It is much easier when you marry in your earlier years before either of you have acquired much in the way of obligations, property or assets. There are no children involved, no ex-spouses, little to no financial obligations and you are starting fresh. It is a little different when you enter a second or subsequent marriage having already built an entire life, family and career.
In my second marriage, although both of us had already been married once before, I was the only one with existing children. Neither of us had much in the way of property or assets. Although he did not have children at the time, he did however have lots of financial obligations.
Take Alan and Denise. Alan is 49 years old and was married to his first wife for 17 years. Alan and his first wife have 2 daughters ages 16 and 10 and two sons ages 13 and 6. Denise is 52 years old and has been married twice before but only has one son age 29 from her first marriage. Alan and Denise have recently gotten engaged and are trying to figure out how to join forces without causing any financial animosity. They both have substantial assets and no debt obligations.
|Real Estate||3 houses total value: $700k||1 house $500k, 1/3rd share of fam farm $300k|
|Investments||Retirement $250k, brokerage $175k||Retirement $400k, brokerage $350k|
|Bank Accounts||Personal $100k, Business $150k||Personal $150k, Business $230k|
|Businesses||Home improvement business $340k||Coffee shop franchise owner $420k|
|Personal/family items/collections||Knife collection $40k||Grandmother’s art collection $250k|
As you can see, Alan and Denise have a lot to think about going into this marriage. They are both brining substantial assets and they both have children who may be expecting those assets to ultimately come to them and not to a new spouse. How do they keep their financial status in place without possibly tearing down all that they have built if their new marriage ends in divorce?
The first step for a couple like this is a prenuptial agreement. Simply put, a prenuptial agreement is an agreement made by a couple before they marry concerning the ownership of their respective assets should the marriage fail. It outlines all of the assets that each party is bringing into the marriage and how those assets should be handled if things do not work out. It is a good way for Alan and Denise to protect their separate interests and keep the separate nature of the property by making sure that it does not become marital property which would have to be split in the event of a divorce.
The second step for Alan and Denise is to discuss how all of the assets are titled. They can employ a good financial advisor or estate planning attorney to help with this. For instance, Denise owns 1/3rd of her family’s farm and her two sisters own the other 2/3rds. That is good for Alan to know in the event that anything happens to Denise and he has to handle the disposition of her share of the property. He knows that he will be dealing with at least 2 other ownership interests. We are basically forced into doing a bit of estate planning in our everyday lives and titling is one of those ways.
Take Alan’s retirement account. He had not checked it since his divorce. When he finally looked he realized that he still had his ex-wife as the beneficiary. He will need to update that so there is no confusion as to where the funds should go. In the case of bank and brokerage accounts, they can be titled with a payable on death (POD- for bank accounts) or transfer on death (TOD- for brokerage accounts) instruction where you add a beneficiary to the account. Additionally, you can add a joint account holder who would essentially receive full ownership of the account in the event of the other joint account holder’s death.
The third step for Alan and Denise is to discuss their estate plan with an attorney licensed in their state. They are good candidates for using a few different types of trusts to hold and distribute their assets. Even if they already have wills, medical directives, or existing trusts, they will still need to revisit this area of their lives as they take on the new responsibilities of marriage, step parenting, and combining households.
They will need to assess the impact that this new marriage could have to their existing properties, businesses, accounts, and how they are going to handle all of these things without losing site of their current and future needs, and the needs of their existing children.
The fourth step for Alan and Denise is to meet with a tax advisor and get an understanding of how they should file their taxes going forward. They should also get an understanding of what impact that taxes will have on any planned purchases or if they were to sell off any of their assets.
Lastly and most important, Alan and Denise should have a frank and open discussion about their expectations, parenting of the minor children, and how they will handle their finances. This is a great time to employ the help of a therapist or family counselor who understands the nuances of blending. They should talk about how to handle Alan’s ex-wife and if there are things that Denise should understand about his children. They should also discuss Denise’s adult son and how to incorporate him. Of course it is very different when the children are older teenagers or adults when you remarry. It is still important to consider them and make sure the other partner understands how you would prefer for them to deal with their adult children.
While Alan and Denise are in a good situation, they have to be mindful as they blend families not to make any avoidable financial or legal mistakes. Getting competent professional help, they will position themselves and their respective families to blend intelligently and eliminate what could have been a huge set of problems if left unaddressed.
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