Not only do they merge their
financial lives, as all married couples do, but remarried couples also bring
with them financial “issues” from their previous marriage(s) such as unpaid
debts and payments to, or income from, an ex-spouse for alimony and/or child
support obligations. Estate planning is also complicated by remarriage (e.g.,
providing for both a new spouse and children from a prior marriage). Below are
six financial planning tips for people who are remarrying:
a Prenuptial Agreement (a.k.a., prenup)- Interview at least three family
law attorneys to prepare a plan. Define assets that each partner brings to the
marriage, how they will be titled, how expenses and existing debts will be
repaid, and how property will be distributed in the event of death or divorce.
Spending Plan (a.k.a., budget)- Include anticipated income and expenses and
decide who will pay what bills. It is generally fairer to all involved to pay
current expenses (not those related to a prior marriage) in proportion to each
partner’s contribution to total household income.
the Past From the Present- Accept the fact that support payments to an
ex-spouse are an ongoing “fixed expense.” Remarried couples may prefer paying
support obligations and other expenses for children with their personal funds
so they are not constantly “visible” to their new spouse.
Children Fairly- Develop uniform policies for all children living at home
regarding allowances, spending money, payment for services, and equipment
purchases (e.g., cell phone). Otherwise, children and stepchildren, alike, are
likely to cry “unfair” about differences in the parents’ money management
a QTIP trust- Create this legal document to leave income to a spouse for
life but distribute assets to children from a prior marriage.
Communication about financial
matters is important in all marriages but especially in remarriages which come
with more complications and where spouses may have developed long-standing
money management practices. The University of Florida publicationSo You Want to Remarry? has additional
information about financial issues related to remarriage.
Death, disability, and divorce are
three common life events that impact personal finances. Divorce is the only one
that cannot be provided for in advance with some type of insurance. What to do?
Consider these seven action steps:
Local Laws- Determine if the divorce will be filed in a community property
state or the majority of states with an equitable distribution approach where
property acquired during a marriage in either or both spouse’s name (except
gifts and inheritances) is considered a marital asset subject to division in a
property settlement agreement.
Net Worth Statement- Tally up assets minus debts (net worth)
because an attorney and the courts will request a complete accounting of a couple’s separate
and joint property.
Math- Consider carefully whether either spouse can afford to keep the
family home following divorce, especially if it took two paychecks to qualify
for the mortgage.
Good Credit History- Close joint credit accounts with an ex-spouse. Also
request duplicate statements from creditors if you have doubts that an
ex-spouse will make payments on jointly-held debts as per a divorce decree.
to Live on Less-Develop a realistic post-divorce budget that may involve
“downsizing” from your previous lifestyle as part of a married couple. Do not
attempt to try to live beyond your means using payday loans or credit.
Insurance Coverage- Make sure that the spouse(s) paying alimony and/or
child support have adequate life and disability insurance so that payments will
continue no matter what.
¨Consider Retirement Plan Distributions-
Make arrangements to share spousal benefits earned by a worker during a
marriage with a Qualified Domestic Relations Order (QDRO). This is a
court-ordered document that tells the retirement plan administrator how to
divide benefits between divorcing spouses.
According to the U.S. Department
of Agriculture, child rearing is a costly endeavor. From birth through age 17,
for middle-income households, the cost
to raise a child in 2015 was $235,670. Add in post-secondary education and
child rearing expenses, from cradle through college, can easily exceed
Conventional cash flow wisdom is
to increase income and reduce expenses to make ends meet. Having children often
results in the exact opposite scenario. Expenses increase at exactly the same
time that income either stays the same or is reduced. What to do? Below are
recommendations to consider:
Proactively- Prepare a list of anticipated expenses and calculate the total
cost. Add a “miscellaneous” category for unanticipated items. Try to pro-rate
prenatal expenses (e.g., $4,000 divided by 9 months = $445 per month) and “pay
as you go” rather than purchasing everything at once on credit.
