Money Talk

Episode 30

Multiple Marriages

Welcome to our listener-supported podcast, Money Talk, uncompromised absolute financial truths behind financial perceptions with host, Ed Sutkowski and Chuck LeFebvre. Let’s listen in.

Chuck: This is Chuck.

Ed: I’m Ed.

Chuck: Today Ed, what are we going to talk about?

Ed: Well, I think not necessarily my favorite topic, but certainly one that’s realistic. It’s multiple marriages.

Chuck: All right, yes. Simultaneous or–?

Ed: No, hopefully that were concurrent. You would have a marriage, well multiple marriages and really in anticipation of a second, third, fourth or fifth or whatever marriage, and it’s not unusual to see multiple marriages. We have to adjust the prenuptial agreement and the post nuptial agreement. Any experiences that you’ve had, Chuck?

Chuck: Limited experience dealing with prenups and postnups. It’s an interesting dynamic when you get into those conversations with people as they are contemplating them. It’s intuitive what I’m about to say, but usually a prospective spouse doesn’t just brightly smile cheerfully upon being asked to sign a prenuptial agreement. Have you noticed that to be the case?

Ed: Yes, it’s either way. I want to understand my experiences and listening isn’t limited to female-male. It is both sides. When you have a disproportionate balance of assets, it goes both ways. We’re not favoring any sex. It’s the way it is.

Chuck: Oh yes. In fact, the most recent one of these that I dealt with it was the female in the relationship who had the higher income and more accumulated assets, but also had children from a previous marriage. There was some legitimate reason to be thinking about these issues. From the estate planning standpoint, it seems like that’s really where the rubber hits the road, is when you’re talking about not just multiple marriages, but children from multiple marriages.

Ed: Along those lines, getting back to the contract, the prenuptial agreement is an enforceable contract, provided you adhere to the various rules. You disclose the nature and extent of the assets and tax liabilities. Oftentimes, the source of the assets and both sides are represented by independent counsel. I don’t just mean someone that is unrelated, but the lawyer representing one party should not recommend the lawyer for the other party. You’ve got to seek out your own counsel. Hopefully, someone skilled in this area. The legislation is fairly clear, you can either have a prenuptial agreement, or an agreement after marriage, a post nuptial agreement. As you suggest, if there’s an age difference, an economic difference of a substantial variety and the source of the assets inherited, self-engineered, self-made entrepreneur. The psychology involved in the premarital contract is devastating. It can be very difficult. The time you’ll spend in understanding is usually that 80– understanding what’s going on is the 80:20. You’ll be spending 80% of your time trying to understand who’s on first? Where this is going? Only 20% drafting the papers.

Chuck: Do you think, Ed in your experience, have those agreements been fairly useful? Have you run into situations where 20 years down the road when you say, “Oh, boy, thank goodness. We did that prenuptial agreement,” or do they seem to serve more like security blankets?

Ed: That’s a great question. It’s so much as dependent upon the personalities of the people. If the second or third or fourth marriage lasts for multiple decades, they tend to go away. Either party will put assets in joint tenancy or make beneficiaries of the other party, but it’s a question of the relationship. If there’s a wide disparity in age, that tends to be the most difficult in terms of discussing it and where is it going. Especially if the man is aged, he’s 81 years old and the woman is 45. The aura is less than love but perhaps some other activity. It’s a great area for psychiatrists and psychologists but lawyers cannot– Well, in my view lawyers can handle the documents, but they can’t come up with the solutions.

Chuck: It just seems like in my admittedly limited experience with these things, that it strikes me that the more wealthy spouse benefits, if at all, from these agreements, in a situation where the marriage does not survive. Typically, these agreements will have in place some provision that creates a minimum benefit to the less wealthy spouse as part of an estate plan. When you’re dealing with that first spouse, the more wealthy spouse passing away, you see a benefit to the other spouse, having been protected by that. Particularly when there’s children involved of a prior relationship or something, who may have strong opinions about what inheritance should be divvied out to different people. It just strikes me that probably 90% of these things that get created, might not have a great deal of utility from a practical standpoint.

