Marital Property Agreements: Not Just for Second Marriages

Married couples in Wisconsin can utilize several different techniques to transfer assets at death outside of probate, one of which is the marital property agreement. A marital property agreement allows married couples in Wisconsin to structure and change the way that all or some of their property is classified under state law. And while marital property agreements are certainly helpful in the case of divorce planning and second marriages, they are also useful in estate planning.

Wisconsin is a marital property state, which means that any assets acquired after marriage are presumed to be owned equally between the spouses. However, the Wisconsin Marital Property Act allows married couples to use a marital property agreement to direct that upon the death of a spouse, either or both spouse’s property may be transferred without probate to a designated person, trust, or entity. This includes property acquired after marriage. As a result, instead of a spouse only having the right to give his or her one-half interest in the asset, a marital property agreement could transfer the entire asset at death.  

Because of this, it often makes sense for married couples in Wisconsin to categorize all property of both spouses as marital property. This method of property classification not only simplifies estate administration, because it takes away the need to classify which assets are marital and individual property at the death of a spouse, but also has other positive tax benefits.

For example, by utilizing a marital property agreement and classifying all assets as marital property, each spouse’s estate becomes balanced, and generally allows the couple to maximize the estate tax exemptions available for each spouse. Additionally, at the death of the first spouse, the basis of assets passing to the surviving spouse in determining gain or loss for income tax purposes is “stepped-up” to a figure equal to the fair market value of the assets as of the date of death. The basis of the surviving spouse’s marital property interest is also stepped-up, thereby mitigating capital gains taxes.  

Lastly, even if a married couple has taken proactive measures to avoid probate, the marital property agreement can act as an additional layer of protection to avoid probate in case a mistake was made or assets change in the future and are not properly dealt with. For these reasons, the marital property agreement should be considered by married couples in Wisconsin as an estate planning tool.