Tough discussions and decisions about wills, insurance and spousal support are the last things on the minds of happy late-in-life brides and grooms heading down the aisle for the second or third time.
Many of them are oblivious to the many rules and risks that could drastically affect their own and their families’ futures. Financial advisors need to stay on top of the details of how a “grey marriage” can affect clients’ long-term plans for themselves and their adult children.
Toronto family lawyer Stacie Glazman has worked on many cases involving second marriages, both before the wedding and upon separation, during her 22-year career. Ian Hull is co-founder of Hull and Hull Barristers and Solicitors, also in Toronto, and is a certified specialist in estate and trust law and civil litigation.
They say the level of knowledge on the legal and financial implications of a grey marriage among their clients and various professional groups they speak to is low.
“Second marriages are probably the biggest and most complex part of my practice,” Mr. Hull says. “That’s where bad planning produces big litigation.”
“When I speak to financial planners, I try to talk about three things,” he says. “Marriage revokes a will. Common-law relationships are very different [than marital relationships] for the surviving spouse. And thirdly, [beneficiary] designations: You have to talk about designations on the financial products. Most people don’t change those either.”
The fact that marriage revokes a will in several provinces comes as a particular surprise to clients and, often, to financial advisors. Mr. Hull says British Columbia and Alberta have revised the law in the past few years to change that provision so existing wills still stand. But property law is under provincial jurisdiction, and in Ontario and other jurisdictions the marital hitch continues.
“Three-quarters of the time clients naively believe their children from their first marriage are going to continue to be protected and they have no idea about this rule that they need a new will,” Ms. Glazman says.
Mr. Hull adds, “If there’s no will, a married spouse, in Ontario, gets the first $200,000 plus a proportion of the rest of the estate subject to the number of children. It’s sort of a formulaic process.”
For a small estate, that means adult children from a first marriage may receive very little or nothing. Or the surviving spouse may have less to live on than they may need.
“I find a lot of people will look at how we balance the financial needs of the second wife and the inheritance expectations of the first kids. The truth is it’s never enough,” Mr. Hull says.
Estate planning isn’t the only thing that may be neglected as parties enter a grey marriage.
Beneficiary designations for insurance, RRSPs, RRIFs, RESPs and pensions are a bread-and-butter issue for financial planners, but they may not be top of mind for clients about to remarry.
“To advisors I say designations have to be revisited from time to time. It’s good client service because many people sign if it’s the first time they apply and never think about it again. I always say make sure the client knows what the current designations are so they can tell their lawyer and the lawyer can deal with it accordingly in their will,” Mr. Hull says.
While designation on pensions and RRSPs and RRIFs are straightforward, insurance offers more flexility, Mr. Hull says. Beneficiaries can be individuals, corporations or insurance trusts.
An insurance trust can protect the first family children’s interests. For instance, the policy could provide for the payout to go into an insurance trust, with interest income going to the second spouse. On his or her death, the trust goes to the first family children.
Mr. Hull cautions that a will can trump the designation in an insurance policy or RRIF or RRSP. “Many wills will say, ‘I revoke all designations and provide for it in my will now.’ Or they will say, ‘I sustain all my designations.’ "
The bottom line is that financial planners and lawyers need to co-ordinate on the beneficiary front.
Ms. Glazman says she sometimes has clients for whom the will of their spouse is a complete surprise.
“The surviving spouse comes to me and they’ve lost their husband or their wife and they are absolutely shocked, because they never saw the will, that everything went to the child.
"Or they, as second spouse, never got married, and mistakenly thought, ‘Don’t I get half of everything?’ ”
A domestic contract, which some know by the term prenup, requires both parties to be aware of the provisions. Ms. Glazman often deals in these contracts, in which each prospective spouse has representation.
“Marriage contracts are not uncommon,” Ms. Glazman says. “The adult children often say to the parent getting married, ‘You better enter into a prenup so you can protect our estate. You want to make sure the new wife doesn’t get all our money.' ”
Even though prenups are thought of in terms of marital breakdown, they can also include provisions in the context of the death of one of the parties. Unlike a will, a domestic contract is not revoked by marriage.
“A prenup is almost impossible to set aside. There is a provision where the court can ignore it if it’s just not proper at the time – circumstances may have changed.… But that’s a very narrow exception,” Ms. Glazman adds.
She says domestic contracts in a second marriage always cover division of property, spousal support and other items such as designations, insurance or spousal trusts.
Without a contract, legislation in Ontario provides that the value of the marital home must be split by spouses, even if the home is in only one name. A domestic contract might set that aside and the spouse who brings the home into the marriage retains the value of the home on separation or death.
Spousal support can be another contentious issue which can be covered in a contract. But an issue like support can be overturned, even if it felt reasonable at the time of the contract, if conditions change, such as the health of the surviving or separated spouse.
The courts tend to be generous to the spouse receiving support if they were dependent on the deceased or ex-spouse for their lifestyle, if they are unable to work because they’re older or if their health takes a turn for the worse, Ms. Glazman says.
Ms. Glazman adds that another area that can pose significant risk is when a family business comes into play.
If spouses who get married a second time own a company, they need to know how much their business is worth as they walk into the new marriage and plan for who is taking over the business when the owner gets sick or dies. Otherwise a surviving spouse is left with tidying up a business they may know little about.
“You can just imagine the emotions or potential for litigation over the family business, even more so than just a bank account.
“Here’s one place where financial planners will say, "I’m dealing with your RRSPs, I’m dealing with insurance and I’m dealing with your pension, but you should go see a business lawyer or a family lawyer to try and deal with what happens to the business if you are to die or be separated,' ” Ms.Glazman says.