Ed: Well, I agree. As an observation, I’ve found that if the economics are put on the table, you have to have the mature people. You can’t have blockheads having this emotional and have the issue get emotional. It’s really a dollars and cents and objective analysis and competent professionals, accountants, CPAs. The larger the estates, the greater the number of qualified represented. I’m not looking for business, by the way because this is a tough, tough area. Ideally the prenup or the postnup, after marriage contract would provide for the transmission of certain assets. For example, an ideal is an IRA. You can bust those IRAs up into a divorce with no tax. This seems to be the best asset for managing the contract provisions that a spouse receives a part of the IRA. That was in existence before the marriage. Or part of a tax qualified arrangement other than a defined benefit plan, which creates all kinds of fund problems. The defined benefit plan provides for the annuity at the number retirement age is very difficult to bust up. To define contribution plan, for example, a simple, a SEP-IRA, profit sharing money purchase pension, Esop, those are pretty easy to divide up. You’ve got to think about if this doesn’t work, by the way, that wouldn’t necessarily be fault on the part of either party, it just doesn’t work. Oftentimes, marriages are dissolved because it just isn’t working. The folks didn’t know each other well enough before they were married. I don’t know, Chuck, am I blowing smoke here?

Chuck: No, I think you’re right. I think more and more again, divorce is really not either your area or mine. My understanding is that, pretty much all of the divorce has been filed these days, or so called no fault type divorces across most of the jurisdictions in the United States now. That just makes a lot of sense. In fact, I’ve just heard stories from lawyers who practice in this area, who they’ll tell stories about, “Oh, I had a client who insisted on having — They wanted to have this divorce me for fault and they wanted to have a trial. I just refused to take the case.” They just simply won’t pursue a cause-based divorce. They’re really strongly disfavored. That makes, boy talk about– and the courtroom is really not a good place to deal with interpersonal issues. It’s best to go about it as clinically as you possibly can, I think.

Ed: Well, I must tell you a little story, we had occasion decades ago that I was involved in. We have the part against– fear, greed, the government and revenge those the lawyer’s hallmarks. The revenge generates the greatest amount of fees that I think are dissipated over nothing. We’re fighting about who gets the cat? What I’m speaking of this was the time where we had a jury trial, you could demand a jury trial in a divorce. This physician was going through a divorce and the physician’s spouse was not real happy. We had a jury trial, whether there were grounds for a divorce.

Chuck: I can’t even imagine.

Ed: This lasted for one week, actually four days because we adjourned on Friday and then, say five days, adjourned on a Friday and then resumed on a Monday.

Chuck: Those jurors were not adequately paid.

Ed: They were not, it was not a fun thing. Well, I must tell you, we won. There were grounds for the divorce. Since that time, I didn’t represent either husband or wife because it was not a good experience. You stay away from a bad experience, whether you won or lost. That gets to this question of revenge, that you cannot seek and secure revenge through the courtroom.

Chuck: It’s a pretty hard place to do that in a way that’s going to feel very gratifying. I mean, anybody who hasn’t been to court and thinks it’s an easy path or a very gratifying path, I think quickly learns, that’s not the case.

Ed: You stay away from litigation because if the client wins, the client will say to the lawyer, “Well, I should have won. I mean, what did you expect me to lose?” If you lose, it’s your fault. I mean, no one wins in litigation. Now, that’s the exception and there is an exception in the business litigation. If you’re talking about patents, trademarks, copyrights, restrictive covenants, protecting capital asset, that’s a dollars and cents issue. It may be profitable to litigate that. We’ve been involved in those and it is profitable. Yet, it’s a bad experience. I have found getting back to the litigation or pre and post agreements, nuptial agreements, if I’ve drafted one, I will not end up representing either party on anything else.

Chuck: Now that makes sense.

Ed: Whether it’s litigation, you win, lose or draw, or do a prenup or a postnup. I can tell you, that’s the end of that client relationship.

Chuck: That makes perfect sense to me.

Ed: You never want to go around something that you found to be distasteful. That’s it. Then the friction costs, the attorney fees, and you always charge too much, and the result isn’t good enough. The problem that we have to address in a multiple marriage situation, are the source of the assets and were they acquired during marriage, or if not, are they attributable to activities of one party during the marriage? I’ve been involved in several situations where we’re scheduling marital assets and non-marital assets. Assets received by way of a gift or inheritance are non-marital assets. What about the income or dividends in respect of those assets? How do you trace them? Then what about the W2 earned by either party during the marriage, and if there’s a 401k and others– it’s in a lawyer’s dream or accountants dream, and it’s busting up assets, is an extremely difficult process. Before the marriage, make sure that a husband’s assets are maintained in a separate account, a separate trust, likewise with the wife’s assets, and that’s just good business sense.

