Nearly one-third of weddings today are second or third marriages. Whether you are single due to divorce or the death of a spouse, maybe you’re one of the many women considering remarriage.
Marrying again creates an opportunity for a fresh start in life with a new partner. Amid the joy at officially launching your new marriage, there are many important considerations to think about that will give your new marriage the best chance of success, while protecting you in the event of an unhappy ending.
Because finances are one of the leading causes of divorce, it’s critical to lay the foundation of a blended financial life honestly and openly. In addition, most second and third marriages occur when a couple is older and each partner brings more wealth into the relationship. Stepchildren and grandchildren can further complicate the picture, which can bring emotional and financial stress into the marriage.
Without careful consideration and discussion of all the financial implications of remarriage prior to the wedding, problems could occur down the road that could wreak havoc on the financial stability you’ve worked a lifetime to build.
At Wealthcare for Women, we partner exclusively with independent women and have explored many of the financial issues involved in remarriage.
We suggest that you and your future spouse discuss and consider these issues prior to walking down the aisle and that following this discussion, you both take the legal steps necessary to protect yourselves.
Here are seven issues to consider as you undertake this discussion and prepare for your life together:
1. Disclose Past Financial Issues
Schedule a time to sit down alone and fully disclose your financial past. Even better, come prepared with a list that documents your financial pasts and the assets and debts that you are bringing into the marriage.
Here are some discussion points to get the conversation going:
- Amount of credit card debt
- Amount of debt overall
- Prior bankruptcy filings, if any
- Amount of overall assets
- Amount of retirement assets
This exercise is essential. Not only will it give you peace of mind knowing that you won’t be saddled with an unforeseen debt burden from your spouse-to-be, but it will also set the tone for the rest of your relationship.
If you can talk about money now and address the areas that have the potential for the most conflict later, that augers well for your future relationship. Once you’ve had this conversation, everything financial is out in the open, and you’ve agreed to work together as a team.
2. Craft a Prenuptial Agreement
Now that you understand what the financial picture looks like for you and your future spouse, it’s time to take steps to protect the assets you’re bringing into the marriage as well as the rights of your children.
The best way to accomplish this is to create a prenuptial agreement.
Each of you should be represented by an experienced family law attorney to ensure that both of your interests are protected and that the agreement will hold up in the event of a divorce and future dispute.
Collaboratively designing this agreement allows each of you to decide what assets, if any, will be held jointly and what assets will be protected should the marriage end in divorce.
For example, if you have a gold necklace that was handed down from your great-grandmother that you would prefer to go to your daughter after your death, you can specifically set aside that item so that it would not be included in any divorce proceeding. The same is true on a much larger scale for any investments or real estate you may be bringing to the relationship; any asset can be protected by a prenup.
Additionally, a prenup allows both of you to determine how the assets accumulated during the course of the marriage will be divided in the event the relationship doesn’t work out. These are some questions to consider for this part of the prenup:
- Will either party receive alimony?
- If so, what percentage of income would be considered fair?
- How will joint assets acquired during the marriage, such as real estate, jewelry, businesses, and investments, be divided?
- How will joint debts acquired during the marriage be repaid?
There are still a few states that won’t enforce alimony clauses. Any clauses to do with future child support or visitation regarding children from the marriage are generally unenforceable.
In addition, it is wise to create and sign the prenup as far in advance as the wedding as possible, because signing it too close the wedding can lead to problems down the road…
3. Consider Retirement Plan Rights
Because of federal retirement plan law, which is known as the Employee Retirement Income Security Act (ERISA), special provisions must be made for you or your future spouse – or both – to waive rights to retirement plan assets.
Such a waiver must be first stated as a clause within a prenup, and then must be followed up by the signing of the actual waiver following the marriage.
Without such a two-step process, any other clauses or waivers are invalid, and the surviving spouse will inherit retirement plan benefits regardless of the intention of either spouse prior or during the marriage.
These provisions in ERISA are designed to fully protect both spouses’ rights to retirement plan benefits.
