Client entering a second marriage? Lawyer says be careful

As published in Wealth Professional

By David Kitai featuring Heela Donsky Walker

Second marriages are complicated, emotionally, legally, and financially. When they involve two people with children from prior relationships, large differences in net worth, and unclear expectations around contingencies for divorce and death they can become incredibly complicated. As financial advisors wade deeper and deeper into the world of estate planning, these complex situations can result in hurt feelings, lost wealth, and legal risk for advisors if they’re handled poorly.

Heela Donsky Walker specializes in these kinds of complex situations. Walker is a Partner in the Wills and Estates Group at Robins Appleby LLP. She has seen the mistakes that individuals, financial advisors, and even lawyers can make when managing estate plans for blended families. She explained the kinds of issues that these mistakes can leave people exposed to, highlighting situations that she identifies as particularly difficult. She emphasized that as financial advisors involve themselves in estate plans, they must be careful about what they know and what they don’t know.

“The most common mistakes that we see stem from a lack of communication, discussion, and planning beforehand,” Walker says. “The single biggest mistake that people in a second or subsequent relationship can make is not preparing a cohabitation agreement or a marriage contract, or at least obtaining legal advice to understand what happens in the event of a relationship breakdown or the death of either party. These impacts can vary widely depending on the province.”

Walker’s advice to people as they enter second marriages is to take a systematic and individualized approach. She will recommend that each spouse obtains their own legal advice first, to determine what their situation is, what their assets are, who their children are, and what this marriage could mean for them. She strives to ensure that those individuals are aware of specific provincial law that would come into force should the relationship break down or one spouse pass away.

For lawyers engaging with these individuals, or for financial advisors trying to refer their clients to lawyers, the challenge can be that this process overlaps with the early stage of a relationship, when things feel strongest. Clients may not prioritize this kind of engagement because they see a relationship in bloom, or fall into the notion that a marriage contract is a sign that their relationship is weak or doomed. Walker prefers to frame the process as one of discovery, learning as much as possible about what you’re getting into, so future decisions can be made more easily.

When she manages these cases, Walker notes that certain arrangements might be more challenging than others. Often in situations where there is significant asset wealth disparity between the spouses, or a difference in understanding these complex concepts, she may be more wary. She notes, too, that if one spouse has been through a divorce and the other hasn’t, only one party may fully grasp the cost and legal issues that come with divorce. The goal, in this process, is to ensure that the client understands a worst-case scenario.

“The advisor doesn't want to be the doomsdayer. You want to set the couple up for success by saying this type of an agreement sets out your minimum obligations. You or the other spouse can choose to leave more, can reorient, can do other things, but here is the minimum. So it sets out a floor and that can be very helpful for people,” Walker says.

“Financial advisors are not expected to be experts in family law or estate planning law. That's not their area of expertise,” Walker says. “But if there are concerns about decision making and who's providing instructions, jointly owned assets, movement of large sums of money…if you feel something is fishy, then it is good practice to send an email with a documenting partner.”