Chuck: It seems like the one place where you don’t really have the option of doing that, and you’re going to intermingle non-marital and marital assets, is if you have somebody who’s employed. They’ve been employed at a place for a long time. Then they get married. They’ve been making contributions to their retirement plan throughout this period of employment, and they continue to make contributions to the retirement plan post marriage. You’ve got all these premarital contributions to the retirement plan, plus whatever additional earnings those pre-marital contributions earn. That’s all ideally, you would be able to segregate that out into a completely separate account, but they’re intermingled because you can’t– During service for an employer you can’t just empty your account, you just got to keep making contributions to the same plan. That just it’s– Tell me if you think I’m missing something, but it seems like that’s the one area where there’s nothing you can do to prevent these non-marital and marital assets from being intermingled. They’re just going to both sit there in the same account.

Ed: You can’t. You cannot except to the extent you can schedule the contributions and apply either an accrual basis or a closing of a year, and determining what the gains or losses attributable to the marriage period are or not. What happens if you have a down market and the divorce– I mean, it goes on and on. The most important, or the relevant example is Jeff Bezos. There the issue from what I can understand, and I have no direct contract with either of them was both spouses were involved in the construction of the business. Then one spouse didn’t do as much and the other spouse carried the ball game, it’s gotten to be a huge organization. The division, I wasn’t 50/50, it was somehow allocated more toward Jeff, who had been with the business longer and done more in theory. The danger is– not a danger but if you have a spouse, and both of you are involved in the business organization, that generally speaking is a very, very good thing. It can be not a real good thing because you’re working with an individual 8, 10, 12 hours a day, and then you go home, and the balance of the day you’re living with that person. There’s got to be a tension but what’s the solution? I don’t know, the solution if there is one. The message that I’m trying to convey here is that know the risks and know the rewards. We’re not telling you what to do. That’s not the lawyer’s role. The lawyer’s role is to tell you, what could happen. Chuck–

Chuck: Well, there’s a couple of things when you’re talking about a business that you’re starting, there’s something very romantic, about a couple building a business together, and so on and so forth. First of all, there’s this issue you just highlighted, but second of all, you do have that putting your eggs all in one basket issue as well, where if that business happens to not succeed, and both couples are completely dependent on it, or both members of a couple are completely dependent on it for their source of income, versus somebody was working in some other capacity. That would just be a nice stabilizer versus both being involved in a startup. There’s a few reasons to be cautious about that. One of which is economic, and one of which is legal.

Ed: Yes. The issues the business succeeds. That’s Jeff Bezos with Amazon the business fails, you have a restaurant and it’s closed down. Whose fault is it? I mean, the idea of having spouses, the lady who is a terrific designer, she comes up with some product that takes off, and the man just does the accounting, which can be replaced by a third-party accountant. What is the relative values in the business? I mean, it’s not a lawyers’ dream, but it is a situation where I hate to keep being redundant but I have to tell you, our role, my role, I think your role is that these are the alternatives. These are the consequences. What do you want and then folks aren’t going to come in before the marriage, except to the extent to talking about this prenuptial agreement there, you might get another lawyer involved, make no recommendations do the best you can, knowing that this could go south. Those discussions in anticipation of the marriage, and sometimes I’d say most of the time. It’s not signed until the eve of the marriage.

Chuck: Oh, yes, I know. It’s really something.

Ed: Have you had that?

Chuck: Oh, yes, absolutely. Yes.

Ed: I can’t believe that.

Chuck: Had a little bit of a nail biter.

Ed: Yes, and it’s up until the date of the day of the marriage. I mean, I’ve had them sign on the day before the marriage. My client will get mad at me and say, “Well, why did this– you let this go so long?” “Well, you wanted X, Y, and Z, and then the other side wanted A, B, and C. What am I supposed to do?” It is not a lawyer’s dream. On the other hand, when we see what’s happening with the legal profession, the accounting profession, all these professions are, I wouldn’t say going by the wayside, but they’re being replaced by the internet. Is that fair, Chuck?

