“I Do”: 4 Actions to Consider When Remarrying
You’ve worked hard to achieve professional success and to grow your wealth. And now you’ve fallen in love for the second time and are ready to tie the knot.
As you begin this exciting new phase, taking some extra time to plan your finances can be a critical step to ensure you’re setting your second marriage up for success and to protect your hard-earned wealth. Age differences, income gaps, and children from prior marriages are just a few reasons to make sure you and your new partner are on the same page about money matters before you make it official.
Early communication about such matters is the best way to prevent or minimize tension, misunderstandings, and potential relationship-ending disagreements down the road. Just ask Cal and Lisa (not their real names). Her first husband’s passing left Lisa with a sizeable life insurance settlement, combined with the proceeds of the buyout of her deceased spouse’s business by his former partners. With two young children of her own, Lisa welcomed Cal and his teenage son into the blended family formed by their marriage. When college time came for Cal’s son, he assumed some of the costs would be covered by Lisa’s funds, but in Lisa’s mind the proceeds from her first husband’s death were intended only for her financial support and the eventual educational expenses of her biological children. Things were tense for several months, requiring significant time spent in both financial and marital counseling.
These difficult financial situations can put extra strain on a marriage. While no one wants to think their marriage will end in divorce, the numbers indicate that many marriages do, and the numbers are even higher for a second marriage. According to the latest statistics, while 41% of first marriages fail, nearly 60% of second marriages end in divorce. Not only that, but the fastest-growing rate of divorce in the US is “gray divorce,” taking place with persons 50 or older.
The better news is that taking certain steps early on can help mitigate the financial risks of divorce. These steps can also help prevent some challenging situations even if, like Cal and Lisa, you don’t get divorced (including surprise creditors showing up shortly after the wedding, kids wondering whether their new stepparent is looking out for their needs, and prior spouses remaining as beneficiaries of insurance policies).
Here is a checklist of 4 actions to consider.
1. Address finances sooner rather than later.
Discuss money matters when things start looking serious with your partner. You can jointly review a list of key questions that will help unearth any differences of opinion about how you want to handle money in your relationship, as well as any ingrained money values. Here are some sample questions to help get you started:
To Commingle or Not to Commingle?
Will we pool all our money or keep yours, mine, and ours accounts?
When will the commingling begin — before or after the wedding?
If one spouse makes more money than the other, how will joint and individual expenses be funded?
How much information will we share about our income and our spending?
Budgets
How will we keep track of spending and how often will we discuss money matters? By agreeing on these things early in the marriage, both partners will feel included and knowledgeable, so that if anything were to happen to one spouse, the other could step in without additional stress and confusion.
Who will handle the budgeting and who will handle the investing? If we don’t agree, will we hire someone so there’s an objective person helping us stay on track?
Money Values
How much of our money will we use to support our kids’ education and other needs? For how long?
Are there any money topics that are off-limits?
What kind of lifestyle is reasonable? When and where is it okay to splurge?
Are we planning to spend our accounts down to zero, or do we want to leave money to the kids or to charity? Do we want to gift money to heirs or philanthropic causes during our lifetimes?
2. Create a written financial plan that documents your shared and separate intentions for your wealth.
This helps you learn what each of you views as non-negotiable expenses or expectations and creates the opportunity to learn about each other’s hopes and dreams. Then you can set up a budgeting system that covers both the must-haves as well as automatic savings of a specific amount each month or year toward your separate and joint bucket list items. This is also a great time to share your personal investment philosophies and determine whether joint investment accounts are a good idea. If you have vastly different approaches to investing, merging investment accounts may be a recipe for conflict.
3. Consider a prenuptial agreement to protect your separately earned wealth and the future inheritance of your kids (or causes that are important to you).
If you’re already in your second marriage, it’s not too late; talk to an estate attorney about a post-nuptial agreement. Experienced estate planning attorneys can raise important questions that will provide reassuring clarity now and prevent far more difficult conversations later. Note that states have different laws when it comes to dividing assets in a divorce, so if you move to a new state, be sure to revisit your estate planning documents.
4. Update beneficiaries for all insurance policies and retirement accounts.
Ideally, you’d discuss this before you tie the knot. Reviewing beneficiaries for all property is critical, including making sure ex-spouses aren’t carried over as beneficiaries on insurance policies and/or retirement accounts. It’s important to determine whether your own kids or your new spouse will inherit some or all of each account/asset. Trust documents instruct how to distribute assets, but be aware that life insurance and annuity proceeds, 401(k) and 403(b) accounts, and IRAs pass “by contract” and will typically override trust language unless the trust is the beneficiary of the contract or account. Also, recognize that as the years pass, your financial situation and your feelings about who should get what may evolve. Review your beneficiaries at least every 5 years, and more often as you enter your 70s.
As a fiduciary financial advisor, Quantum is focused on providing guidance on clients’ financial matters that goes beyond investment management. Our goal is to help clients make smart decisions in all aspects of their financial lives by providing counsel that always places their best interests ahead of everything else. To learn more, visit our website to read our article, “Keeping the Spark Alive: Financial Communication Tips for Successful Couples.”
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