Inexpensively- Consider making purchases at consignment and thrift shops
and garage sales for clothing and nursery equipment in good condition. Another
money-saving option is hand-me-downs from friends and family.
Employee Benefits Related to Parenting- Explore your options for parental
leave, Family and Medical Leave, maternity coverage, disability coverage, and
pediatric care. Contact your employer’s human resources department for
information and assistance.
Estate- Draft a will, or revise a previous one, to name a guardian and
back-up guardian for a newborn child. Guardians do not necessarily have to be
family members. Parents can choose anyone they feel would be best suited to
raising their child. Be sure to discuss your selection with the designated
This week, I attended the Fall American Savings Education
Council (ASEC) meeting and, via phone, part of a Consumer Financial Protection
Bureau (CFPB) meeting for financial practitioners. Below are some take-aways:
¨Four key factors
can affect worker (and dependent) health status: worker share of health
insurance premium, cost-sharing (e.g., deductibles, coinsurance, and
copayments), choice of health plan, and workplace wellness programs.
¨Nearly half of the
U.S. working population with employer health insurance is in a high-deductible
¨A study of a
large employer that replaced PPOs with a HSA (health savings account)-eligible,
high-deductible health plan (HDHP) found decreases in outpatient office visits,
prescription drug fills, and medication adherence and more emergency room
visits. Even preventive services not subject to a deductible were used less after
the HDHP started.
encourage workplace wellness by offering financial incentives such as prizes,
gift cards, and premium contributions.Prizes are often used in conjunction with health risk assessments or
¨Only 1 in 10
Americans is saving enough money to cover short-term needs and retire
comfortably. Health care expenses take a big chunk out of people’s income. Some
employers are starting to coordinate HSAs and 401(k)s.
¨Caregiving is a
threat to retirement security. For example, caregivers may have reduced work
hours and missed work days or have to quit their job. The majority of
caregivers work full- or part-time (52%) or are self-employed (8%).
savings, break goals into small steps and identify a “why” that is driving
¨Using savings that
is set aside for emergencies is not a failure. It is what the money was set
aside for! Be sure to replenish emergency savings as needed.
Many people, at all ages,
choose to live together without getting married. Unmarried partners do
not qualify for joint income tax filing or the estate tax spousal exemption.
Rather, they are treated as single individuals. In other areas of personal
finance, however, they operate like married couples. For example, there are
economies of scale (e.g., one cable bill instead of two) and the need to
jointly pay household expenses. The longer a couple lives together, the more
likely they will need to jointly make important financial and legal decisions.
Below are five financial recommendations:
Method for Bill-Paying- Consider holding separate credit cards and bank
accounts and divide household expenses evenly or proportionate to each
partner’s income. Keeping assets separate avoids the problem of becoming liable
for a partner’s debts.
Law- Check with an attorney about the impact of cohabitation on alimony and
child support from a previous marriage. State laws vary. Social Security
benefits are not affected, however, which is why some retirees
choose to live together but not marry so they won’t suffer a reduction in
benefits based on an earlier marriage.
Purchasing Joint Property Coverage- Find out if this is an option.
Insurance companies may allow this if both partners have an ownership interest
in property being insured. Many insurance companies also allow someone with
renters insurance to add a partner for less than it costs for two separate
policies. Consider increasing the coverage, however, to reflect the increased
value of both partners’ possessions.
the Fine Print- Be aware that, if both partners sign loan documents, an
apartment lease, or a contract with a utility company, both are legally
responsible for payments, even if one partner moves out.
Beneficiary Designations- Consider naming an unmarried partner as a
beneficiary on retirement plans (e.g., IRAs) and/or a life insurance policy in
the case of long-term relationships. Ditto for a will. Unlike surviving spouses
in a married couple, unmarried partners will not inherit anything automatically
through state intestacy laws if a partner dies without a will. Instead,
surviving blood relatives will receive the deceased partner’s property.