Chuck: Very true. Yes. I’m guessing I haven’t actually seen this, but I wouldn’t be surprised if there are any number of downloaded prenuptial agreements that people have in fact, signed on their own without having any attorneys involved at all.

Who knows, we may be seeing those start hitting the courthouses sometime in the next decade or so.

Ed: That gets to the issue of the role of the lawyer. I see a changing in a positive way in the sense that many of these activities are commodities to folks, and get the other go to the courthouse, and get their divorce in place without the intervention of a lawyer. I think some have dockets that are nothing but pro se that is without lawyers and workers’ comp personal injury mediation. The message is wherever there’s an excess charge that can be avoided, it’s avoided. The lawyer’s benefit is only the construction and the transmission of qualitative value. Have you done something that changes a lifestyle? Do you see that Chuck, or am I blowing smoke here?

Chuck: I think that’s where the profession is headed and many lawyers today are starting to feel that squeeze. I think it’s going through that change. I would say that you’re probably describing the way the profession is absolutely going to be 10 years from now, where everything that’s essentially a commodity or repetitious or form-based work is going to be, if a lawyer is doing it, a lawyers doing it for more or less the same cost as a non-attorney service doing those things. Another great example of this is real estate closings. It’s really just amazing to me that there’s a lot of these jurisdictions that have moved away from having attorneys involved in real estate transactions at all.

They’re just title companies handled the whole thing. It appears that civilization still exists in those jurisdictions that have done that. It hasn’t caused any grand collapse of the order of things. That’s a perfect example of the type of thing where we are. You still see lawyers involved in these real estate transactions. I question whether the lawyers are really providing any value. I suppose if we had one of them in here talking, they’d tell us all the great things that they’re doing in those transactions. It just strikes me that inevitably, we’re going to see the lawyers disappear from real estate transactions altogether. It’s just a matter of how long it takes before that happens. A few other issues like that too, where the lawyers would just disappear because they’re frankly not doing anything.

Ed: I think Friedman and Rose and Mr. Friedman about the idea of these labor unions in the form of certifications before you could practice a certain profession. A hairdresser has to have 2,000 hours of work before they can get certified. In other words, these barriers to the entry are rapidly disappearing. What I’m saying, I think is that if you can create a value that’s not a commodity you’re going to be just fine, but whether you’re a realtor that does not negotiate or find a better price, and add some value, you’re going to be out of business.

In other words, what additional value are you bringing to the table that wouldn’t be there without you? That’s the test that whether it’s an auto mechanic– and a good example, I was visiting a doctor from Mayo and talking about the value of a professional. This guy’s very well-schooled, both with Mayo for a long time, talked about his view of value. He went to a dentist and he said, Charlie will call him. Charlie says, “Doctor you got four things we can do A, B, C, and D.” The doctor said, “Well, Mr. Dentist Guy, which of the four would you select?” “Oh, I don’t make your decisions.” Guess, what the doctor did? He went to the next dentist and said, “What is the best? What would you do?” Then I said, “Well, I’d do B.” He stayed with that dentist. In other words, you’ve got to bring to the table your wisdom, which is prevailing notwithstanding faults, your view of the world. You can make a recommendation based upon your experience. If you haven’t had those experiences, it’s a tough road. Any observations about value creation, whether it’s a divorce situation or a dissolution, just what’s going on in your world, Mr. Client?

Chuck: I think that are too many professionals of all types, but definitely lawyers are included in this comment, are afraid to speak about their own judgment about a decision. We have this idea that, because the ultimate decision is up to the client, that that means that as the advisor, you’re not supposed to weigh in at all or weigh in just very, very tepidly. I think that’s a real disservice to people and you see it all over the place, but you really see that a lot with the practice of law. I think clients respond very positively when you just point blank say, “Hey, look, it’s your choice, but this is what I think you should do.” Without a lot of wishy washiness, in that messaging.

