The Wall Street Journal recently devoted a column exploring the financial questions that arise when newlyweds have been married at last once before. The statistics for the divorce rate for first marriages is relatively well know (around +40%) and for second marriages it is some twenty percentage points higher. Clearly, the best way to avoid many of the financial pitfalls in a second marriage is to have a well-prepared prenuptial agreement executed by the couple in advance of the wedding. In the absence of a prenuptial agreement, what are the particular financial issues that a ‘second marriage’ couple should consider?
Second marriages typically involve older couples in which one or both spouses have accumulated significant assets and perhaps liabilities prior to the re-marriage. Children from the previous marriage can be a factor as well as any financial constraints arising from the first divorce, such as alimony and child support obligations. We have found that the emotional and financial ‘baggage’ from the previous divorce can spill over into the new relationship which can cloud the re-marriage from inception. A good marital and couples therapist can help prepare a spouse-to-be or the couple for the second marriage.
Here are some pointers: First, disclose everything financial to the intended spouse. Share the financial details of the prior divorce, disclose all assets and liabilities which exist prior to the marriage and discuss how those prior commitments will be met after the second marriage.
Second, decide if bank accounts and other financial assets will be held jointly or be maintained in the name of the single owner/spouse. As a practical matter, a joint account and agreed-upon spending limits should be contemplated for the purpose of paying the new joint expenses, such as utilities, food, mortgage/rent, vacations and the like. Note that if a new spouse is to be added to an existing pre-marital account, care should be exercised. This will give the new spouse unfettered access to the entire account balance.
Third, if the children from the prior relationship are relatively young an agreement should be reached by the couple regarding how to pay for anticipated college expenses, extra-curricular activities and the like.
Fourth, if the new couple is older discussions should be initiated concerning retirement accounts, end-of-life issues and family inheritances. It may be time to revise Wills, trusts, medical directives, life insurance policies and the like.
If a prenuptial agreement is contemplated, as noted many of these questions can be resolved before the second wedding. If not, the couple-to-be should consider meeting with a good financial advisor to review these issues well in advance of the second wedding. It is possible to ‘beat the odds’ of divorce in any marriage, but careful financial planning when entering a second marriage is one very important step.