Second-marriage prenup could leave kids out of the house

A woman who bought her home before her second marriage may have set up an inheritance twist that cuts out her own children, according to MarketWatch advice columnist Quentin Fottrell.

In his Moneyist column, Fottrell responded to a reader who said she and her husband have been married for more than 10 years. Both spouses have children from earlier marriages, and they live in a house the wife said she bought entirely with money she had before the wedding.

The couple agreed when they married that if she died while still married, her husband would receive the entire house. If they divorced after more than a decade of marriage, he would be entitled to 18% of the home's value, she said.

Fottrell's first answer was blunt: the deal is fair if she still believes it is fair. He also described it as generous.

But he urged the reader to confirm that the arrangement is a signed prenuptial agreement rather than a verbal understanding, because only the former is designed to operate as a binding legal contract.

The children could be shut out

Fottrell warned that the death provision could have a result the wife may not have intended. If her husband inherits the home or a share of it, he could later pass that property to his own children.

He added that if the husband died without a will, his portion would generally go to his children, because stepchildren are not treated as legal heirs. In that scenario, Fottrell said, the wife's children could receive no part of the house.

The columnist advised the couple to meet with an estate-planning lawyer and, if needed, the lawyer who prepared the prenup, to check whether the agreement still matches their wishes after more than 10 years of marriage.

Other estate-planning options

For second marriages involving children from prior relationships, Fottrell said a more typical plan is a life estate, which lets the surviving spouse remain in the home for life while preserving an ownership path for the deceased spouse's children.

He also pointed to qualified terminable interest property trusts, known as QTIP trusts, and other marital trusts. Those can allow a surviving spouse to live in the home or receive income from it, while leaving remaining assets for the first owner's children.

Fottrell noted that life estates can still create conflict, because the surviving spouse and children may have to deal together with repairs, taxes, insurance, upkeep and possible sale decisions.

Separate property can get messy

Because the wife said the house was bought with premarital funds, Fottrell told her to keep records showing it was purchased with separate money. He said income and property acquired during marriage may be treated as marital or community property.

He also cautioned against accidentally mixing the asset into the marriage by adding the husband to the deed or using marital funds for the mortgage or renovations.

Fottrell said that in most states, a spouse is generally not required to leave a second husband 18%, 100% or any specific share of a premarital home, assuming it was bought with premarital money. But he stressed that state law matters.

As an example, he wrote that a Florida homestead titled only in the wife's name could give a surviving spouse a life estate if she died leaving a husband and children. In Florida, he said, a surviving spouse may instead choose to take 50% ownership outright, with the children or descendants owning the other half.

Fottrell also cited Rhodes Law Firm, which says inheritance questions in second marriages can change sharply if assets have been mixed together, and that spouses in many states may have support obligations if one needs long-term nursing-home care.

This story draws on original reporting from MarketWatch.