Factor in your children’s inheritance and estate planning before you remarry.
WHEN YOU REMARRY, you’re not only combining residences with your new spouse, you’re also merging your finances. And if you have children, that may involve some financial-related stress. For instance, you might need to factor in child support payments or consider whether your new marriage will impact your children’s inheritance.
With that in mind, before you remarry, discuss any past financial issues, and set yourself up for success by taking these important considerations into account.
Here are six financial considerations and crucial steps to take before you remarry:
1. Update your budget.
2. Disclose any financial obligations, including child support.
3. Review your insurance and benefits.
4. Factor in financial aid.
5. Estate planning is key.
6. Make an inheritance plan.
Grey Merryman, senior director of wealth planning for Wells Fargo Private Bank in Charlotte, North Carolina, says that all new couples, whether on their first, second, third or fourth marriage, should “develop a budget for day-to-day spending, monthly expenses and large purchases like real estate, cars or vacations.”
You’ll also want to discuss your household expenses and costs related to children from a prior marriage. If you have to pay alimony, you’ll want to talk that over with your new spouse, Merryman adds.
This is also a good time to discuss everything from credit card debt to how you plan to manage things like credit cards and credit card rewards. Are you going to make each other authorized users on each other’s credit cards for instance?
You’ll also want to share any past investments you’ve made and discuss your retirement accounts. Some experts also suggest creating a prenuptial agreement.
2. Disclose Any Financial Obligations, Including Child Support
An important topic to discuss with your future spouse is if you have any child support you are receiving or paying out. “Before getting married, check the laws of your state in order to see how child support may be impacted by marriage to a new person,” says Patrick Whalen, a certified financial planner who owns Whalen Financial Planning in Los Angeles.
Though it’s unlikely that you would lose your child support if you marry, the courts may determine that it should be reduced. Likewise, if a person paying the child support is remarrying, Whalen says he or she needs to talk to their partner – before marriage – and make sure they know how much the payments are. “It isn’t fair to your new spouse to be surprised by the bite that child support is taking out of your budget,” Whalen says.
3. Review Your Insurance and Benefits
“A common oversight (when remarrying) is failing to update the beneficiaries of life insurance policies,” says Joseph Hoelscher, a managing attorney with Hoelscher Gebbia Cepeda PLLC, a criminal defense and family law firm in San Antonio.
Even if you get along well with your ex, you still may not want a life insurance policy going to the ex instead of your current spouse. You also may want to get additional coverage if you now have a larger family.
You also may have to think about other updates to your coverage, such as who will be on your health plan, and you may need to modify your homeowners insurance with a spouse and children moving in.
If you receive government benefits such as Medicaid or Social Security, keep in mind that you could lose your Medicaid eligibility when you remarry, if your spouse’s income is too high to be eligible. You might also discover that the Social Security benefits you receive from an ex-spouse will be eliminated after you remarry.
4. Factor in Financial Aid
“Be aware that a second marriage may increase a parent’s income for federal financial aid purposes for college,” Merryman says. “If a parent is the custodial parent for the FAFSA, they may be surprised that their income now includes their new spouse’s income.”
Merryman also says you’ll want to discuss important questions about saving for college and tuition costs. If either partner has children from a prior marriage, discuss whether each spouse will set aside money for tuition costs.
5. Estate Planning Is Key
You’ll want to look into estate planning before remarrying, Hoelscher says. That includes writing up a will and thinking about assets.
“Typically, we’re preparing medical powers of attorney, do not resuscitate orders, durable powers of attorney, designations of guardianship or consent to adoption, and various trusts, including trusts for special needs children,” Hoelscher says.
“Imagine the potential conflict if Dad is put into a coma from a car accident right after the wedding and the new stepmom is the sole medical consenter,” Hoelscher says. “We see adult children suing to take control over their parent’s health care from new spouses.”
Whalen points out that services such as LegalZoom and Nolo offer estate planning packages that are cost-effective and perfectly adequate for many people. Still, he cautions, “if you have children from a prior relationship then you are someone who should strongly consider utilizing a qualified estate planning attorney.”
6. Make an Inheritance Plan
“If you have children from a prior relationship, you need to put the right estate planning documents in place in order to protect your children from being disinherited,” Whalen says. “In some states a last will and testament may be sufficient, while in other states it may make sense to also have a revocable living trust.”
Even if you’re young and hardly thinking about your last rites, this is an important step to take when you remarry, according to Whalen.
“Let’s say that you die prior to your new spouse and that he or she is beneficiary of your 401(k) and you own your home jointly together,” he says. “Decades after your death, your spouse dies. The chance of your children receiving a share is slim. Your spouse may have remarried or might give the money to their own children.”
While it may be difficult to discuss, considering the worst-case scenarios is important to set your children up for success. “Perhaps your blended family gets along great right now, but that may change once you are no longer able to act as a bridge between family members,” Whalen says.
“The biggest mistake that couples entering their second marriage make is believing that their own children will actually inherit any of their estate if they pass away first,” says Patrick Simasko, an elder law attorney and wealth preservation specialist at Simasko Law in Mount Clemens, Michigan.
Maybe the adult kids will inherit some of the estate, of course, but Simasko says that you should talk to an estate attorney to create a strategic plan.
“If you commingle your assets, it means when you die your spouse owns 100% interest in the house, bank accounts, stock accounts and so on. If you list your spouse as beneficiary of your life insurance or IRA, it’s theirs to do with it what they want,” he says.
Simasko says that in the vast majority of cases, “the living spouse will change the plan and leave everything to their children and nothing to yours. You need to know this and plan for this scenario. It is a difficult conversation, but you have to do it before you die. Why? Because you can’t do it after you die.”
Geoff Williams, Contributor