Thinking about another marriage as you approach retirement? What are the financial considerations?
Getting married at any point in life is an exciting step toward personal and shared fulfillment. But getting married later in life can be both exciting and potentially challenging, at least from a financial standpoint. Compared to those who are marrying for the first time, people who remarry likely have to solve a much more complicated financial equation in order to be prosperous.
Before you tie the knot a second or third time, you and your future spouse should have an open and sincere discussion regarding your respective finances. Some points in this conversation will probably be uncomfortable, but you can avoid future arguments by laying all your financial cards on the table today. Consider the following discussion points:
Merging Two Financial Scenarios
Older people often have accumulated significant assets and liabilities. It is essential to take the time to understand the details of a merged family balance sheet fully. Pre-existing debts like mortgage payments, credit cards, and auto loans will stay in the debtor's name and become a joint responsibility after marriage.
Plan to document each partner's overall assets and retirement assets. You will also want to compare and contrast your investment strategies so that you can forge a new path forward. Are you a conservative investor or more of an aggressive type? How does that mesh with your future spouse?
Determine how you will set family budgets and how you can attain realistic spending goals. Consider various bank account arrangements before settling on one that suits both parties—finding common ground by working in unison before the marriage will reap benefits down the road.
Consider Children and Former Spouses
You and your spouse-to-be may have children from previous marriages. Whether they are still dependents or have already reached adulthood, they are an essential consideration in this discussion of finances. Payment or receipt of child support, in addition to custody arrangements, may need to be addressed. For a foreseen expense like college tuition, you might want to reach a formal agreement with a former spouse. Any financial responsibility for the children will impact both of you after you are married.
Spousal support may also need to be considered part of these financial responsibilities. When a spouse who is currently paying support gets remarried, there is generally no change to the ongoing obligation. Conversely, when the spouse is the beneficiary of support payments, the payments are usually terminated.
Estate PlanningThe purpose of estate planning is to designate heirs for your assets when you die and ensure that your family's financial needs are met. If you have accumulated assets of any consequence during your lifetime, you do not want the probate court to determine how your estate is settled. Proper estate planning will minimize taxes and limit family strife and possible legal battles when you die.
Crafting a new or revised estate plan before you get married again will make sure that children from a previous marriage will receive what is rightfully theirs. This plan details will also reduce stress and family conflict. One part of this process is a re-examination of important documents and directives. Consider the following list of items that may need to be updated:
- Beneficiary names on brokerage and retirement accounts and life insurance policies
- Last will and testament
- Name and benefit status with the Social Security Administration
- Powers of attorney
- Healthcare proxies
- Deed on your residence
The second part of your estate planning process may include implementing a legal agreement that many accountants and financial planners recommend. A prenuptial agreement is a written contract that defines the terms and conditions that will come into play when divvying up your assets if your new marriage dissolves or when you die.
Generally speaking, income, property, and financial assets become community when you are married. The purpose of the "prenup" is to clearly define what will be left to specific family members to supersede community property laws. Bear in mind that these agreements affect only financial matters and do not impact child support or custody considerations.
If your combined assets are substantial, it makes sense for each party to hire his or her own family law attorney to create this document. That way, both parties' interests will be protected, and the agreement will be upheld if there is a divorce or future dispute.
Another way to ensure that your assets are ultimately distributed according to your wishes is by implementing a trust agreement. For example, a qualified terminable interest property trust (QTIP) is a type of irrevocable trust typically used by people who are getting remarried and have children from a prior marriage. By naming those children as the beneficiaries of the trust, you can provide support for your new spouse after your death, along with financial protections for your heirs.
Merging two lives from a financial standpoint isn't particularly exciting or even remotely romantic. But you can save yourself future headaches by taking the time to collaborate with your new spouse in advance of your wedding day. Include a trustworthy financial advisor who can help you review your current economic condition and map out a mutually beneficial financial future.
Given that a higher percentage of second and third marriages end in divorce than first marriages taking prudent action in advance of a remarriage will financially protect you, your new spouse, and your children no matter what the future holds.
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Disclosure: This was prepared by Carnegie Investment Counsel (“Carnegie”), a federally registered investment adviser under the Investment Advisers Act of 1940. The information is provided as of the date indicated and believed to be reliable. Carnegie assumes no obligation to update this information, or to advise on further developments relating to it. This is prepared for informational purposes only and should not be construed as personalized tax or investment advice. Carnegie does not provide tax advice or services.