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FAMILY FINANCES

Getting married again? Read this before you tie the knot

Save yourself, your intended, and your kids from financial heartache

Published: June 03, 2015 06:00 AM

Love is lovelier the second time around, Frank Sinatra once crooned. But it’s often also more complicated. You may have finally found your soul mate, but you also may be taking the plunge into a more complex financial situation. You may have significant savings, investments, or debt, and if you were hurt financially in a divorce, you’ll probably be wary. And if dependent children or parents are in the picture, combining households is tricky.

So before you finalize the guest list and order the cake, have a good, long talk with your spouse-to-be about money. The conversation can be difficult, but setting the financial terms of your union can minimize misunderstandings or disappointments later on. Here’s a blueprint:

Be open about your money background

It may sound tacky to ask your beloved his or her credit score, but the question is legitimate. You need to know about a potential partner’s financial problems in advance, says Les Parrott, a psychologist in Seattle who is also a co-author, with his wife, Leslie, of “Saving Your Second Marriage Before It Starts” (Zondervan, 2015). Discovering after the wedding that, say, a new wife has $25,000 in credit-card debt creates a sense of betrayal. “If she’s hiding that,” he asks, “what else is she hiding?”

In addition to addressing expectations about money management and other concerns, talk about your money styles—such as whether you’re a saver or a spender—and the financial worries that sometimes keep you up at night. A talk about how finances were handled in the home in which you grew up, and during your first marriage, can also be illuminating.

Confront expectations about children and parents

Knowing how each partner handles money with his or her own kids—and expects to treat stepkids—is also critical. Robert Boyd, a partner and family-law attorney with Boyd Collar Nolen & Tuggle in Atlanta, says that parents who are engaged need to be honest about their expectations regarding allowances, paying for college, and financial assistance to adult children. If one parent spoils her kids and the other is a tightwad with his, family dynamics can suffer. “It can cause a lot of friction in a marriage when parents treat their kids differently,” Boyd notes.

Managing money and kids can get particularly delicate when one parent comes to the marriage with a lot of money and the other doesn’t. In those cases, Boyd has recommended marital counseling.

Blended families often neglect to mention stepchildren on the Free Application for Federal Student Aid (FAFSA), says Mark Kantrowitz, senior vice president of Edvisors, a college-finance website. Doing so could increase a student’s chances for financial aid. On the flip side, the stepparent’s income from the prior year must be included. The solution he suggests: Wait to marry.

If elderly parents require financial help­­—or might in the future—Boyd counsels couples to discuss those expected liabilities and even include them in a prenuptial agreement (see “Trusting in Trusts,” on the facing page). “The document doesn’t go into details like the amount of money for a parent’s care,” he says. “But it will indicate that this is an anticipated expense” that you expect to meet.

Rethink joint accounts

Consider separate accounts for expenses that are all your own, says Reid Abedeen, a partner at Safeguard Investment Advisory Group in Corona, Calif. Support for an adult child or other family members could come from that separate source. Having your own resources can prevent spousal arguments over spending.

Boyd also says that he has clients who split their household expenses. The husband might pay the mortgage and property taxes and the wife handles utilities, insurance, homeowners association fees, and other bills. Such an arrangement is particularly useful for folks affected by an expensive divorce. “They want to get into a level of trust, but they know how they’ve been burned before,” Boyd explains.

Indeed, separate accounts can ensure your financial independence and provide protection—just in case. After all, there is nothing to stop either owner of a joint account from draining it on the spot, says Marilyn McWilliams, a partner specializing in estates and trusts at Moye, White, a Denver law firm. “People put things in joint names without understanding what that means,” she notes.

Deal with debt

Your new spouse isn’t responsible for the debt you bring to the marriage, but he or she can still be affected by it. The money you put to those payments can’t go toward shared expenses. If your debt is considerable, you might have trouble borrowing as a couple. So Leslie Tayne, an attorney in Melville, N.Y., and author of “Life and Debt” (Gateway Bridge Press, 2015), recommends putting homes or cars in the name of the less indebted spouse. Once the old debt is paid off, the indebted spouse’s name can be added to the deed.

Tayne also counsels clients to ensure that their ex-spouses’ financial problems don’t follow them. Make sure that all previous joint accounts are closed, and check credit reports often for mistakes. (Get a free credit report annually from each of the three credit-reporting agencies through annualcreditreport.com.)

Divorced people have been known to use their exes’ Social Security numbers to open new credit accounts, Tayne says. You may not detect a fraudulent account until you apply for credit yourself—another reason to monitor your credit reports. “Don’t want to put your head in the sand,” she says.

Consider a prenup

A prenuptial agreement might not make sense for a first marriage, but it’s useful for later ones. “When you’re 21 and neither person has a penny, there’s nothing to talk about,” McWilliams says. “The second time around, there’s a lot more to discuss.”

A prenup helps when one partner has significantly more assets than the other and wants to protect them in the event of a divorce, says Michael Ettinger, a trusts and elder-law attorney in New York. It can spell out whether a spouse will get real estate, stocks and bonds, and personal effects upon divorce.

Parrott isn’t a big fan of prenups because he thinks they show a lack of faith. But he admits that they can weed out partners who aren’t primarily focused on the relationship. “It’s an X-ray machine for the motivations for marriage,” he acknowledges.

Think about inheritances

When you die, your current spouse will probably be the beneficiary of your 401(k), unless he or she waives the right to that money. That money could be inherited by your stepkids. In contrast, in most states you can name whomever you want as your IRA beneficiary. So if you want your own kids to inherit your retirement assets, roll over old 401(k)s into IRAs and name them as beneficiaries. For life insurance, beneficiary designations supercede wills.

Don’t wait until you’re remarried to remove your ex-spouse’s name as a beneficiary. Update your will, health care proxy, power of attorney, and other estate documents, too.

Plan for tax effects

In terms of taxes, second marriages aren’t any different from first marriages. Blending incomes can put you in a higher tax bracket, subject to a higher income limitation for itemized medical expenses and miscellaneous deductions.

People who remarry can potentially save taxes on the sale of their primary residence. The IRS says that to utilize a $500,000-per-couple capital-gains tax exclusion, a surviving spouse must sell within two years of the partner’s death. To preserve that big exclusion when both spouses are selling homes that have appreciated a lot takes some forethought, notes Steven Garcia, a CPA based in Armonk, N.Y. In that case, both partners should sell within the two-year window and before marrying, or wait beyond two years to remarry and sell.

As a married couple, you’ll usually pay more in federal income tax than you would filing separately as singles. So if tax savings are important, consider the timing of your nuptials. Garcia says he once counseled a couple who planned to remarry on New Year’s Eve to wait till after midnight to sign the documents. Doing so ensured that they could file as singles for that one final year. 

Tobie Stanger (@TobieStanger on Twitter)


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