Post-Marital Agreements a Key Component to Estate Planning for 2nd Marriages

Second marriages always involve more complex and ethically challenging estate planning circumstances for seasoned estate planners. Planning to protect the heirs of the “first to die” is always a challenge and particularly when one of the spouses has been diagnosed with a life-threatening illness or if one of the spouses is significantly older.

A new Ohio law heightens those challenges and complexities by legalizing post-marital agreements – which have been permitted in about 40 states for the past decade but only now are available in the Buckeye State.

While there are many circumstances where these agreements can be used, there are also limitations as to the effect of this new tool. For starters, for a post-marital agreement to be valid, it must be executed with the same formalities as a pre-marital agreement. That means it must be in a writing signed by both spouses; entered into freely without fraud, duress, coercion or overreaching; and made with a full disclosure or full knowledge and understanding of the other spouse’s property. It also cannot promote or profit from divorce.

There are other key considerations with the new law, including:

— Competence: While the new statute does not specifically address this issue, if one spouse is incompetent or marginally incompetent, their ability to enter into such a contract is limited. Most financial powers of attorney do not provide for authority to enter into a Post-Marital Agreement. Should the financial power of attorney include a power for the agent to enter into such a contract? This would be advantageous under certain circumstances.

— Medicaid Planning: In states that permit post-marital agreements, they are more likely to be successful if put in place more than five years prior to a Medicaid application. Yet in most circumstances, if one of the spouses is ultimately confined to a nursing home, it seems likely that the better approach would be to simply terminate the marriage. That’s because current federal law provides that a community spouse’s assets can be deemed unavailable by the community spouse’s declaration not to support the institutionalized spouse, known as spousal refusal. So, the institutionalized spouse’s right to support must be assigned to the Medicaid agency. Additionally, the state can seek recovery of the cost of medical assistance from the community spouse at death – and it is likely that the Ohio Department of Medicaid would challenge post-marital agreements.

Next, we’ll discuss drafting considerations for post-marital agreements.