Strong marriages are based on a foundation of trust, open communication, and shared values. While there is no one-size-fits-all recommendation for how a married couple should handle their finances, it’s always a good idea to plan ahead. Second marriages often come with financial considerations that weren’t relevant during your first marriage. In this article, we focus on things that people thinking of heading down the aisle a second (or third) time should analyze in advance.
Big Picture First
First of all, and this is a delicate question, ask yourselves whether it makes sense to get married from a purely financial perspective. This is a very personal decision. For many people, being married conveys an essential sense of commitment, and religious convictions often play a significant role. These feelings may override any financial reasons to stay together without getting married.
Still, when considering a second marriage, it is best to be clear about financial aspects. For example, if one of you receives military benefits from a deceased spouse, you would give that up if you remarry. Suppose there are children from a previous marriage, and one or both of you have accumulated a non-trivial amount of wealth. In that case, it is wise to consult with your expert team (financial advisor, CPA, and attorney) before moving forward with this decision.
Say It Out Loud: Prenuptial Agreement
We hate to point this out, but a relatively high percentage of second marriages end in divorce – two-thirds of second marriages and almost three-quarters of third marriages, according to one source.
Therefore, while pre-nuptial agreements are good for most first marriages, they’re even more critical for subsequent marriages. You need to look out for your interests first; a prenup can help you do that before your finances get blended with your spouse’s. Once that’s done, you can think about protecting yourself and your spouse as a couple and any children either or both of you have from prior marriages. To ensure the prenup is enforceable, you must have your own attorneys. Suppose one person chooses not to get an attorney. In that case, they should sign a waiver attesting to this decision that includes the proclamation that it was executed of their own free will without any persuasion by others.
In a second marriage, there may be a significant wealth disparity between the potential bride and groom that they must confront through open, transparent communication – if you cannot talk about these things, that’s a red flag. Awkwardness around these subjects is normal, but a refusal to speak openly about your monies before marriage is unacceptable. In our view, it is far more important to be equitable than equal. That means assets and expenses do not have to be split 50/50, but they should be divided in a duly understood way that feels right to both of you.
For example, if one person is a high earner and comes to the marriage with a lovely home while the other has a relatively low income and has been renting for years, you will likely decide to live in the high earner’s home; but will that home remain titled solely in that individual’s name? Will the lower earner, who no longer has to pay rent, contribute some amount to help cover the cost of home ownership or absorb more household expenses (groceries, utilities, etc.)?
In some cases, the wealthier person may say, “that doesn’t matter to me – just contribute what you can, or contribute in other ways, such as cooking, yard work, etc.” If you both own homes, you may collectively decide to sell one property and have the seller use the proceeds to “buy” an interest in the home you will live in together. If one of you has lived in your home long enough for it to appreciate more than your exemption, then capital gains taxes need to be considered. Maybe it would be financially savvy to rent out one of the homes. Before making any major financial decisions, consult with your expert team (financial advisor, CPA, attorney, realtor, mortgage broker, etc.) to get the full picture of the financial consequences of your choices.
Another thing that may be awkward to bring up is the "nurse with a purse" concern. Someone who is single and financially well-situated, especially after the death of their spouse, can attract interest for the wrong reasons. We do not mean to paint with a broad brush here. Nevertheless, some people may take advantage of a widow or widower’s desire for companionship, wooing them because they have the means to provide financial security.
Children From a Previous Marriage
People entering a second marriage can provide for their children from previous marriages through sound estate planning. Again, there is no one right way to do this except that the two of you must agree based on open, honest, and supportive discussions.
Know that your retirement accounts – 401(k)s, IRAs, Roths, Inherited IRAs, 403(b)s, 457’s, etc. – are known as “directed beneficiary” accounts. You can designate any beneficiaries you want for these accounts in any percentage mix you would like – your children, a charity, a best friend, a neighbor, or whoever else. If you decide to name a non-spouse as the primary beneficiary, however, the spouse being “disinherited” (for lack of a better term) will need to sign a waiver. Make sure you fill out and regularly check and update the beneficiary forms on all of your investment accounts! Many horror stories exist about people who died without changing their beneficiaries, and their ex-spouse inherited their retirement savings.
Whether you get legally married or stay in an unofficial but committed long-term relationship, it’s important to let your children know about your and your spouse’s plans. Consider the possibility that one of you may require years of expensive medical care that could deplete your assets. In addition to financial support, this often consumes much of the healthier spouse’s time and energy.
In summary, ensure all your adult children understand how your assets will be distributed when you die and that you and your spouse are united in these decisions. We suggest explicitly telling your kids that you expect them to honor your wishes when the time comes. Furthermore, you can choose an executor in advance who will make sure that happens. After all, it is your money to leave to whomever you choose, however you choose.
Taxable Brokerage Accounts
If you have taxable brokerage accounts when you remarry, you may or may not decide to combine them into a single account or put both of your names on the accounts. If you keep them in one person’s name, know that the surviving spouse does not necessarily have to have the rights to the account when the owner dies (“transfer on death” is the term).
It is often better NOT to name someone (such as an adult child) as a co-owner of a brokerage account. Why? Because of a potentially big tax issue. When the assets in an account are transferred to another owner upon death, the new owner gets a “step-up” on the tax basis of the assets in the account. This could be a big deal if you have held positions for a long time. Consult with a tax professional for more details.
Social Security and Life Insurance
If you are widowed and are receiving a deceased spouse’s Social Security benefits, you will continue to receive those benefits if you are over 60 when you remarry. If you are divorced and have been married for at least ten years, you may still be entitled to receive Social Security payments from your ex-spouse if you wait until you are over 60 to remarry – this may be a reason to delay getting married for a few years.
You can use life insurance for more than a mortgage payment and a college education if one of you dies at an early age. It can also be useful for couples who have a paid-for house and whose children are grown. Imagine Joe and Anne decided to get married, a second marriage for both. Joe is much older than Anne and expects to die first. He wants his assets to go to his children but also wants Anne to live comfortably. If Joe has an existing life insurance policy, he should keep it and name Anne his beneficiary. This can be especially important as a younger spouse is more likely to incur long-term care expenses. Ensure your ex-spouse is no longer your life insurance beneficiary. Don’t delay.
If you are considering a second marriage, work with a financial advisor to discuss these issues, how the two of you envision spending your money together, your goals for retirement, and so on. There are financial ramifications to these choices – better to deal with them before saying “I do.”
P.S. For more, here are good questions to ask when getting married at various stages in life.