Providing For the Children of Divorce

“My wife and I are each married for the second time,” the man says from the other side of my desk. “I have three children from my first marriage, and she has one. But let’s say I die first, I want my wife to get my money, but then I want my children to get it after she dies. Is there a way we can do that?”

Nowadays, this is a very common problem. Divorce courts are packed, so it’s no wonder that people have second marriage issues affecting their estate plans.

With a second marriage situation, the challenge is to create an estate plan that provides for the support and maintenance of the surviving spouse, yet allows the estate to pass to the biological children, when the second spouse dies. There are at least two primary ways to accomplish this goal.

One way would be to leave a certain percentage of the husband’s estate to the second wife and the remainder to the children. For example, assume that the husband is worth $200,000 and that his wife is 85 years of age. If we examine actuarial tables, we would find that the wife’s life expectancy is 6.63 years; in other words, based upon her current age, we would expect the wife to live for almost seven more years.

If we know how much money the husband has and we know his wife’s life expectancy, there is a way to calculate the value of the children’s interest in the estate. Given those facts, the wife’s right to receive $200,000 for 6.63 years has a value. For example, an actuary might say that given those facts, the value of the wife’s interest in the estate is worth $40,000. If the husband were to leave the wife $40,000 in his Will and leave the remainder of his estate to his children – $160,000 – he would be giving the wife the benefit of $200,000 for the remainder of her life, and he would be leaving the rest of his estate to his children. In a way, this is just what the husband wanted to accomplish.

Of course, if you read my column on a regular basis, you would know that the only person that you cannot disinherit is your spouse and that you have to leave a spouse roughly one-third of your estate. $40,000 is not one-third of $200,000, so the wife could assert her right to an elective share against her husband’s estate and increase the amount she would take from the estate. But a husband and wife can waive, in full or partially, their rights to take an elective share of the other’s estate, so if the wife did sign a partial waiver of her right to an elective share, the husband’s Will could be drafted in the manner outlined above.

Another way to accomplish the husband’s goal is through the use of a trust. Through his Will, the husband could create a trust. The trust might say that during my spouse’s life, she is entitled to the income of the trust and may invade the principal of the trust for her support and maintenance. Maybe the wife is the trustee of the trust, maybe one of the husband’s children is, or maybe the spouse and a child serve as co-trustees.

Using a trust allows the wife to be provided for with the husband’s money. When she passes away, whatever money wasn’t used for her benefit, passes to the children, either free of the trust or into another trust. There are no elective share issues, because the wife received the benefit of the entire estate during her life.

In order to implement the trust, however, the husband must own his assets separate and apart from his wife. In other words, the husband and wife could not own their house as joint tenants with rights of survivorship or their brokerage account in a similar manner. If they did, the survivor would simply receive whatever assets they jointly owned, irrespective of the terms of the Will.

So, in most cases, the assets of the husband and wife have to be re-titled, in order to allow their respective assets to pass under their Wills. The house, for instance, would have to be titled so that the husband and wife owned it as tenants in common, not as joint tenants. Tenant in common ownership is a probate asset. The husband’s 50% interest in the house would then pass under his Will, not to the surviving spouse, outright.

As with most problems, there are solutions. But solutions often require planning and implementation. If you fail to plan, and simply hope that things will work out, you are taking a tremendous risk that they won’t.