Financial considerations are always important when marriage is on the table, but those considerations can be more complicated when one or both parties were married previously. They may have emotional baggage from the way money was handled in their previous relationship and financial obligations to an ex-spouse or to children from a previous marriage. To make sure a second or third marriage starts off on sound financial footing, couples should take several steps before saying “I do.”
Have the money talk
One of the biggest challenges in a second marriage has to do with each partner’s mindset about money, said certified financial planner Rochelle Odesser , vice president of Madison Planning Group, a financial planning and investment advisory firm based in White Plains, New York. She said in an interview that she works with many women and believes that they are more firm about how money is handled and who has control over financial decision making the second time around.
Odesser said that in her experience, women who get married for a second time have learned to live on their own, have learned to manage their own finances, and are more confident in making financial decisions that they may have deferred to their spouse in their first marriage.
“The next time around they will make sure their feelings and concerns are addressed, even if (that) means setting boundaries on how money is spent and keeping assets separate,” she said.
Women are not the only ones who may have strong opinions about how money gets handled when they remarry. A man who felt that his ex-spouse took advantage of his paycheck without making significant contributions to the household, or who got taken to the cleaners in the divorce, will likely be concerned about preventing these situations from recurring in his new marriage.
A prenuptial agreement is one way to address such concerns. And anyone whose former spouse handled most or all of the financial matters and secretly squandered the household’s savings or died without sharing their knowledge will want to make sure they never end up in that clueless situation again.
Know what you own and what you owe
Certified financial planner Catherine B. Allen of M Financial Planning Services, a wealth management firm based in Marlton, New Jersey, said in an interview that she tells her clients who were not involved in their finances that it is critical to know at least the location of their bank accounts, investments, and life or other insurance policies (such as disability and long-term care ).
“They don’t need to understand all the intricate details of a mutual fund, for example, but at least know how and why the money is invested the way it is,” she said.
Allen suggests making a handwritten or computer spreadsheet list of all accounts supplemented with copies of account statements. There are also booklets you can fill out with information about financial matters including the professionals you work with (accountant, attorney, etc.) and the important documents that govern your health and finances (power of attorney, medical directive, etc.), she said.
In addition, it’s important to update your will, insurance policy, individual retirement account (IRA), and other accounts that may still have an ex-spouse or deceased spouse listed as the beneficiary, Allen said. ( Learn more: Will basics )
Both parties entering into a second marriage should be aware of each other’s financial obligations from a previous marriage, if any, and how these obligations will affect the new marriage. For example, a divorce settlement may have required a man who worked full-time while his wife stayed home with the children to provide her with spousal support (alimony) and child support and to carry a life insurance policy that names his children as the beneficiaries.
Disclosing your debts to each other before getting married is also important. They will affect your monthly cash flow as a new couple and may provide important information about what each party considers acceptable purchases to borrow for or how each party has handled credit in the past. A partner with excellent credit and no debt may not want to combine their finances with a partner with poor credit and lots of consumer debt.
Decide how to title and manage your assets
Odesser said that for both parties, it usually makes sense to keep assets separate, to be very clear as to who owns what, and to discuss how they plan to finance a new home or a second home.
Indeed, to protect assets acquired before remarrying, you should keep them in your own name and not add your new spouse as a joint account holder.
There are several reasons for keeping assets separate.
“If someone is remarrying and one or both parties have children from their previous relationship, they may want to keep assets separate for ease of distribution upon death,” Odesser said. Keeping assets separate also makes it easier for the couple to split up if they later divorce.
“For expenses in the new marriage, the couple may decide to proportionally share expenses, based upon their income and assets, or they may share equally,” Odesser said. This arrangement can be negotiated and is something many people did not do or consider the first time around.
For any complex situation, it may be helpful to consult an estate planning attorney, who may recommend setting up a trust to facilitate the management and future transfer of assets. (Related: MassMutual’s wealth management and trust services )
“As you move forward, be sure that you both agree on any investment, insurance, or estate planning decision you make. It's important that both spouses stay informed about their overall financial health,” Allen said.
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This article was first published in June, 2016. It has been updated.