Make a Plan Before Saying "I Do" Again

Physician's Money Digest, February15 2003, Volume 10, Issue 3

Consumer

Reports

If at first you don't succeed,try, try again. That's a goodapproach to life's many challenges.And according to , many Americans take thatapproach to heart—especially whenit comes to marriage. Recent USCensus data reveal that more thanthree quarters of divorced Americansremarry (76%), despite the fact thatthe divorce rate for second marriages(60%) is even higher than the divorcerate for first marriages.

Apparently, when you're in lovestatistics don't matter. What shouldmatter, however, is money. Observersnote that all failed marriageshave 1 thing in common: moneyproblems. Careful planning to resolvecouples' financial issues upfrontcan go a long way towardalleviating this issue and makingyour second journey down thematrimonial aisle a smooth one.

SECOND MARRIAGE VOWS

No matter which individual involvedis working on their secondmarriage, chances are good thatboth individuals need to sit downtogether and discuss finances. Forexample, one of the individuals maybear the obligation of child supportor alimony payments. Either partnercould have accumulated significant debt and/or assets during theirprior relationships. Pensions, retirementaccounts, life insurance policies,and expected inheritances areall important elements to include ina financial discussion before takingthat second walk.

Consumer

Reports

Many people draft prenuptialagreements. According to , these documents are highlyrecommended if either individualhas more than $100,000 in assetsand children or heirs to whom theywish to leave money. The agreementidentifies the assets each individualis bringing to the marriage, andspells out who gets what should thecouple divorce or 1 individual die. Asimple agreement, which carriesmore legal force than a will, can bedrafted by an estate planning attorneyand can cost $1500.

If you make it past this point infinancial negotiations and you're stillin blissful harmony, the next step isto set up a budget. This is no simpletask when you consider that you'reblending the earnings and spendinghabits of 2 families. This can beespecially stressful if one of the individualsis used to living alone andthe other is bringing children intothe relationship.

Begin by identifying all of theexpenses, both joint and individual,that you incur on a monthly basis. Asyou itemize all your expenses, determinewho will pay for what. Forexample, you might decide to poolyour income and your spouse'sincome into 1 joint account. In addition,you and your spouse can pay aspecified amount from your own separate accounts, or you can go to theextreme and keep 3 separateaccounts: yours, mine, and ours. Thiscan help separate personal spendingfrom common expenses. Either way,you'll probably find that maintaininga record of daily spending will enableyou to gradually trim your spendingby as much as 20%.

POWER OF UPDATING

Beyond the daily dollars andcents of a second marriage, it'simportant to update all documents.This can include the titling of property,a will or trust, W-4 forms, livingwills, life insurance policies, anddurable powers of attorney. Forexample, if you owned a vacation/rental home prior to the secondmarriage and intend to keep it inyour name, that's fine. But if youdecide to renovate the propertyusing funds from a joint accountwith your new spouse, you couldexperience trouble. Five years later,your spouse's divorce attorney couldsuccessfully claim that the increasein value stemming from the renovationis joint property.

In addition, in some states, adivorce invalidates your will. Whenyou establish a new will, you mayface some delicate decisions. If youor your new spouse has childrenfrom a previous marriage, and if youplan to have any children together inyour second marriage, deciding whogets what can be a complicated matter.Establishing a qualified terminableinterest property trustcould be the answer. In this case,assets placed in the trust by a husbandduring his lifetime can provideincome for his second wife after hisdeath. When his second wife dies,the principal goes to the childrenfrom his first marriage.

As you can tell, a second marriageis a very challenging transitionwith many financial matters to consider.Working together toward amutual goal, however, can help youstay grounded and focused the secondtime around.