Getting remarried offers an opportunity not only for a second chance at love and happiness but also for entering a new financial partnership with your spouse-to-be.
However, it can be hard to determine just went wrong in the first marriage. We’ve all heard the statistics on how finances are one of the leading causes for married couples to separate.
The catch is that a second marriage isn’t a clean slate. In fact, old spending habits and other financial “baggage” from previous relationships can sidetrack an otherwise loving partnership.
In this article, we’ll take a look at some strategies to get your finances right for your second marriage.
Sharing Your Finances Upfront
The financial fallout from a previous marriage may understandably put you on guard for your future marriage. That’s why financial transparency is essential for engaged couples to avoid surprises down the road.
Think about it, you need all the financial information you can to make informed decisions. This includes sharing and learning information with your spouse before tying the knot.
It also holds true even if you don’t decide to merge finances. For instance, if your spouse is beleaguered with debt, s/he may look to you to bail them out or solve their issues.
Here are some items you should discuss with your fiancé:
- Documents: It’s wise to share financial documents, including tax returns, pay stubs, bank statements, investment statements, and credit reports.
- Debt: This sounds like a no-brainer, but if you or the person you’re marrying have debt, you should take the time to not only disclose this information but also set up a timetable on when you could feasibly pay the debts off.
- Assets: Having a clear idea of just what assets you and your spouse have is wise. This is especially true if these assets have not been fully paid off (i.e., a house, vehicles, etc.) and may cause tax difficulties down the road.
- Financial Advisors: If you and your spouse-to-be have financial advisors, take the initiative to bring both parties on the same page.
- Children: If you are marrying someone with children under 18 from a previous marriage, be sure to ask if they are paying child support (or have outstanding payments to fulfill). Also, be upfront about asking about funding the college education of these children. Will that be your responsibility?
- Alimony: Similar to child support, you should be aware of how much your spouse-to-be has to pay her/his previous spouse(s).
The rule of thumb to follow is that if it may impact your new marriage in any way, you should have the right to know and should disclose your information accordingly.
Prenuptial agreements have a bad reputation as casting the first stone against a second marriage. It may be unromantic to talk about the prospect of another divorce in the future. However, taking care of these problems beforehand with a prenup is extremely useful for a number of reasons.
First, it helps determine just what is shared and what will remain separate. Couples may have assets before becoming engaged. In order to determine what property will be shared and what would remain separate, a prenup is essential.
The advantage is that both spouses-to-be determine how assets will be divided if things don’t work out as planned. Without a prenup, the state laws determine how your assets are split, which might be worse for both parties. Some items to consider a prenuptial agreement include:
- Joint bank accounts
- Retirement benefits
- Contributions to savings/investments
- Household expenses/bills
Similar to a will (see below), having a prenup can ensure how a home (or other property) is divided to a surviving spouse, should the other pass away.
It is also not uncommon to have a clause in a prenup that states that the surviving spouse can live in the residence until their death or when s/he decides to leave. This helps avoid costly legal tug-of-war between the spouse and children, or to make a splitless equivocal, should a couple later divorce.
Creating and Updating a Will
Similar to how signing a prenup before entering a second marriage ensures that both partners’ assets are divided should the partnership end, creating and updating a will ensures that your property and wishes are carried out after your death.
There are two common strategies used to circumvent the bitter situation where children may feel shafted when a stepparent inherits all of the deceased’s assets/money:
- buying life insurance
- establishing a QTIP trust
Life insurance allows either spouse to name your children specifically as beneficiaries upon your death, guaranteeing them a payment. A QTIP trust, short for “qualified terminable interest property,” works in a similar fashion. It can hold assets that you intend for your children but allows the surviving spouse to collect income from the trust for the rest of their life.
Because both situations require more than a rudimentary knowledge of estate planning, it is wise to consult your attorney(s) to ensure that both partners are on the same page for their shared financial future.
Old Financial Strategies in a New Relationship
Identifying money differences from the get-go is the key to ensuring joint finances before a second marriage becomes a problem down the road. It may be cliché, but it is true: opposites attract. The same goes for finances. One partner may be a spender, while the other is a saver.
When you choose to merge your financial philosophies, be sure to take into consideration just how the other is likely to conduct their finances. For instance, there may be a wide socioeconomic gap between spouses—an injection of cash from a new spouse may exacerbate problematic tendencies or create new opportunities. The key is to learn how to work together as a financial team.
In conclusion, it is vital to discuss your finances and create the appropriate agreements before tying the knot. This helps ensure that the next time you walk down the aisle, it will be a lasting and loving partnership.