Getting married is financially complicated, and getting remarried is even more so.
That’s because you’re further along in your life and career, and in that time you’ve likely accumulated wealth, assets, and maybe even had a kid or two. You won’t be entering this union empty-handed.
Certified financial planner Jonathan Meaney works with clients in this exact situation.
He finds that among his high net-worth clients, people getting remarried are concerned about two things in particular: the welfare of their kids and protecting their wealth. “Family first, money second,” he says.
So we asked him to share the most common points to take under consideration, and the steps to take, to best protect and manage your money when you get remarried.
1. Update the names on just about everything.
A beneficiary is the person who gets the money in your account should something happen to you, and you probably don’t want those funds to go to an ex-spouse.
Similarly, your ex-spouse may be the name on your healthcare directive and and power of attorney, giving them legal power over you in vulnerable situations. You’ll most likely want to make sure that the name on your legal documents is your new spouse.
Update the names on your:
- Retirement account(s)
- Healthcare directive
- Power of attorney
- Social Security
- Will and estate planning documents
2. Consider whether you’ll file separate or joint taxes.
Generally, most married couples save money by filing jointly. However, there are exceptions to this standard, and getting remarried can be one of them.
“When you file a joint tax return, both of you sign it,” Meaney explains. “And when you sign it, you’re also signing up with the IRS as partly responsible for anything on that return.” This isn’t any different from filing in a first marriage, but chances are, your spouse later in life will have a more complicated financial situation. If you don’t fully understand the other person’s finances, Meaney cautions, you might not want to assume responsibility for it.
3. Avoid pitting your spouse against your children.
On the whole, the day-to-day financial considerations in a second marriage are similar to a first: Will you use a joint checking account? How will you budget? Will one of you be an authorised credit card user on the other’s account?
But things get really tricky when you have kids from a previous marriage competing with a new spouse for existing funds, Meaney explains. While a prenup can determine who gets which assets should the marriage dissolve, and a will (which goes through probate and becomes public) can divide assets after death, parents will want to avoid a situation where children feel like their step-parent has access to and is spending all of “their” money, whether before or after their parent’s death.
Meaney suggests two particular strategies to avoid this kind of competition over the money: life insurance and a QTIP trust.
Using Life insurance in this situation is one of the few options where a permanent policy such as whole life insurance might be very effective. A permanent policy covers the holder until he or she passes away (as opposed to a term policy that covers the holder for a set number of years), and often isn’t recommended because of its higher premiums. In this case, Meaney says, “Mum takes it out with the kids as beneficiaries. She can outright buy the policy, start paying the premium, and name kids as beneficiaries with equal percentages, or can take out separate policies.” This way, the kids are guaranteed that money and the new spouse can’t touch it.
He also notes that parents can set up an Irrevocable Life Insurance Trust (ILIT), and pay the premiums out of the trust. A life insurance trust can be set up before a marriage, to avoid a potentially fraught decision for the new couple.
Speaking of trusts, Meaney highlights the QTIP Trust, which holds money for the beneficiaries (in this case, the kids) while allowing the surviving spouse to collect any income from the trust, such as earnings or dividends, from that money. With this trust, the surviving spouse is taken care of, but the trust’s principle will remain intact for the children.
No matter what your situation, Meaney recommends working with a financial planner — who will, in turn, likely work closely with a CPA and an estate attorney. “This world is getting more complex, not less so, and to have someone working alongside you is vitally important.”