When you’re in the throes of a divorce, particularly an acrimonious one with messy finances, the last thing you want to think about is walking down the aisle again. But if cupid's arrow strikes, you may find yourself considering a second marriage. Finances can be tricky when you marry for the second time. How can you protect your assets while making the most of the advantages two people bring to the matrimonial table?
Here are five tips to increase your chances of having a successful subsequent union.
1. Don’t Rush to Remarry
Take time to consider the financial impacts a remarriage may have on your life and reflect on what went wrong in your previous marriage before potentially making the same financial or domestic mistakes.
An important factor you might not have considered is the impact that remarrying later in life could have on your Social Security benefits. As a divorced or widowed person, you might be entitled to benefits based on your former spouse’s work record. Postponing remarriage or avoiding it all together for that reason might make financial sense even if it doesn’t sound romantic.
2. Sign a Prenup
It almost goes without saying that you and your fiancé should seriously consider signing a prenuptial agreement. While you don’t want to give more business to your divorce attorney, second or later marriages are more likely to wind up in divorce court, according to U.S. census data.
“People often underestimate the value of a prenuptial agreement,” says Melissa Levine-Piro, an attorney with Levine-Piro Law, P.C. in Maynard, Massachusetts, “but with a second marriage, prenups are especially important because individuals may be coming into the marriage with significant assets and even children from prior relationships."
By the time you divorce, you have probably accumulated assets and debts of different types. You might own a house, a business or retirement funds. On the other hand, you might have accrued student loan debt (for your or your children's higher education), have credit card debt, or have a car loan to pay off.
“Prenups allow you to specify assets that are pre-marital and marital, which is important when determining where those assets will go in the event of death or divorce,” says Levine-Piro. If you outline who gets what in a prenuptial agreement before you remarry, it might help the two of you have a cleaner break if things don’t go as planned. (For related reading, see: Marriage, Divorce and the Dotted Line.)
3. Optimize Your Estate Plan
It’s critical to reexamine and redo your estate plan now. Also, check the beneficiaries for your retirement accounts and insurance policies. You’ll want to ensure you leave these assets to your kids or new spouse.
You might want to consider signing a qualified terminable interest property (QTIP) trust. “Such a trust allows the donor to grant the surviving spouse access to income from funds in the trust for his or her lifetime, but preserves the balance of funds for other beneficiaries, such as children from the donor’s first marriage,” says Christine Boutin, a probate and estate planning attorney at Levin-Piro Law.
It is also a good time to revisit your living will, health care proxies, and durable power of attorney. If you have a serious health problem, you want to make sure the right person knows your preferences in those medical situations and has the legal power to make the difficult decisions.
4. Decide Whether You’ll Have Joint or Separate Accounts
When remarrying, it’s critical to determine how the two of you will handle your day-to-day finances. No strict rules apply because every couple’s situation and preferences vary. You could combine your funds and pay the bills jointly. Alternatively, you might prefer the system of maintaining separate accounts. This is particularly useful if there is a great disparity in your income, assets or debts.
Many couples find it helpful to use a combination of approaches. You and your partner might maintain a joint account to pay for household expenses, dining, vacations, and mortgages for jointly owned property. You might also keep separate accounts for personal expenses.
Whether you choose to have joint accounts, separate finances, or some combination, discuss with your future spouse the style of living you’ll want to maintain and an approximate timeline for partial or full retirement. (For related reading, see: Should You Open a Joint Bank Account?)
5. Seek Professional Financial Help
It’s wise to consult a fee-only financial planner before remarriage. They can examine the state of your current finances as well as help you plot a path to a good economic start as a couple. Your union might have a better chance of long-term financial and domestic success if this step is taken before remarrying.
Remarriage is not all about romantic love. There are economic factors to consider and important decisions to make. With professional legal and financial advice, you can set yourself up to have a better shot at happily-ever-after together.
(For related reading, see: The Tax Benefits of Having a Spouse.)
Disclaimer: Divorce laws are very state-specific. While some general advice applies in most situations, consulting with a family lawyer is advisable when planning for remarriage.