Goodbye nuclear family, and hello 21st century. Your parents’ quintessential family of mom, dad, two kids and a dog may just be a thing of the past. The reasons for this change in society are numerous to say the least (for example, people are waiting until they’re older to get married, there are more employment opportunities for women and individuals have more of an enlightened understanding of what it means to have a partner). One of the main reasons for this departure is the fact that between 40% and 50% of marriages end in divorce.1 A byproduct of this societal change is that 40% of children are born out of wedlock.2 This shift from the nuclear family ultimately impacts us as practitioners and makes what was once a basic estate plan look more like a choose your own adventure novel with twists and turns at every corner.
Single parents or parents with children from different relationships have: (1) more complex issues than married couples, or (2) issues that married couples don’t have at all (for example, child support, selection of guardian and concerns about the other parent). Many of these issues apply to any individual in this situation, not just the rich and famous. However, there’s often an additional layer of complexity when the client is a “star.” These clients must also address publicity, wealth and image/sponsorship.
Using examples of some of our most well-known athletes and stars, let’s get some insight and solutions on the issues frequently experienced by these types of clients.
Impact on Client’s Image
In the age of social media and immediate access to information, everyone knows everything about everyone. Just reviewing a client’s Facebook and Instagram can provide his social circles (and the public in general) with an easily accessible window into his life. This is even more true when it comes to high-net-worth individuals. The number of gossip columns, magazines, websites and blogs has only increased over time, reporting not just one’s highs but, more often than not, one’s lows. The impact of negative publicity might not only affect your client personally but also financially.
Usually, the mainstream public initially casts a negative light on men and women having children out of wedlock or having children with multiple partners. The media often seizes on any opportunity when things aren’t going your client’s way. In 2012, DailyMail.com called out “The Real Deal” Evander Holyfield as a “deadbeat dad” for his unpaid child support payments in excess of $550,000.3 In 2016, The New York Post reported that the mother of one of football player Antonio Cromartie’s children complained about how little time he spends with his children and that his children need to use Google to find out about their dad.4
However, the news isn’t always all bad. But, it depends on what your client is doing. Take Mick Jagger for example. Reviews about his eighth child are fairly glowing. This positive spin is because he agreed to pay thousands of dollars a month in support and buy a multi-million dollar home for his child. He also jumped on a transatlantic flight from London to New York for the birth.5
Obviously, our clients aren’t all in Mick’s shoes, but the takeaway is that there are things clients can do to positively impact their image in the media or their community. They just can’t sit back and let it come to them. They have to engage it and turn it in the direction they want.
Child Support and More
Another issue that impacts a client’s immediate finances is child support payments. One of the premier cases for hefty child support payments involves former Green Bay Packer wide receiver Antonio Freeman. The standard support guidelines didn’t apply because he was a multi-million dollar superstar. Instead, the judge used his discretion to determine the support payments needed for Antonio’s daughter to live the lifestyle one would expect her to have if she lived with her NFL dad. To make matters worse, once Antonio got his big contract, he was hauled back into court by the child’s mother to increase his child support payments based on his increased income.6
It’s reported that Antonio Cromartie’s annual child support payments are $336,000.7 Though this might seem small in comparison to his current multi-million dollar contract, his football career ended before he was 40. His cash flow will substantially slow down, but his payments might not at the same rate.
Additionally, the child support payment is just the minimum that’s required. The amount your client actually spends on his child may be far greater. I recently sat down with an NFL player whose payments for his two children exceed $100,000 annually. This is a huge financial burden whether by choice or not. The numbers just aren’t going to add up at some point. This is one of the many reasons that 78% of NFL players are either bankrupt or in financial distress within two years of retirement, and 60 percent of NBA players are bankrupt five years after retirement.8
Of course, there are solutions. Your client might be able to modify the amount of support if his annual income declines, but this certainly isn’t guaranteed. The best option is sitting down with his financial advisor. Take a look at your client’s income versus his expenses, and figure out what needs to be done so he can continue to live his lifestyle without going broke.
The Guardian
When your client dies, the surviving parent is the guardian. That’s right, the surviving parent will automatically become the guardian of the client’s child regardless of the client’s wishes, including what’s stated in the client’s will. If the client’s “ex” doesn’t want to be the guardian or isn’t alive, then the story gets a little more complex. If your client doesn’t have a will that names a guardian, then a court will appoint a guardian for the child in the child’s best interests. Any relative of the child could petition the court to be the guardian. This individual would not only care for the child but also control any money the client leaves to the child. Sometimes, an individual the client wouldn’t want to be the guardian tries to become the guardian for the wrong reasons. This is the reason it’s so important for your client to create a will. Your client can name the individual he wants as guardian and avoid this potential disaster.
Unfortunately, even if there’s a will naming a guardian, this doesn’t guarantee that the individual will become the guardian. It’s possible that single parents might not name the same guardian in their respective wills. For example, your client names his brother as guardian, and his “ex” names her brother as guardian. In this case, preference is given to the wishes of the second to die. To avoid this problem, the best strategy is for your client to have a straightforward conversation with his “ex” and mutually agree on the right individual. Sometimes the answer is just learning to work together as parents.