4. Set Up a Trust
Another component of a remarriage asset protection strategy is the establishment of a trust naming your children as beneficiaries. Here’s how it works: transfer your assets into a trust in your name with your children as beneficiaries. Ideally, in the event of your death, those assets would then pass to your children.
There are some states that grant the surviving spouse a portion of the marital estate, including trust assets. In that case, your new spouse could, if he so desired, file a suit for a portion of the trust proceeds if the marriage ends in divorce. This is where the waiver of rights we referenced earlier would prevent your spouse from further legal action against those assets.
5. Keep Assets Separate
As a general rule, assets acquired during the course of a marriage are considered marital property and subject to equitable division upon the termination of the relationship unless a validly executed prenup states otherwise. Of course, as we’ve noted, assets that either you or your future spouse own prior to the marriage can be protected by prenups, waivers, and trusts.
By keeping protected assets separate, you can ensure that the protection granted by prenups, trusts and waivers will stand. That’s because any comingling of protected assets with marital assets could have the impact of voiding a prenup. In order to prevent this from happening, you must maintain separate accounts for the different assets and vow that ne’er the two shall meet.
Here’s how it works in practice: suppose both you and your spouse are entering the marriage in roughly the same financial condition. You both have about $250,000 in assets and two children. You are both working in successful professions earning about $100,000 per year. You each want to protect your children and ensure that they have a bright future after you’re gone.
Your future spouse enjoys taking more investment risk than you do. You each open individual trusts naming your respective children as beneficiaries. Once you are married, you both decide to open a trust for estate planning purposes. This trust lists both your names on the trust agreement with all four children as beneficiaries. As long as the assets in the trusts remain separate and completely unconnected from one another, there is no comingling.
But suppose, your husband’s risky investment strategy didn’t pay off and he lost a significant amount of money. If you then take assets out of your individual trust and assign those assets to his individual trust, you are merging into murky territory. This could be considered a comingling of accounts and could void any protection you had under the law…
In order to avoid mixing assets, take these steps:
Keep detailed records of your non-marital assets: Record the balance before your new marriage. Maintain accurate records of the account through the course of your marriage including any fluctuations in value.
Segregate marital assets separate from non-marital assets: Any money you earn during the course of the marriage should be kept with the marital assets and not added to the non-marital funds.
Spend only marital assets: During the course of your marriage, only use the marital assets. In the event that you need to contribute money to maintain the non- marital assets, only contribute non-marital funds. If for some reason, this is not possible, keep detailed records of what marital assets were used, how much, when and the purpose used for.
Maintain all non-marital assets in your name: Do not add your spouse to any of the non-marital accounts. Don’t retitle any property to include his name. Keep those items clear and separate from any marital property.
6. Revisit Your Divorce Agreement
Consult an attorney if you find yourself remarrying after a previous divorce.
Depending on the conditions of the divorce settlement, and the law in your state a new marriage – or even cohabitation with your intended — could greatly affect alimony, child support and even the custody of the children. It’s best to plan for these contingencies well ahead of time.
7. Update Your Will
The final step in preparing for a new marriage is to update your will. Many people wait to do this after the wedding, but you can start the process earlier if you like, signing the final copy after the marriage has taken place.
Update your beneficiaries to reflect your new marital status, include any property you wish to pass directly to your children. Consider what property, if any, you might like to pass onto your stepchildren? What will happen to property jointly acquired during the marriage?
Make sure that all the details surrounding medical and end of life decisions are spelled out in advance. Who will be making financial decisions if you’re incapacitated? You must keep you will up-to-date to ensure that these issues are planned for well in advance. Otherwise, you will not have a say-so in the matter or your current wishes will not be reflected.
A Final Word
Thinking about money and finances isn’t very romantic; unfortunately, because a higher percentage of second and third marriages end in divorce than first marriages, it’s very important to protect yourself and your children financially.
By carefully considering your current financial situation, talking to your spouse-to-be and taking prudent financial and legal steps, you can position yourself financially to protect your assets, yourself and your children regardless of how your marriage fares in the future.
If you’re a woman considering another walk down the aisle and would like to discuss your financial situation, please contact me and I’ll be glad to have a conversation with you.