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Prenups for Real People
By Karen Hube, July & August 2006
She’s moving into the house his kids will inherit. If he dies, will she be out in the cold?
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Sara Benton, 54, and Cole Harper, 59, are getting married this fall, but right now they're looking farther down the road: Cole and Sara both have grown children from previous marriages, and Cole wants his kids to inherit his house, the four-bedroom Philadelphia Victorian he and Sara will share.
The Problem
If Cole dies first, can Sara be sure she won't be turned out? Cole doesn't want her to worry—his concern for her financial security is one reason they're marrying—still, if his kids wanted to sell the place, what could she do?
Sara needs a life estate, a lifelong right to live in the house, says Michael T. Palermo, an attorney in Lexington, Kentucky, and author of AARP Crash Course in Estate Planning (AARP Books/Sterling, 2005). Cole can grant this right several ways. He could put the house in a trust that spells out the terms, provide for Sara in the property deed, or add instructions to his will.
Yet these are actions Cole could also reverse. The best protection for Sara is a binding contract in which the two are equals: a prenuptial agreement.
The Plan
While a prenup isn't a substitute for a will, it can trump one. And that's important for both spouses: "Widowed spouses can claim a portion—typically half—of the deceased's estate even if a will or trust indicates the assets should be left to the children," says Charles D. Fox IV, who practices estate law in Charlottesville, Virginia. "But a well-drafted prenuptial agreement will take precedence."
Sara and Cole's agreement should list all their assets and who stands to inherit them. Fox suggests the document, aside from indicating Sara's right to live in the house rent-free with whomever she chooses, spell out who pays for property taxes, insurance, and upkeep. One standard arrangement has the ultimate beneficiaries—in this case, Cole's kids—cover major repairs such as to the boiler or the roof.
Life estates usually are unrestricted, meaning Sara could move out and return later. Yet other arrangements are possible. Because Sara expects she'd head to one of her two children's households if her health failed, she's willing to let her occupancy rights lapse after two years away.
To avoid trouble later, Palermo recommends that Sara and Cole file the witnessed and notarized prenup with the county office that stores real-estate records. Above all, Palermo warns, bride and groom need separate attorneys to draft the agreement, or it may be deemed invalid.
A good prenup should also cover a couple's obligations in case of divorce. While it's anything but romantic to think about divorce before you marry, this is about common sense, not love. And a successful marriage requires a healthy dose of both.
Karen Hube is a financial writer in Westport, Connecticut.
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