Protecting the Child’s Inheritance
Though clients can’t guarantee whom the guardian might be, they can control who’ll have access and control of the child’s inheritance. Trusts are invaluable when it comes to single parents, as trusts can be used to both protect the child from others as well as from himself.
As discussed above, the individual who becomes the guardian of the child will also have control over the assets left outright to the child while the child is a minor. This often isn’t ideal when the guardian is an “ex” or some other third party. The fear is these people will use the child’s money for their own benefit rather than the child’s. For example, they may take lavish trips or purchase cars or homes under the guise that it’s for the benefit of the child even though they also reap the benefit of those items. Alternatively, the guardian may spend the money in a manner the client wouldn’t have on his children.
Of course, once the child turns 18 (or 21 depending on the state), he’ll gain control of the assets. The concern here is that an 18 year old with access to a large amount of money may not make the best decisions. An 18 year old is potentially likely to spend the money purchasing extravagant and unnecessary gifts for himself or others (for example, the client’s “ex” or the child’s girlfriend or boyfriend), which your client wouldn’t have wanted. Additionally, the child may have no incentive to become a productive member of society (for example, go to college or get a job).
The solution to both these problems is to place the assets in trust for the benefit of the child. This can be for gifts during life or at death. The trustee follows the wishes and instructions of the client on how the assets should be managed and used for the child. The trustee can only use trust funds for the child’s benefit (and no one else). Singer Whitney Houston did this for her daughter, Bobbi Kristina. Whitney divorced Bobby Brown in 2007 and, to protect her assets, left to her daughter, she placed them in trust.9
By placing the assets in trust, the guardian has no control over the child’s inheritance. So, the client’s “ex” can’t touch the money. The trust also protects the 18-year-old child from himself and others. The trustee remains in control as long as the client wants. This could be age 25, 35 or forever if so desired. Finally, the trust builds in an additional layer of creditor protection. This means if the child gets sued by someone (for example, after a car accident) or gets divorced, the assets in the trust are protected.
Children From Different Partners
When a client has children with different partners, he may want his children treated: (1) equally, or (2) unequally. To achieve either result, planning steps must be taken, or the wrong result may occur.
The default law is typically that all children are treated equally. This is regardless of the client’s actual relationship with the children. For example, if the client has two children, one with an “ex” and one with his spouse, and the client wants one child to get 1/3 and the other to get 2/3, the client’s will needs to be drafted accordingly. Otherwise, each child will get 1/2 of the assets.10 Alternatively, if your client specifically names only one child in his will, the other children will be excluded. This was the case for actor Philip Seymour Hoffman, who didn’t update his will after he had his second and third child. The result was that both were excluded from inheriting any of his estate.11
If your client is married or thinking about getting married, that too needs to be carefully taken into consideration. Spouses are usually entitled to 1/3 of the estate regardless of what’s said in the will. Moreover, there’s a presumption that the surviving spouse will favor her child (and not your client’s children from prior relationships), and any amount the surviving spouse receives will be left to her child and not your client’s children. So, if your client wants the children to share equally, she needs to understand that 1/3 of the estate might be given to one child alone resulting in an unequal inheritance.
There are various solutions here. The best is having a prenuptial agreement (prenup) that waives the surviving spouse’s right to 1/3 of the estate. This allows the children to be treated equally under your client’s will without considering this factor. If there’s no prenup, options are still available. First, any assets left to the surviving spouse can be placed in trust for her benefit, and on her death, those assets can pass equally among the children. This protects the children from the surviving spouse favoring her child. Alternatively, your client could leave 1/2 the assets to the surviving spouse and her child and 1/2 to his other child. Often, clients do a 60/40 split, assuming the surviving spouse will use some of the assets before the assets pass to her child, at which time the assets will be closer in value to what the other child inherited.
Take Steps Now
Do all of it now. Address the issues head-on with your clients before there are a tsunami of problems. This means assisting with any of the optics of having children out of wedlock or with multiple partners so they’ll be favorable. Get your client’s financial house in order, and advise him to sit down with his financial advisor to determine the impact of having a non-marital child on his finances. Finally, create an appropriate will (and trust) structure to address the estate-planning issues surrounding his non-marital child before it’s too late.
Endnotes
1. www.apa.org/topics/divorce/.
2. www.cdc.gov/nchs/fastats/unmarried-childbearing.htm.
4. https://nypost.com/2016/01/17/antonio-cromartie-pays-336k-every-year-to-support-8-kids/.
5. www.dailystar.co.uk/news/latest-news/569115/mick-jagger-father-baby-number-eight-melanie-hamrick.
6. Smith v Freeman, 149 Md. App 1 (Ct App 2002).
7. Supra, note 4.
8. Pablo S. Torre, “How (and Why) Athletes Go Broke,” Sports Illustrated (March 23, 2009).
10. See N.Y. Estates, Powers & Trusts Law 4-1.1 and N.J. Rev. Stat. 3B:5-4.
11. https://nypost.com/2014/07/21/philip-seymour-hoffman-didnt-want-trust-funds-for-his-children/.