To Merge or Not to Merge: Finances in a Second Marriage
Kathy Longo, CFP®, CAP®, CDFA® Tuesday, 03 September 2019
Did you know that 41% of first marriages end in divorce?[i] Did you ever have money issues in your first marriage? It wouldn’t be surprising, even if that wasn’t the reason for the split, as money disagreements account for 21% of divorces and for those with incomes over $100,000 a year it jumped to 33%.[ii] On top of that, most couples have conflicting money values such as when one is a saver and one is a spender. Now you are onto your next marriage…congratulations! The next step will be going over a few important financial details that you should discuss with your partner. Financial communication is absolutely vital in a relationship and, in some ways, even more important in a second marriage as you will be bringing more complexity and baggage with you. You will both be better off moving forward in this new romantic chapter if you can get everything on the table and discussed.
As mentioned above, most people are mismatched in their money values. This makes sense as most of us have built our relationships around money since we were toddling around with a toy cash register. Money values are built on the foundations of our parents, our communities, our life experiences, and are therefore very difficult to duplicate. However, as the old adage says, opposites attract, so learning and understanding each other’s money values are essential to have a healthy relationship. You must talk about money, even if it makes you or them uncomfortable, even if it feels super awkward because the more you understand the other person’s money history and future goals the better. This is where you discuss what you have, what you’ve saved, and what you owe. This where you discuss long-term plans for retirement and your wills and beneficiaries. Going into a second marriage everyone needs to be honest about child support, alimony, and debts. This way you can decide, as a team, how much it makes sense to merge, and how much to keep separate.
What makes sense for a lot of second marriages is to combine aspects of your finances and leave others separate. For example, it may be the most equitable and easiest to combine household expenses and leave the rest independent of one another. To do that, you must first come up with a household budget of what your combined expenses are. It may make sense to create a joint account where a set amount goes in monthly, then use that account to pay all shared household bills. This is where groceries are bought from, repairs to vehicles, date nights, vacations, even holiday or back-to-school shopping. Depending on the situation, it may be easiest to each contribute an equal amount into this account; for others, it may be better to contribute different amounts, or for one partner to pay the bulk. Whatever you decide, what’s most important is that it is discussed, agreed upon together, and reviewed on a periodic basis. The benefit of only sharing joint expenses is that it leaves each person’s assets separate to pay down debts, pay child support, build savings, etc. without affecting the other person. The other pro of this style of money-merging is that it will be easier to divide your finances if you were to get a divorce.
Wills, Estates, and Beneficiaries
As people coming into a second marriage often have children, it’s good to have a current will and update your beneficiaries. If you fail to do this and you pass away your spouse will have more control of how your estate is handled and what goes to your children. A good practice for everyone, especially those who have divorced or have children, is to update any and all insurance or retirement savings accounts where you must name a beneficiary. It is also important to have frank discussions with your spouse detailing both of your wishes as to how assets should be allocated. Nobody likes talking about their death, or about how to divide up your money, but doing it on a proactive basis will help eliminate future ambiguity or animosity. If something were to happen to you, or your spouse, ideally you want a plan in place. It’s easy to forget who was named on an old IRA or insurance policy and even if you name a different person in your will, the original policy tends to hold up in court.[iii] So, before getting remarried or merging any accounts, take the time, together, to go over all accounts and assets, change over any designated beneficiaries and update your wills. It will provide not only peace of mind but will bring you and your new spouse closer together.
You’ve probably noticed a consistent theme through this article: communication. We are raised to avoid having hard talks about money and often end up having to deal with the topic at the worst times (like an unexpected death), so the more you can get everything out in the open and agreed upon, the stronger your relationship will be going forward. If your finances are particularly complex, or even if you just need a little moderating to come to decisions, take advantage of a qualified financial expert. The goal is to be moving forward in life, in love, and in financial health. Good luck on this next chapter of your life!
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.