Guest Post: Marriage in Later Life: A Guide to the Financial and Legal Implications

Nick Everything Else families, guest post 2 Comments

This Valentine’s Day I’m pleased to bring you a guest article on a subject that I know will resonate with many readers of this blog.

Finding love in later life is clearly to be celebrated. But there are potential pitfalls as well, especially if you’ve been married before and/or have children from previous relationships. Mistakes made now can have costly – and stressful – consequences for you and your family further down the line.

My guest today, Victoria Fellows, a partner and head of family at the Birmingham office of HCR Law, knows this all too well. And she has some excellent advice for anyone who may be contemplating tying the knot (again) in their later years.

Over to Victoria then…

More adults are remarrying in later life than ever according to the Office of National Statistics, and it could be a smart financial move as much as a romantic one.

Marriage is an important decision at any stage of life, but when it comes to later-life marriages, the financial and legal implications take on an added level of significance which can include both benefits and challenges. This is especially likely if you have been married before (which accounts for most marriages among over 50s) or have children from previous relationships.

One of the primary concerns when entering a later marriage is protecting your children’s and/or extended family’s inheritance rights. In the absence of proper planning, a surviving spouse may inherit a significant portion of the estate, potentially diminishing what your children from earlier relationships would receive. This can lead to complicated family dynamics, particularly if your surviving spouse chooses to remarry or if your children feel their inheritance has been unfairly diminished.

There may also be inheritance tax (IHT) issues if the combining of assets pushes the estate value above the inheritance tax threshold, creating additional financial burdens for children who inherit.

So how can assets be protected to provide reassurance to the happy couple and their families?

Pre-Nuptial and Post-Nuptial Agreements

In addition to thinking about what happens to your wealth when you die, it’s also worth giving some thought to what might happen if you separate.

A pre-nuptial agreement is a legal contract entered into before marriage that sets out how assets will be divided in the event of divorce or death. While pre-nuptial agreements are not legally binding in England and Wales, they can be persuasive if challenged in court, particularly if both parties entered into the agreement voluntarily and with full disclosure of assets. In later-life marriages, a pre-nup can be used to protect children’s inheritance rights by ensuring that assets accumulated before the marriage remain separate and are passed down to children.

A post-nuptial agreement can serve a similar purpose but is created after the marriage has taken place. Although UK courts are not legally obliged to uphold these agreements, post-nups can still be considered, especially if they are seen as fair, transparent, and made with legal advice.

It can be an awkward subject to raise, but nuptial agreements simply set out what a financial agreement would look like were you to separate and allow you to ring-fence any assets that one or both of you are bringing to the marriage. Often we find that our older clients feel more confident about getting married once they have raised the issue of a pre-nup with their partner because it provides both parties (and their wider families) with clarification on what would happen if they were to separate further down the line.

Wills and Trusts

Creating or updating a will is crucial to ensure that assets are distributed according to your wishes after your death. For individuals in later-life marriages, it’s vital to establish clear provisions that reflect your intent to protect children’s inheritance, ensuring that your assets are passed to your own children and grandchildren not your new spouse’s family. A well-drafted will can explicitly set out which assets should go to children from previous relationships and can address potential challenges from a surviving spouse.

Many people are unaware that when they marry a previous will is likely to become null and void. Therefore, if you pass away without making a new will, the law will decide how your assets are distributed, which may not reflect your wishes or the needs of your loved ones.

In addition to creating or updating a will, you can consider a life interest trust which could upon your death give your surviving spouse the right to an income for the rest of their life, at which point the remaining capital would be passed to your children. This will prevent the entire estate passing to a surviving spouse for them to pass on at their discretion, which may or may not include your children.

Joint Ownership and Beneficiary Designations

When it comes to property you should carefully consider whether joint ownership or beneficiary designations will achieve your asset protection goals. In the case of joint ownership, you can hold property as tenants-in-common, which ensures that you each own a specific share of the property. This is important because, upon the death of one spouse, their share will be passed on according to their will or trust, rather than automatically going to the surviving spouse.

Beneficiary designations on life insurance policies, pensions, and retirement savings plans should also be reviewed. In the UK, these designations take precedence over what is written in a will, meaning that you can directly allocate these assets to your children rather than your surviving spouse.

Pensions

If you have any ‘defined benefit’ (final salary) pensions, they will likely pay a portion of your income to your spouse when you die, so it’s important you update them to let them know of a new spouse.

Meanwhile any money that remains in ‘defined contribution’ pensions, such as stakeholder pensions or self-invested personal pensions (SIPPs) can be passed on when you die to your chosen loved ones.

You can tell your provider/s whom you would like to inherit your pension by completing an expression of wishes form.

Conclusion

Marriage in later life presents unique financial and legal considerations, especially when it comes to protecting assets for children from previous relationships. It’s essential to have open, honest communication with both your spouse and your children. Discussing your intentions, explaining why you are making certain decisions, and addressing any concerns upfront can help to avoid potential conflicts down the road.

