Well, I’m pretty sure you just read the title of this blog and considered NOT reading it — but please stay with me here on this one. It’s my job to talk to you straight about things that other advisors, your parents, and even your friends won’t bring up. Second marriages or remarriages in general are some of those topics, and they have significant implications on your finances.
- Maybe you recently got married or are thinking about getting married.
- Maybe you are marrying later in your life than expected.
- Or, you are rethinking your current marriage; not just one of those “he left the seat up again” kind of days but REAL thoughts of “what in the world have I done?”
In any of those cases, what I have to say might affect you or someone you know closely one day.
Financial considerations in remarriage
Adults entering a remarriage or second marriage (or even a first-but-later-on-in-life marriage) are likely to bring assets, debts, obligations, and established spending habits into the relationship. Since credit reports aren’t required for a marriage license (this girl thinks they should be) and you generally only see them when you apply for a mortgage together, your new partner’s finances are often unknown. This is despite the fact you usually need to agree as a couple on how to handle them.
The first step to tackling the finance of remarriage: talk it over
Couples should talk about their finances — in detail — beforehand or no later than six months into a marriage. Won’t that be fun? The first step is pulling together a big-picture assessment that balances the needs of the new family with any obligations to existing families. By listing all financial considerations on a “needs” worksheet with a financial advisor, new spouses can develop a financial structure and estate plan designed not to implode down the line.
Navigating the emotional and psychological sides of financial discussions
Let me not forget to mention that indeed, discussing your finances in a remarriage can be uncomfortable. (Ya think?) The end of a marriage often results in a financial “crash course.” Frankly, one of the last things people want to revisit when they remarry is their finances. This means, for sanity’s sake, that it’s important to look at your financial history from a psychological perspective and identify your hot button issues. You don’t want to recreate past experiences that can negatively impact the new marriage. For example, an occurrence such as receiving a late bill notice or not knowing the status of a checking account might trigger an emotional reaction in one spouse that might seem illogical to the other. Anger, mistrust, sadness or feelings of inadequacy can seriously derail any progress.
Money is psychological, and in a re-marriage — it’s loaded. Think about how people feel about their kids or step-kids, or an ex-spouse. This is one area where a financial advisor can make a big difference. An advisor can help mediate the conversation and walk through the pros, cons and options of merging finances. The more neutrality a third person can bring to the table, the more a couple can decide together what their financial future looks like. Two big areas that an advisor might discuss with you are your assets and your estate plan.
The finance of remarriage: Merging Your Assets
When looking at how to handle your money as a couple, there are three general models. Think about it in terms of different “pots,” or groupings of assets:
- One Pot: By putting all accounts under joint names, assets are pooled and expenses are drawn from there. This can work well for couples with no kids, no ongoing financial obligations and similar spending habits.
- Two Pots: Each person keeps his or her income, savings and investments separate. This works best for more independent people, but the downside is that you may spend a lot of time negotiating or arguing about who is paying for what — especially when it comes to the household expenses or vacations. One way to counter that is to negotiate ahead of time exactly how joint expenses will work. And… put it in writing so you don’t have to revisit the conversation every month, which can be draining.
- Three Pots: This is a blend of the first two methods. The couple retains individual accounts — and the independence that approach allows — along with a joint account for shared expenses. The three-pot method can work well for remarried individuals with special circumstances, such as those who have dependent children or large amounts of individual debt.
The finance of remarriage: Creating an Estate Plan
Though it often takes a crisis for people to deal with their finances, it is essential to revisit your estate plan when you remarry. Following are some key areas to review with your financial advisor:
- Pre- or Post-Nuptial Agreements: (or post-nuptial… HAHAHAHAHAHA) While your financial advisor cannot draft this legal agreement, he or she can offer guidance to help determine what financial facts and assets should be included in such a document. Considerations for a pre-nuptial or post-nuptial agreement include mortgages, equity lines, investments, credit-card debt, pledges to charity and income from all sources (including retirement accounts, insurance coverage and expected inheritances.)
- Beneficiary Designations on Life Insurance: Upon re-marriage, one of the most frequently overlooked areas is in life insurance beneficiaries. Is there a story here? Yes! I cannot even begin to tell you how difficult it is to look a current spouse in the eye and tell him or her that the past spouse is still listed on the life insurance policy! If the ex-spouse is still listed, that can cause serious problems later. Be sure to update any documents as soon as possible that name a direct beneficiary; this includes your will, retirement plans, and life insurance policies. This makes certain that your intentions are expressed in writing.
- Trusts: Many types of trusts can be set up to further your estate planning when you remarry, especially if there are significant assets or dependent children from previous marriages to provide for. Talk to your financial advisor and your estate attorney about the best options for your situation.
- Taxes: Lastly, you’ll need to determine whether to file a joint or individual tax return. Consult a certified public accountant or seek tax advice to determine which approach is best for your circumstances.
Hopefully, you will never need these tips. But, to tell you the truth — and not to sound callous either — life happens. And it’s not always what we want it to be. As a financial advisor, I’ve seen people from all walks of life and all backgrounds deal with difficult and unexpected issues.
When you remarry, protect yourself and your family — and don’t be afraid to ask questions!
September 2020
Information in this material is for general information only and not intended as investment, tax or legal advice. No strategy assures success or protects against loss.
