Pre-nups and Estate Plans Go Hand-in-hand

T&E Chat

10.10.16 | T&E Chat

If you and your fiancée plan to sign a prenuptial agreement (commonly referred to as simply a “pre-nup”), it’s a good idea to design the agreement with your estate plan in mind.

Estate planning benefits

Pre-nups are usually associated with planning for the potential of divorce. But a pre-nup also provides benefits for successful marriages, including protection from liability for your spouse’s separate debts and implementation of estate planning strategies.

Most states give a surviving spouse certain rights to a deceased spouse’s property. In community property states, for example, a surviving spouse enjoys a 50% interest in all community property. In most other states, surviving spouses can choose to receive an “elective share” amount — usually between one-third and one-half of the deceased spouse’s estate.

These rights supersede the terms of a will, but they can be waived in a pre-nup. This doesn’t necessarily mean that you’ll be disinheriting your spouse. Pre-nups typically preserve a spouse’s right to receive a substantial portion of the other spouse’s wealth. But by waiving marital property rights, they allow you to specify the manner in which your assets will be distributed and ensure that your estate plan will operate as intended.

Consider this scenario: You own a closely held business that you run with your children from a previous marriage. The business makes up 75% of your net worth and you want your children to inherit it. A pre-nup can prevent your spouse from acquiring an interest in the business — either through a divorce or spousal inheritance rights — while preserving his or her right to the other 25% of your estate.

Pre-nups offer several significant estate planning benefits. We can help you maximize these benefits as well as advise you on possible estate planning traps. Contact me at SDitman@BerdonLLP.com or your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.