With careful estate planning, the use of legal tools like pre-nuptial agreements, wills, trusts, and tax strategies, you can safeguard your wealth and ensure that your assets are passed down according to your wishes. By taking these steps, later-life marriages can be both emotionally fulfilling and financially secure, providing peace of mind for you your spouse and their families.

Victoria Fellows (pictured, below) is a partner and head of family in the Birmingham office of HCR Law.

Many thanks to Victoria and her colleagues at HCR Law for an eye-opening article on this important topic. It may not be particularly romantic but devoting a little attention to these matters now can potentially save you and your heirs a lot of grief in the future.

As always, if you have any comments or queries about this article, please do leave them below.

Guest Post: Key Things to Consider When Making a Gift or Loan to Married Children

Nick Everything Else guest post, families 3 Comments

Today I have a guest post on what can become a major issue for parents when making gifts or loans to their married children. Specifically it looks at what you can do to ensure that your wishes are respected should the worst happen and the marriage fails.

The article is by Joanna Toloczko, a partner, family law solicitor and mediator at UK law firm RWK Goodman.

Over to Joanna then…

According to the UK House Price Index in August 2023, the average house price in the UK was £291,000 and in London a whopping £536,000. To put this into context, the average house price back in January 2013 was £167,716, representing an increase of around 73%.

A bank or building society will normally require a minimum deposit of between 10% and 25% of the property value as a term of a mortgage offer, and the more you are able to put down as a deposit, the lower rate of interest you are able to secure. It is not surprising, then, that an increasing number of married couples rely on a contribution from one or both sets of parents for their deposit.

In my work as a family lawyer and mediator I often come across cases where a divorcing couple are at loggerheads about whether such a contribution was a loan or a gift. The party whose parents provided the funds will often argue that the funds were a loan which should be returned to their parents before the remaining funds are distributed between the husband and wife. The other party will usually argue that the funds were a gift and are available for distribution between the parties.

If the couple are not able to reach agreement and the case proceeds to court significant sums of money can be spent on arguing this point as a preliminary issue. Very often the parents will be drawn into the litigation.

Even if the Court accepts that the funds were a loan, it is possible that the Court will take the view that it was a “soft loan”, i.e. a loan where repayment is unlikely to be enforced. In these circumstances, the Court may choose to disregard the liability.

Usually, at the time the funds are made available to the couple no-one has formally addressed the issue of the nature of the advance. Everyone is excited about the new house purchase; no-one anticipates that the marriage may fail.

So, what can be done to ensure that gifts made to married children stay in the family of the parents making the gift, in the event of a divorce?

If the funds are being advanced to assist with the purchase of a property, a Declaration of Trust can be a useful tool. In this situation the married couple are the legal owners of the property and hold the property as “tenants in common”, which means that they have their own distinct share in the property. The Declaration of Trust can be used to set out the beneficial interests in the property, including the interests of third parties. For example, a Declaration of Trust could make it clear that as parents had contributed to the purchase price of the property, they are entitled to a specified share of the equity. Alternatively, the Declaration of Trust could set out that once the property is sold, the parents have to be reimbursed prior to the distribution of the remaining equity between the couple.

If parents are to receive a share of the equity, they need to be aware of a potential Capital Gains Tax liability, should their interest in the property increase in value.

Another alternative would be to use a formal loan agreement or for the parents to take a Legal Charge over the property. A Legal Charge works like a second mortgage. It is secured over the property and registered at the Land Registry. The Charge sets out details of the sum loaned to the couple, whether interest is payable and when/in what circumstances the parents are entitled to call for repayment of the loan.

Nuptial Agreements are also becoming more popular. These can be entered into either before the marriage (Prenuptial Agreement) or during the course of the marriage (Postnuptial Agreement).

These agreements make clear what is to happen to the couple’s assets in the event of divorce or separation.

If parents are gifting money, transferring properties, leaving an inheritance, providing an interest in a business, etc, and they wish to protect those assets in their child’s favour in the event of separation or divorce, a Pre- or Postnuptial agreement can be an extremely useful document.

Although Nuptial Agreements are not legally-binding and can be over-ruled by a judge in the divorce proceedings, if they are prepared in the correct manner, they have good prospects of being upheld or will certainly be heavily influential on the judge.

In summary, when advancing funds to a married child, always be clear about whether the funds are a gift or loan and seek legal advice about how best to ensure that the funds remain in the family in the event of a divorce. It is usually also a good idea to discuss any tax implications of your plans with an accountant or tax adviser.

Joanna Toloczko is a partner, family law solicitor and mediator at RWK Goodman and can be contacted on 07553 058485 or at Joanna.Toloczko@RWKGoodman.com.

Many thanks to Joanna Toloczko (pictured, below) for an informative and eye-opening article. Please do check out her company’s website (linked above).

While nobody likes to think about the marriage of their offspring failing, the reality is that an estimated 42% of marriages in the UK today will end in divorce. So it is vital to be realistic and ensure that, should the worst happen, any money you give or lend is returned or divided in accordance with your wishes.

As always, if you have any comments or questions about this article, please do leave them below.