A new union can and should change your financial picture
For a variety of reasons, second (or third) marriages are becoming the norm. With them come blended families with ex-spouses, step kids, half siblings and a whole new financial picture. We’re not discounting the power of love, but if you’re contemplating getting married again, there are questions you need to ask – and answer – to help your new marriage withstand some of the common pitfalls that can trip up a relationship.
WHAT ARE YOUR PRIORITIES?
In any new marriage, you’ll need to establish your joint financial priorities and set the wheels in motion to try to achieve them. It starts with taking inventory of your collective assets and liabilities, property, insurance coverage, banking, retirement and brokerage accounts – pretty much anything that has to do with money.
Marriage is about love and trust, so when you’re discussing money matters, you’ll have to talk about your debt and obligations, too. Discuss how much debt you each have, your credit histories, and what exactly you owe to other parties.
What if alimony isn’t enough for an ex who constantly demands more? Or you use debt to buy lavish gifts for your children out of guilt after the divorce? Your intended should know about those payments so you can work together on a plan to take care of your family without jeopardizing your financial future together.
You’ll also want to think about how much each of you will contribute if there are disparities in income and to what accounts (yours, mine and ours, perhaps?), as well as how you’ll pay for your children’s needs and bills you incur as a family. Make sure to re-establish a “rainy day” or emergency fund, especially if your divorce took a toll on the funds you had saved. Consider setting aside some money for the fun things in life, too, like travel, concerts and dining out.
It’s a good idea to meet with your professional advisors and review what you’ve accumulated individually and how to put those assets to use to help you achieve your new financial goals. This is the time for full disclosure and getting on the same page. Whatever you decide will guide your planning decisions when it comes to investments, budget and your savings.
WHO GETS WHAT AND WHEN?
Getting married is one of those life events that should automatically trigger a review of your estate planning documents. It’s an opportunity for each of you to review your will, trust documents and beneficiaries on everything from your financial and retirement accounts to insurance and annuities. You’ll also need to determine how your property will be titled.
WHAT ABOUT THE KIDS?
With second marriages often come blended families or the creation of a new one. Ideally, everyone will get along, and you and your ex will easily come to a fair agreement as to which family will pay for certain expenses. But it doesn’t always work that way. The court will mandate certain responsibilities, but invariably nonobligatory expenses will crop up. Decide now whether one of the biological parents will be responsible for this support, whether it’ll be a joint expense between the parents or whether you and your new spouse will pay and where the money will come from.
WHAT ABOUT RETIREMENT?
And as you consider your financial realities, don’t forget to take your future wants and needs into account. When it comes to retirement planning, there are a number of factors to consider. And some depend on the divorce decree from the earlier marriage. Did the ex-spouse claim half of the retirement assets in the divorce? If so, that means you may have less to retire on as a couple, and you’ll need to plan for that.
Social Security benefits also come into play, particularly if you’re considering marriage later in life. Social Security rules allow exes and widows/widowers to collect benefits on their previous spouses’ records under certain circumstances. But remarriage generally means those spousal benefits will go away unless the later marriage also ends (see ssa.gov for more information).
DO YOU WANT OR NEED A PRENUP?
Even if you collectively decide to exclude your new spouse from inheriting, most states give spouses the right to one-third to one-half of your estate. This “elective share” is a given, unless you stipulate otherwise in a valid, well-drafted prenuptial agreement. Prenups are becoming more common as people acknowledge the prevalence of divorce and the effect financial disagreements can have on a relationship. This legal contract supersedes local laws and details what you want to happen to your assets in the event of a death or divorce.
FOR BETTER OR FOR WORSE
As you consider merging your lives together, for better or for worse, take into account that second marriages and blended families add complexity to your financial and retirement planning (even as they bring emotional richness to your life). The key is to balance the complicated issues that blended families face with careful planning. It’s important to work with your loved ones, financial advisor and/or attorney to establish ways to preserve assets in a way that makes sense for you and your family, whatever form it takes.
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