How do two independent people merge financially? Hopefully you will have smooth sailing but if you are not careful money can ruin your marriage and even family. Here are some things to look out for whether you have little or a lot of money. Consult your family law attorney and certified financial planner.
Marriage, Do Talk About Money
Every family should have regular discussions about spending, budgets, sharing, savings, retirement. Checkin even when you think things are going fine. Money is a touchy subject. Sometimes your partner may be hesitant to tell you they are uncomfortable with the current situation, which may lead to resentment and even divorce.
Marriage, Do an Antenuptial Agreement
This is a way to define what much of a divorce would look like if it were to happened. One benefit of an agreement is it documents what assets each brought into the marriage so it is easier keep them if divorced. Each should own their own debt. If one party has substantially more assets than the other, they should declare an amount per year of marriage to pay the other spouse for staying home and raising the family.
Marital assets and debts are those incurred during the marriage including the increase in value of real estate. If a family’s assets are less at the time of divorce then at marriage, there may be no marital assets to divide with each party just taking away what they started with plus maybe marital support. In this case however, you will need to show the Court a “tracing” produced by a CPA of every financial transaction during the marriage. This can be expensive but may be possible to do yourself if you are good with a spreadsheet and have the CPA audit your work.
If you are getting divorced try to be fair. If you have assets be generous. Do not spend all of the marital or child support on attorneys. You will wish you had the money later. Possibly individually see the same experienced marriage family therapist to work out an amicable settlement. Don’t make promises you can’t live with.
Note, state laws vary on what is required, the number of witness signatures required and the number of days prior to the marriage that an agreement must be executed. Also known as a prenuptial agreement.
Marriage, Do Not do Joint Accounts or Credit Cards
The number one asset to get cleared out as soon as one files for divorce is the joint checking account. Consider it empty the same day. No matter how much you love each other, keep things separate. If you want a operating household account, keep it reasonable. No joint credit cards, you may find $15,000 of new charges the day after filing and you are liable for it.
Marriage, Do Not Negotiate Child Support in Divorce
Child support is a right of the children, not of the parents. Let the Court calculate child support based on your incomes. Let the parents debate division of marital assets, marital support, etc.
Family, Do Put All of Your Money and Assets in an Irrevocable Trust
Especially was we get older or have dementia or Alzheimer’s, it is not uncommon to have a family member put grandma/pa in a wheel chair and zip them off to their attorney to sign away the farm or amend all of their legal structure, power of attorney, will, health care directive.
This strategy can be used by younger couples to especially senior citizens. Consult your attorney on how to structure the beneficiaries if the couple divorces. You can start with a revocable agency trust and then shift to irrevocable as you get older.
The best solution I have seen to prevent loss is an irrevocable trust. Money and real estate can go in but it can never leave for other than the uses specified in the trust agreement. It cannot be undone. Even if you lose your marbles and the kids have you sign new will and power of attorney (POA), they still cannot take money out of the irrevocable trust.
Put all of your assets into the trust. If you leave the house out, it eventually gets sold, the proceeds sit in a checking account and if someone’s name is on the account or they have a POA, the money from the house can easily be taken. There are no benefits of flexibility to leave assets out. For example, if you have a home, you can sell it, the money goes into the trust and then you can buy a condo but it stays in the trust too.
Important, assign a bank or financial institution as trustee, not family members. Family members can get into conflict when money is involved. Put any discretion of disbursement out of their control. Define allowable disbursement in the trust agreement. Generally the income and eventual principle goes to the health and wellbeing of the beneficiary. Having your assets managed in an irrevocable trust usually prevents a family member from petitioning the court of be appointed Conservator to manage grandma/pa’s assets.
Succession is planned in the trust passing assets down to the next generation or spouse. Each spouse can have their own trust. If you divorce, your spouse keeps the contents of their trust, it is irrevocable.
Consult a certified family planner or tax attorney on how to minimize inheritance taxes if necessary. Find someone with a lot of experience, not new.
Ask what kind of customer service you will get from the trust department. If you do not have a lot off assets, larger institutions may just give you an 800 number to call vs. a local trust representative you can meet in person with.
Family, Do Have a Certified Financial Planner, Do Not Have an Investment Advisor
There is a difference. A financial planner is just that, planning for the future, how much you need to save, how to minimize inheritance taxes, etc. An investment advisor or broker is more about just investing your money.
Select a planner or broker for that matter who has a lot 20 plus years of experience. Avoid young independent brokers with lots of slick investments. A young financial advisor that works in the trust department of a major institution, not independent, has to follow their rules and is fine. If you put your assets in an irrevocable trust with a large institution, you will be working with their advisors.
Warning, if you advisor gives your 20 some pages to sign to make an investment and promises a higher yield, don’t. If you do not understand what an investment is, don’t. The rule to remember is if an investment can outperform the market, everyone would be doing it. Also, what goes up must come down.
If you are unsure how to invest your money, the safest investment is insured bank CD’s. They do not yield a lot but they are insured by the Federal Deposit Insurance Company (FDIC).
Family, Do Setup College Trust Funds
One generation can forget that they would not have the wife/husband they have, the children they have and the home they have without their college education. Provide for the next generation, typically when a large asset such as a home sells. Consult the trust department at your financial institution about how much you need to retain for retirement and what you can spare for college for the grandkids.
Family, Do Write a Will
You may want to state that your will is also irrevocable, consultant with your family attorney on how to protect a will from future amendment even by you. Your trust should pass assets from you to new trusts for your children. Have your attorney coordinate the will and trusts. Also write a health care directive, also called a living will.
Family, Do Pay a Retailer to Your Family Attorney
I have seen it before when one child with their name on a bank account takes all of grandma’s money and leaves none to hire an attorney to protect her interests. Consult with your family law attorney and about giving them a retainer for the future just in case, or even better have a provision in your trust to allow for a limited amount of legal fees only to your attorney.
Hire a family law firm, not an independent attorney. A midsize and larger firm will be there in the future. You independent attorney will eventually retire.
Give copies of your trust documents and living wills to each of your children. Do not give them copies of your will, that is confidential and stored at your family law firm. Keep copies in a file clearly labeled at home. Include a letter from you stating who your attorney is, include their business card. Plan for the unexpected. Maybe include a print out of computer logins and passwords. Do not include a logins to your banking and investment systems.
Family, Do Not Put Family Member Names on Your Accounts
This has been covered indirectly but is important. Do not put any family member names as signatories on your accounts. Sometimes this is a strategy offered by attorneys to make distribution of assets easier upon your death. Don’t do it, one can run off with all of your money tomorrow while you are still alive and kicking, leaving you and your other children high and dry.
Family, Do Not Sign a Power of Attorney (POA)
A power of attorney is like a light saber, whoever is assigned one can do everything, execute contracts, amend bank accounts except amend an irrevocable trust. Just don’t sign one. Once you go down that road, children start even doing dueling POAs. If your trusts are setup right everything is taken care of for the future, you do not need a POA.
Family, After a Certain Age, Don’t Sign Anything
This can be a rule to yourself, after age 70 or 80 do not sign anything especially for people you do not know. Just tell them to contact your trust officer. This might be easier said than done but think about it.
Consult your family law attorney and certified financial planner.