By Allyn Hughes, CFP®, ChFC®, CLU®, CAP®
With a divorce rate of 50% or so, and many new widows or widowers each year, thousands of previously married individuals are getting married again later in life.
Often in first marriages the bride and groom are young and don’t bring many assets to their new partnership. Instead, both members bring future earnings potential and the ability to use their life skills to earn wages and work toward financial security.
During these first marriages decisions are made about how to manage money. This responsibility is either shared, delegated to one partner, or a trusted advisor is brought in to help make these personal financial decisions.
By the second marriage, each partner often has assets and experiences managing (or not managing) financial assets. In addition, each member of the couple could bring a variety of things to the relationship including: 1) kids or grandkids, 2) different levels of assets or debt, 3) different experiences managing their personal finances, 4) a different philosophy about how they want to manage their money, and 5) different goals for their money.
We think that before the second marriage takes place, each couple should answer to a variety of personal finance questions.
- What are the short- and long-term financial goals of each partner? Are these similar or different? What is the best way to make personal financial decisions in light of these goals?
- What assets (or potential future assets) does each partner bring to the marriage?
- Does one partner expect a windfall like an insurance payment or inheritance or have a known future expense like college tuition or business purchase? If so, how will these be managed?
- If the levels of assets are very different between the partners will one partner take more financial responsibility for household expenses during the marriage? If so, how will that work?
PERSONAL FINANCIAL MANAGEMENT EXPERIENCE
- What experiences with making personal financial planning decisions does each partner have? Is one partner willing to have the other partner take over investment decision making? Or, is there a way to share this duty?
FINANCIAL MANAGEMENT RESPONSIBILITIES
- How do you want to manage your assets after the marriage? Should they be combined? Kept separate? Partially merged?
- What about kids? Do the children of one or both partners have an expectation or claim to the assets of the parent? Is the partner supporting the child on an ongoing basis in any way? If so, how will this be managed?
ESTATE PLANNING GOALS
- How will wills and trusts be created? Will each partner update his or her estate planning documents to reflect either the fact that assets will either be kept separate or combined? Along with this, will financial and health care powers of attorney be updated to re-assign responsibilities? Finally, if the more affluent partner pre-deceases the lower financially secure partner will a gift be made to support the lower assets partner for the rest of his/her life?
- If there is a large difference in the net worth of the two partners, should the wealthier partner have a separate trust created to protect these assets from creditors if the lower earning partner has health or other costs that could potentially be ruinous to the financial security of the marriage?
- If the partners choose to combine part of their assets (from money made during the marriage), how (and to whom) will this money be distributed after one of the partners dies?
Talking over these issues and understanding responsibilities before the wedding could help eliminate problems and make it easier to work toward financial security.