I work with many women who need counsel around finances as they go through a divorce. As you might expect, some of these women later remarry. What you might not expect is that a second marriage (or third) brings nearly as many financial decisions as divorcing does.
When it comes to second marriage finances, there are questions partners need to jointly answer to help avoid or withstand common pitfalls.
What are your financial priorities?
In any new marriage, you’ll need to establish joint financial priorities and create plans to try to achieve them. It’s also a good idea to meet with your professional advisors to review what you’ve accumulated individually. Discuss together how you can put those assets to use to help you achieve your new financial goals.
This process starts with taking inventory of your collective assets and liabilities. This includes property, insurance coverage, banking, retirement, and brokerage accounts. It also includes debt, even if that conversation makes you uncomfortable. Discuss how much debt you each have, your credit histories, and what exactly you owe to other parties.
Unlike most first marriages, there are other people’s priorities to contend with too. What if alimony isn’t enough for an ex who constantly demands more? Or what if your children have gotten accustomed to lavish gifts or trips that were used to smooth over a divorce? Your intended should know about these factors so you can plan together to take care of your family without jeopardizing your financial future.
How will you decide how to spend money?
You’ll want to think about how much each of you will contribute if there are disparities in income and to what accounts. Discuss what is paid out of each account, who makes decisions for each, and how you’ll pay for bills you incur as a couple/family.
There is no right way to handle joining accounts. The route you and your partner take comes down to preferences. I have worked with couples who keep their individual bank accounts and agree on which expenses partner A will always cover, and which expenses partner B will always cover. I have also seen couples open a joint bank account only for joint expenses. Contributions to the joint account can be 50/50 or can be pro-rated based on income, with the higher-earning spouse putting in more than the lower-earning spouse.
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.
How will kids’ expenses be covered?
With second marriages often come blended families or the creation of a new one. Ideally, all ex-spouses will 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 who will be responsible for this support: one biological parent, both biological parents, stepparents? For whatever portion you, and potentially your new spouse, are responsible for, where will that money come from?
What about retirement?
And as you consider your current financial realities, don’t forget to take your future into account. Retirement planning has many factors, including some that are dependent on divorce decrees. Did an 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.
What happens at the end of life?
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.
Even if the two of you 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 automatically given unless you stipulate otherwise in a valid, well-drafted prenuptial agreement. We often think of prenups as important in a future divorce, but they also dictate what happens to your assets after death.
For better or for worse
Second marriages can bring emotional richness but also financial complexity. The key is to balance the complicated issues 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.
Mallory is a Wealth Manager and Shareholder. She listens deeply and helps simplify complex financial situations to help clients move into an easier, clearer future. She aims to give financial advice that is compassionate, wise, and easy to understand.
