With divorce being all too common, financial planning for second marriages is important, especially when accounting for blended families. With a second marriage, you may have children from a previous marriage, retirement assets you’ve saved and older parents who could leave an inheritance. You may also have debt or credit problems after the first marriage dissolved.
Before you exchange vows, it is highly recommended couples discuss all financial aspects. Generally you are not responsible for your future spouse’s debt, but you should be careful how you title assets once you are married, as joint assets may be subject to creditors. A creditor may go after a new spouse’s assets if they are jointly owned. You may consider keeping your credit and assets separate until your spouse’s credit improves.
You will also want to consider future financial obligations, such as the children’s education. With blended families, you should consider future education costs and any obligations your new spouse may have agreed to with his or her ex-spouse regarding college savings. It is possible that providing funds for college may have been part of the divorce agreement. Likewise, if the children are living with you, consider discussing how much of their education you may be responsible for.
Wills and estate planning also become more complicated when children from a previous marriage are involved. If you own assets with your spouse in joint tenancy with the right of survivorship, then your spouse would get everything. If your retirement account names your spouse as primary beneficiary, your spouse receives your retirement account. Retirement accounts, joint tenancy property, life insurance, etc., are non-probate assets, assuming the estate is not named as the beneficiary.
While this may sound good, if your spouse no longer has a relationship with your children from a previous marriage, your assets may not go to your heirs as you wished. For example, a husband and wife, each with children from a previous marriage, leave their assets to the surviving spouse. The husband dies and all assets pass to his wife. Because Wills are not irrevocable, she can contact her attorney and say, “I never liked his kids, leave it all to my children.” As long as she is competent to form a Will, she is free to change it. In this example, her late husband’s children receive nothing.
You can avoid or mitigate situations like this by naming your children as beneficiaries of accounts that pass by designations, such as retirement accounts or life insurance policies. Depending on the amount of assets you have, you may make your children joint owners, or use a prenuptial agreement where both parties’ financial rights and responsibilities are clearly defined. You may also consider using a trust where your surviving spouse receives income from the assets, but your children are the ultimate beneficiaries.
It is reasonable for you to be cautious when you remarry, as you are likely familiar with the financial consequences of divorce. Second marriages and blended families bring a certain amount of complexity and issues that were not likely present in a first marriage; therefore, it is advisable to put extra effort into financial and estate plans.
If you have questions regarding your assets as you enter into a second marriage, the experts at Henssler Financial will be glad to help: