Financial Advice for Second Marriages
It’s wedding season, making this the perfect time to talk about prenups and money merging
Love is lovelier the second time around, according to the 1960 Frank Sinatra song. But what about money and second marriages? That's a more complicated story, especially for couples with adult children.
After all, most people who are 52 or 62 have more money when they marry than those who tie the knot when they are 22 or 32. And about one in five Americans over 50 have been married twice.
"I think the conversation can start with some very positive steps that you can take as you're entering your lives together and how you can play to your strengths."
Since it's wedding season, I sat down with my co-hosts of the "Friends Talk Money" podcast — Terry Savage and Pam Krueger — to explore second marriages and money in our latest episode, with help from Chicago family law attorney Gemma Allen. Let me share a few of our insights and advice, which could be helpful in case you or someone you love is in, or about to enter, a second marriage.
Begin Talking About Money Early
"If you don't start out in a second marriage talking openly about your individual money behaviors and really invite the conversation and not feel like it's the elephant in the room," said Krueger, "I think that you're creating tension that's just going to mount."
But the discussion doesn't need to be depressing.
"I think the conversation can start with some very positive steps that you can take as you're entering your lives together and how you can play to your strengths," Krueger said. "A prenup can be part of that positive step."
Allen thinks prenuptial agreements can be especially useful for second marriages with blended families — so expectations are clear for the married parents and their adult children.
The Importance of Prenups for Second Marriages
"While people react badly to the concept of prenups," she said, "they force a realistic, transparent talk about money." Today's prenups, Allen noted, can be tailored to a given couple's needs and can be flexible.
Savage, co-author of "The New Love Deal: Everything You Must Know Before Marrying, Moving In, or Moving On," said a second-marriage prenup "is about how you will handle and organize your money during marriage when you each come to it with assets and perhaps some debts."
While most people think of prenups as legal documents stating who'd get what in a divorce, Savage said they can be quite useful to structure how both partners will handle money during their marriage, including the day-to-day expenses.
A prenup should also tie into a new estate plan for the couple — "how you will handle money after the passing of one or the other of you," said Savage.
Under current law, a married couple can exempt $24.12 million from estate and gift taxes. The unlimited marital deduction lets one marriage partner transfer an unlimited amount of assets to their spouse without incurring a federal estate tax.
Allen felt "everything including the kitchen sink" belongs in a prenup: ownership of homes and second homes, retirement accounts, investment accounts and savings accounts as well as who will pay for what (i.e. bills, college tuitions).
Your Investments: Get It in Writing
It is also important for couples to have a frank conversation about investments (including each partner's risk tolerance) and then spell out in the prenup who will manage the portfolio.
"Part of your agreement could be that the major assets and the growth of them remains separate property."
Said Krueger: "If one partner has a lot more assets and savings and investments than the other, you really want to figure out: Does that mean that's going to be the person who's going to make the big decisions for the household going forward with the investments?"
Savage stressed the importance of writing into the prenup which money you'll keep separate and which you'll merge. "Part of your agreement could be that the major assets and the growth of them remains separate property," she noted.
3 More Key Money Topics
In the podcast, I noted three other things people planning a second marriage should think about relating to their money:
1) Debt. Who owes how much and how will that debt get paid off?
2) Social Security and retirement dates. When will each partner start claiming benefits? When does each expect to retire?
3) Taxes. How will being married affect which tax breaks they can and can't claim? Should they file joint or separate returns? (Usually, joint is wisest.)
Krueger offered a warning: one partner feeling left out of the financial decision-making in a second marriage can spell trouble for the relationship. "That's the kind of resentment that builds up and gets really, really serious," she said.
One Last Tip
Allen's final tip for couples entering second marriages: start having conversations about finances early.
"The worst cases I've seen are the 'sabotage prenups,'" she said. Those are when one partner presents the other with a prenup written by their lawyer and says, "Hey, I need you to sign this."
That, Allen said, "is the way to have a really bad start to a marriage. Even if someone signs that document, it's probably not going to be a happy marriage."