Discussing financial issues can be challenging in any relationship. Full disclosure before marriage can help both partners better plan for their future together.
Second marriages are increasingly common these days, and while the wedding cake may taste just as sweet the second (or even third) time around, there are important financial decisions that go along with a return trip to the altar.
In 2019, there were 107,599 divorces of opposite-sex couples in England and Wales – an 18 percent increase from 2018. Divorce rates among same-sex couples almost doubled in the same period – from 428 separations in 2018 to 822 in 2019, according to the Office for National Statistics. And though the post-pandemic numbers aren’t in, a BBC report suggests that number has likely increased globally.
While newlyweds in their 20s or 30s may come to a marriage with little but high hopes, more mature fiancées often bring with them substantial financial assets, real estate and perhaps children.
“Nobody plans on getting a divorce or having multiple marriages but the reality is it happens more often than you think,” says Nick Ritchie, director, wealth planning at RBC Wealth Management in London. “Ending a marriage or starting a family can be complicated enough without thinking about consolidating finances. But, when we have the right conversations early, it can go much more smoothly.”
Discussing financial circumstances can be challenging in any relationship, and this is particularly true if there is a disparity of wealth or challenging credit history. Laying all cards on the table is a crucial first step toward setting up a financial plan and avoiding unpleasant surprises down the road.
“Full disclosure is necessary, even to the extent of pulling up credit reports for both parties, and then sitting down and reviewing them,” says Angie O’Leary, head of wealth planning at RBC Wealth Management-U.S. For a spouse with significant credit card debt, this could be a potentially embarrassing situation, but this type of information is critical when a plan can be drawn up to protect the other spouse.
Christine Gehring, wealth planning consultant with RBC Wealth Management-U.S., estimates about 30 percent of her clients are in second or third marriages. She says it’s important to disclose early on what each spouse will bring to the marriage, both in terms of assets and liabilities.
“It’s about being clear about what each of you is bringing into the marriage, what the relative value of those assets may be, which of those assets are to become marital property, and which ones are going to continue to be owned individually,” she says.
This includes any obligations to parents or previous spouses, which may be particularly relevant if there are children involved. If one partner is paying child support, an ex-spouse could potentially seek higher support if the new marriage results in an improved financial status.
There will also need to be clarity around paying for a child’s education, as well as smaller issues such as who will pay for the insurance on a child’s new car. This may necessitate involving a previous spouse in discussions, which — awkward though it may be — will help ensure everyone is on the same page regarding obligations.
Getting a plan in place before the marriage may not be the most romantic part of the process, but O’Leary recommends it. “Couples often think it’s something they can do after the fact, that they can worry about that later,” she says. But, she adds, despite their best intentions, some couples may just forget to return to the topic later.
A key decision is how much the new spouses will combine their finances. While combining might seem like the move most in line with committing to spend your lives together, sometimes it makes sense to keep things separate.
“I see more people keeping them [assets and accounts] separate in the beginning and then taking their time to combine them. It depends on the disparity of wealth,” says O’Leary. This approach can also protect one spouse from being negatively affected if the other spouse comes into the marriage with more liabilities.
Both Gehring and O’Leary encourage couples to create a formal wealth plan which, among other things, allows couples to view different plans for their assets, so they can see the bigger picture.
Updating your estate plan is another important consideration for anyone going into a second or third marriage. A popular misconception is that an updated will is sufficient to make sure your assets will go where you want them to. Beneficiary designations supersede a will, so it’s important to update beneficiaries on retirement accounts, life insurance policies and other products to reflect the new blended family.
“Without a plan in place, an untimely death could lead to issues with how benefits are allocated and who they are allocated to. These are sometimes difficult conversations to have but, you can avoid so much more trouble and burden on family members if things are sorted in advance.” Ritchie says.
Another question is whether to enact a prenuptial agreement to protect assets accumulated before the marriage. As unpleasant as it may be to envision a divorce, particularly if one or both of the spouses have already been through one, a prenuptial agreement can help protect wealth as well as make provisions for children from a previous marriage.
“The conversation about a prenup is something we encourage couples to consider if there are significant assets,” says Gehring.
Financial planning around a second marriage may seem like a lot of work, but it comes with the silver lining of planning for a new life together and all the potential that brings.
“The emotional part of all these wealth discussions can be tough for couples because they’re in love, they’re ready to get hitched, they’re dreaming about what’s next for them,” O’Leary says. “They come in with all this baggage, but it doesn’t have to be negative baggage, just things that have to be sorted out.”
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