Thoughtful planning will help a second marriage avoid certain issues that didn’t exist the first time around. Most lives are more complex, with children and assets from first marriages.
A second marriage is more likely to succeed, if the couple addresses key questions in advance, especially those concerning finances. You’ll want to have a clear vision of your current financial needs and what you expect the future to bring, according to a recent article in Investopedia, “Second Marriage Financial Matters to Consider.”
Let’s look at some topics of concern:
Assets and Liabilities. Do a complete review of both of your assets and liabilities. Assets include bank accounts, stocks, bonds, house, cars, retirement plans, insurance contracts and other investments. Liabilities are things like your credit cards, student loan debt, car loans, and mortgages. In addition, note that there are rules in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) where asset ownership is treated differently: in these states, the law presumes that assets will be owned jointly.
Daily Financial Management. You should next think about how’ll manage your financial obligations on a regular basis. Some couples combine their checking accounts, and some keep separate checking accounts. However, you should create a new joint account, into which both parties make a monthly contribution. Joint expenses are paid from the new account, and other personal expenses are paid with individual accounts.
Beneficiary Designations. Your retirement plans—like your IRA and 401(k)—have named beneficiaries. These should be checked regularly. The same thing should be done with your insurance policies and annuities. This is the perfect time to review who is currently designated, because any agreements from your first marriage may potentially inhibit your ability to update your beneficiaries. They should also be reviewed.
Update Your Estate Plan. A will states your final wishes and details how certain property will be distributed to your heirs. It also designates guardians for minor children and your executor, the person you nominate to make sure your wishes get carried out. It is an excellent time to review your will, to see if you should execute a new one or modify the existing one. Blended family dynamics can also have an impact when reviewing your estate plan. If either spouse has children from a previous relationship, adjustments to your plan may be necessary.
Trusts and Trustees. Ask your estate planning attorney about trusts, like a bypass trust, a qualified terminable interest property (QTIP) trust, or a spendthrift trust. One of these or another kind of trust may be a useful way to transfer wealth to children, while imposing some restrictions. Dividing your assets between a surviving second spouse, the children from that marriage, and any children from a prior marriage may result in some tension. One way to avoid this is to give an independent trustee the ability to make adjustments, so everyone is treated fairly and according to your instructions.
Taking the time to clarify these matters before you walk down the aisle, will allow you both to focus on the relationship and starting a new life together.
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