In my state, inheritances are separate property whether the inheritance comes before or during the marriage. So if S inherits money from grandma, that is his money, not community property. However, is S uses that money to buy a house and puts the house in both his name and that of his spouse, the inheritance becomes ‘theirs’ not just his.
These are the sorts of issues that if the situation arose, I would advise my kids about.
In many states, any separate property (however acquired) before marriage has to carefully be kept separate during marriage or it all can easily become part of the marital property. This may be one reason some folks have his, hers, and ours accounts and assets in a marriage.
In a long term marriage, primary residence should be a marital property imo. They both live in it and presumably they both care for it. They spend earned money together to repair or improve it. Even if only one person contributed to buying the house, it takes more than initial payment to keep the house in decent shape. Unless the person who paid for the house initially also pays for the upkeep as if renting it out, it wouldn’t seem right to claim all the value of the house later.
The appreciation in the house via home equity is likely to be the couple’s largest asset. I can see that being marital property.
On the other hand, if one party to the marriage buys an investment property with his money prior to the marriage and uses the rental from the property to maintain it and keeps all accounts on it separate, I can see it remaining that oerson’s separate property.
I see the two scenarios above as quite different.
If you keep it so separate, sure. Most people aren’t that anal and things will mingle. I am not sure if I want my future SIL, whoever that may be, to feel like living in some else’s house if I buy them a house. I would consider it a gift to them both equally. All other assets will remain in my D’s possession.
There can be tax and inheritance reasons to keep some assets as separate property. For example, you may want to be able to put some assets into a trust when the first spouse dies. You can’t do that if it’s all community property. You may also lose some tax benefits of the first spouse to die (like, if I’m not mistaken, the personal gift/inheritance tax exemption) if all of the assets are joint. If people are coming to a marriage with substantial assets, a prenup may help protect those benefits, even if everybody is honorable.
One other thing: one spouse can, for various reasons, become unable to make decisions for himself or herself, and may end up having a guardian, who may not make the same decisions the spouse would have made. A prenup could prevent that from happening as well.
Sometimes a house is a gift to the couple and then 5 years later there is a divorce and they have to divide assets, including 1/2 a house apiece. The parents who gifted the house may not be thrilled about the ex getting the value of 1/2 the house. Just saying.
With the change in estate tax law, I believe this is no longer the case. They now allow carryover the exemption if the first spouse to die didn’t use it up.
People coming to marriage with substantial assets often have trusts. i don’t know what prenup does that trusts aren’t already doing.
If you create a trust, you have to file an annual tax return for the trust, if it is funded, which creates more book keeping. Still, it is another way of keeping separate assets separate.
Not so if the trust is revocable. Whoever controls the trust will combine the income from the trust with their personal income in filing the tax.
That a risk I will have to take. I would mind the loss if the marriage lasted more than 5 years. If it lasted 2-3 years, that would hurt.
Maybe let them live rent free (or nominal rent) for x years and then gift it to them? That way you won’t have so much remorse if there may be a divorce at some point?
I guess I have never explored trusts. It just seems to add more complications. I like my finances fairly simple.
Maybe I just swim in a different income pool than most of you. No one in my family has ever triggered estate taxes, and I can’t see anyone doing so in the future (we’re sure not going to!). So they’re not an issue, and for similar reasons, trusts also just don’t seem germane for us.
If you have significant assets, simple might end up being the best thing for your heirs.
I think marriage is a covenant, not just a contract, so a pre-nup shouldn’t enter into it. The best thing to do is to really know the person you are marrying, his/her financial habits, values, and any past fiscal mistakes. This is the advice I’ve given my kids. They can take it or leave it.
If you had an elderly parent who was worth a lot of money, and he was getting old and a little senile, and a young chickie comes along who “loves” him (and happens to have expensive taste), you wouldn’t be pushing for a prenup to ensure that his children get the bulk of what’s his and that it all be spelled out ahead of time? Gosh, I sure would. You don’t think there aren’t gold diggers?
I recall in our estates and trusts class, we asked both profs if the had trusts and how they were leaving their estates. Both had the same answer, leaving everything free and clear to spouse. Forget the tax advantages that are being lost, they don’t want to leave their widows tied up with unneeded complications and red tape.
I found that telling. We have a mostly unfunded revocable trust, but I REALLY like things simple.
Maybe the bigger Q is whether if any of us remarry in the future would WE want a prenup, trust, or would we just have live in companions and not have a remarriage?
Seems like a very different circumstance to be talking about an elderly parent who likely does not know what he/she is doing than a young, healthy and full mental capacity couple knowingly getting married. Personally, I would never want one and wouldn’t sign one. Marriage is more than just a contract. We are in it together.
I meant to say “might not end up being the best thing for your heirs.”
I so agree with this. The complications of irrevocable trusts are not worth it.
Here’s my two cents -
So the best thing to do is to talk to a really good lawyer(s) for a few hours. At least they’ve seen a few hundred cases; they know what typically happens, and they know what are legitimate worries and what aren’t.
If one kid is from a family with significant wealth, then their parents should handle these issues as part of their trust and estate planning. Try to leave the kids out of it. But doing it right isn’t quite as simple as a few of the above posts have implied; it’s certainly not a static thing. Older couples getting married, especially those who already have kids from a previous relationship, are also in a totally different situation.