Ed: The predicate, the antecedent for that is thinking and shutting up and ask the client, “What are your concerns? What are your fears?” Then listen and 80% of your time should be devoted to listening and not paper pushing. It’s what’s really going on here? What are your alternatives, and based upon what I’ve heard and you don’t– I never make a recommendation the day I’m listening. Never author a letter of the day I’ve put it down on paper. I don’t publish it. There’s always got to be at least one night time, best a weekend between the observation and the recommendations.

Chuck: It makes sense. It’s amazing how many times you’ll decide after a couple of days, “Hey, wait a minute. I think I’m heading down the wrong path here. Let’s rethink this” Or you decide, “No, I didn’t really run the numbers on that. I was just pulling it off the top of my head. You know what? I better sit down and do these calculations.” Then you learn that you’ve made a few wrong assumptions. It makes a big difference.

Ed: I find next to my bed or chair or wherever I happen to fall asleep, I have these three by five cards with a pen and any number of times, I’ll wake up in the middle of the night and have a solution to an issue. It’s just uncanny. The solution tends to be a pretty good one. Relatively speaking, I’m not suggesting that any of my solutions are any good, but on occasion, if one falls through the cracks, it’s a good one. More likely that occurs at two o’clock in the morning.

Chuck: It’s pretty funny. I think a lot of people have that experience.

Ed: I wish I could understand how that operates. The books I’ve read suggest that that may be the creative time.

Chuck: Take more naps during the day, Ed. That’s my recommendation.

Ed: The only time as I’ve said this more than a few times, the only time I was wrong is when I thought I was. Sometimes right, sometimes wrong, but never, never wishy washy. By the way, you do whatever you want to do. I just had a situation this morning. I gave you the alternatives. We can do it this way and minimize your risk. I’d rather do it that way. Good, you do it that way, but don’t come back to me and say, “How do we untangle this? What are you going to charge for it?” The point is, we’re dealing with an area that’s qualitative, touchy-feely, and it’s highly, highly emotional, multiple marriages, my children, your children, our children. That is just an extremely difficult area.

Chuck: Very much so.

Ed: There is no solution except listening and hopefully coming up with a concern or a recommendation that addresses the concerns and the fears, but never, ever ask “What are your expectations?”

Chuck: I do think that for a couple that’s entering into a second marriage and especially if there are children from the prior marriage, that if either member of the couple has children from prior marriage, it’s good to know going in that no matter how rosy things may seem on the way in, that you really have to assume that down the road, and particularly when one or more of the couple passes away, that you know that the stepchildren they’re not going to be confused about whose children they are. It really is amazing how quickly it comes into focus where the blood relationship is once someone has passed away.

Ed: Death is the ultimate dictator here. Why did dad do this? Or why did mom do that? Those are our assets and the fights, hate to say this, but personal items are personal property, the wedding ring, the car, anything that has some emotional attachment, that’s where the rubber hits the road.

Chuck: Well, and I’ve seen situations where someone will say, “Well, I’m going to have my new wife is going to be my power of attorney, but if she’s not available, then the second person in line will name my wife’s daughter from this previous marriage.” That’s where I end up stopping to say, “Hey, wait a minute. I know you guys are getting along, but bear in mind that the situation you’re describing is one where your wife has now passed away. Her daughter is now going to be in charge of your healthcare. That might not be a priority for her once your wife has passed.”

Ed: She may have other children,

Chuck: These are difficult issues to raise with people, but I think the way that that dynamic plays out, this is one place where just having observed human nature from this perspective, going down this path several times, you recognize patterns that are almost intractable. They repeat themselves with such frequency. It’s remarkable.

Ed: Don’t think that simply someone who practices law is immune from these. We’ve both been involved in representing other professionals, lawyers in particular. The topics we’ve discussed today are such that no person, including a lawyer, is immune from these discussions. Take it with a grain of salt, but think about what are the consequences if things go south, and remember a loss is more devastating than a profit. You have 100,000, you lose 50,000, you got to make 100% back to get to 100. Use that mathematical computation and try to convert that to an emotional result and you won’t be disappointed, Chuck, I hope this is enlightening. I’m not sure it’s a pleasant area, but nonetheless, in today’s world where the half marriages tend to go south, you have to deal with it. If you don’t deal with it, be aware of the consequences, which the friction costs can be a multiple of what you would have paid had you planned for it. Good day.

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