Marrying finances - for the second time
Getting hitched again? These strategies can help ensure that money doesn't come between you and your new spouse.
(MONEY Magazine) -- When Kimerby and Tony Simmons were married last month at a vineyard in the foothills outside Atlanta, they participated in the African-American tradition of jumping over a broom - an act symbolizing their entrance into a new phase of life together.
For Tony, 41, this was the second time making such a leap, his previous marriage having ended in divorce. That breakup "put a big dent in my finances," says the software sales executive. "I thought there was no way I was getting into another relationship."
But then, on a flight from Chicago to Atlanta, he met Kimberly. And, soon, he fell in love. "It was the flight that changed our lives," says Kimberly, 39, for whom this is a first marriage.
As they enter this new phase, the Simmonses will face hurdles bigger than that broom, particularly when it comes to their money. Tony enters the union with slightly less in assets than his new wife but far greater financial obligations: With three kids from his first marriage - ages 8, 16, and 21 - he has child support, alimony, and future college bills to pay.
Such financial challenges are typical for second-time-around couples, who often enter into marriage with children to support, not to mention significant income and savings disparities. Additionally, the spouses, often older and more established, may be hesitant about joining financial lives, particularly if money caused tension in their previous relationships. "They're coming in with baggage," as financial educator Ruth Hayden, author of "For Richer, Not Poorer," says bluntly. Those going down the aisle a second time need to unpack these money issues:
With second marriages the stakes may be higher in terms of the assets and liabilities each partner brings. To quell any tensions before they arise, each should prepare a list of what's owned and owed. Then start the conversation with the obligations: Determine who will be responsible for what. Will you, for example, help tackle your spouse's debts? In particular, says Hayden, discuss expenses related to children and exes, as these can drive a wedge of resentment between newly reweds. Tony's planning to pay his child support and alimony from his commissions to keep that obligation separate. Meanwhile Kimberly, a clinical pharmacist, wants to help with college savings: "We're both committed to doing the best thing for the children."
Next up: the plus side of your balance sheet. One of the toughest issues couples in second marriages face is how, practically, to marry assets and income. All joint, all separate, or a mix? Most financial pros advise having at least a joint checking account. "It helps you act as a couple with money," says Hayden. But it needn't be all or nothing: Kimberly and Tony, for example, will combine some money but also have their own accounts for discretionary spending. Whatever you choose, do develop savings goals together so you have something positive to work toward as a team.
To make sure everyone is provided for after your death, you'll want to ...
Revisit beneficiary designations. These trump a will, so be sure your ex spouse isn't listed on retirement accounts and insurance policies.
Rethink wills. Be sure to leave money outright to your children from a previous marriage - or they may end up with nothing, depending on the state. If the kids are minors, set up a qualified trust for them (you can place accounts with beneficiary designations under this too), and name a third party as trustee so that there's no risk your spouse will disinherit them. With other money, you may want to set up a qualified terminable interest property trust (QTIP). That way your spouse can draw income after you die, but what's left over after his or her death goes to your offspring. Otherwise your partner's heirs, not yours, could get the money, says estate attorney Charles Pyke Jr. of Stockbridge, Ga.
Consider a prenup. Besides stating how money will be divided in a divorce, a prenuptial agreement can also spell out your estate wishes. And as a bilateral contract, it's harder to contest than a will. Despite these benefits, Tony and Kimberly chose not to sign a prenup. As she says, "We didn't want to go into this thinking there was an out." Fair enough.
More than half of those who remarry decide to fully merge finances. Turns out, the instinct to join may be a good one.
A prenuptial agreement, which couples mainly use to state how money will be divided if the marriage doesn't work, can cost from $2,000 to $25,000. Is it worth it? Maybe, if you ...
- ... have a family business. With a prenup you can cut the spouse out of business appreciation, says attorney Mitchell Karpf. "Otherwise he or she may be entitled to half."
- ... have vastly more savings than your spouse. If you'd be unhappy splitting assets squarely in the event of a divorce, you may want a prenup to state a different arrangement.
- ... have kids from a previous marriage. A prenup can back up the terms of your will by spelling out the assets that you don't want your spouse to inherit upon your death.