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.
According to Pew Research, the multiple marriage cohort is a growing one, particularly among Americans 55 and older. 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.
“People caught up in the romance of the second marriage are maybe not thinking about the financial aspects of bringing these households together," says Angie O'Leary, head of wealth planning at RBC Wealth Management-U.S. “Usually, for our clients, there's wealth involved and that just brings a whole host of complexities."
Full financial disclosure
Discussing financial circumstances can be challenging in any relationship, and this is particularly true if there is a disparity of wealth or a 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 O'Leary. 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 are 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.
Have a plan
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 do a formal wealth plan, which, among other things, allows couples to view different plans for their assets, such as combined or separate, so that 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, annuities and other products to reflect the new blended family.
“If there's an untimely death, and it's not updated, benefits could go to the wrong person. And there are all kinds of state and federal rules, depending on the type of account, so this stuff can get held up in court for a very long time," O'Leary 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 this wealth discussion 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."