I recently had a client come to me shortly after getting engaged.
After she showed off her brand-new engagement ring (a gorgeous solitaire!), she got right to the nitty gritty: she wanted to be financial smart this time around.
She’d been married before. It didn’t work out, and the divorce left her financially struggling. She had married her ex-husband when they were in their 20s and they built a life together. Kids, a house, a joint retirement plan – the whole nine yards.
Her divorce had been a financial wake-up call.
It took her years to re-establish herself financially, but she was proud of how far she’d come since then.
Now she was in her 40s and wanted to enter her marriage with her soon-to-be-wife with bothof their eyes wide open.
Both her and her finance are successful career women with children from their previous relationships. They were both highly motivated to get the finances right from the get-go, to give their marriage the best start possible. The stakes were high.
I am seeing more and more clients just like them: people who are ready to give marriage another shot but want to be financially smart about it.
If that is you, here are some things to keep in mind as you look to say “I do – again”:
Get full disclosure up front.
Enter your new financial marriage with no surprises. Be thorough up front, so that your financial plans moving forward can be as effective as possible.
· What assets do you each bring to the marriage, and what are they worth?
· What will continue to be individually owned, and what will become joint?
· What liabilities do you each come with? (This includes support payments to an ex-spouse.)
· Who will be responsible for these liabilities?
· How might those liabilities change when you are married? (For example, child support payments may increase if your marriage results in an “improved financial status”.)
· Will you continue to pay for things associated with your children, and how will your ex-spouse factor into these payments if at all? (For example, were you planning to pay for a child’s education?)
Lay it all out on the table.
Update your wills and beneficiaries.
Update your will.
This is exceptionally important as only marriage nullifies previous wills, divorce does not. So even if you are living together and engaged to your new partner, if you do not explicitly change your will, your ex-spouse will still be entitled to anything in it until you are legally re-married.
Then update your beneficiaries on retirement accounts, life insurance, and any other investment products.
Why? Because beneficiary designations supersede a will. So even if you will your investments to your children, if the beneficiary designations are still to your ex-spouse – your children will be out of luck. It is not enough to simply update your will!
As awkward or emotionally challenging as it may be – consider all possible scenarios. For example: if you leave your estate to your spouse, and lay out instructions for division amongst your children, what happens if your children and your new spouse have a falling out after you pass? In a traditional will scenario, it would be entirely possible for your new spouse to write your children out of their will, effectively leaving them with nothing.
You and your new partner may want to instead consider a spousal trust. That ensures that you are each provided for if your partner dies, but that your children will still receive what you want them too, no matter what happens with their relationship to the surviving spouse.
As painful as scenarios like that might be to consider, going through them with your Certified Financial Planner® will mean less heartache later on.
Decide how to financially manage your children.
Of course you will have new goals as a blended family: vacations to take, home renovations to finance, retirements to plan.
But you may also have individual goals associated with your biological children. For example: you may have committed to paying for their higher education, or co-signing for a vehicle, or helping with the down payment of a house. These goals may or may not be in conjunction with your former spouse.
Perhaps you and your new spouse will decide to tackle those goals together as part of your joint financial plan. Or perhaps you’d prefer to keep those goals separate. Regardless – those goals will have an impact on your cashflow and future projections, and should be discussed.
If you have children living under your roof full or part time, consider how their living expenses and discretionary spending will work.
Does one partner pay for everything?
Are all decisions about spending on children made jointly?
For example: if you want to put your child in a second extra-curricular activity with an expensive price tag, how will that work?
If you both bring children to the marriage, vastly different parental approaches to money will only cause discord. As much as possible, decide on these things up front.
Re-plan your retirement.
Just like your new relationship is different with your new partner, your new retirement goals will look different.
Will you retire together? Where? What does your ideal retirement look like together?
Consider any entitlements your ex-spouse may have on your pension benefits or retirement savings as part of your divorce settlement.
Changing your retirement plan is completely normal – after all, your life has changed drastically!
Navigating these conversations and planning for your financial future with a new spouse requires trust – in your new partner and your financial planner.
If you want to work with a Certified Financial Planner® who is invested in you and your new relationship, not just your portfolio, book a call.