “ours,”and joint contributions to the purchase of real property are just some of the motivations I’ve encountered. But in some states, jointly titling real property can have serious consequences upon divorce. For example, North Carolina’s marital gift presumption causes separate funds used to purchase real property before marriage to become marital property if the property is subsequently deeded to both spouses together. This frequently surprises people in divorce.
Some clients have heard that putting assets in a trust is a good way to protect themselves in a future divorce. While a trust can be an effective tool for some purposes, revocable trusts in which you maintain effective control over the assets and income may provide less protection in divorce than a prenup, estate plan, and solid corporate documents.
Your Options are Vast
The good news for an attorney considering a later-life marriage is that you have options. Divorce and estate planning laws differ from state to state, so consult an attorney in your area to determine what plan will work best for you.
You can protect your practice and estate from a possible future split through a variety of legal documents whether you choose to get married or not. The key is to fit the plan to your specific situation and to start and finish the conversations with your partner in a way that protects the relationship.