Looking to Remarry with Children?
Are you a single parent looking to remarry with children? Blending families and finances can be challenging.
The modern family looks quite different today from the so-called “traditional” family of sit-com television lore when shows like Leave it to Beaver reinforced perhaps a false notion of what a so-called “regular family” looked like and how they acted and interacted. Changes in laws include widespread enactment of so-called “no fault” divorces as well as reductions in waiting periods for divorces. These changes – combined with changes in social mores that reduced the stigma of unmarried couples cohabitating as well as couples remarrying after being divorced – have transformed the modern family, probably forever.
Today, 1 in 3 marriages involves children from previous relationships -and almost half of spouses in modern unions say their new partner brought financial baggage, according to one recent study from Allianz.
Blending households is hard enough for newlyweds. Just imagine marrying into a family with complicated family structures. And when you add money into the mix, you’re often stepping into a thorny thicket. As a financial planner that works with a variety of family structure, I can tell you that many couples operate their financial household under the “you do it, or I’ll do it but let’s never talk about it” philosophy.
This is a big mistake.
When you don’t work as a team to tackle financial challenges, they often stress the relationship right from the start. To avoid complications around love and money, sit down with your soon-to-be spouse and put all your cards on the table. It’s not wise to put this off until after the wedding. To help you, I put together 5 Questions You Need to Ask Before You Say I Do.
#1. Should we merge our money?
When you (re)marry, you’re not only merging your lives but also your financial lives.
I recommend most couples to have joint checking and savings accounts. It’s easier to manage a single joint checking/savings account over managing separate accounts. There’s more transparency as to your blended family’s financial health. There’s also fewer fees and only one minimum balance you need to watch. Here’s a plus: It also eliminates the majority of stupid arguments that couples have over who’s paying for what and why. Just pay it.
However, Life isn’t always sunshine and rainbows. There are good arguments for keeping accounts separate as well. You or your partner might have a history of making not so good decisions around money. There’s a lot on the line, here. If this is the case, it could make sense to keep your monies separate. If you feel that separate checking accounts would help prevent arguments over money, and give each of you a feeling of fairness and independence, go for it. Just understand that you should operate with full transparency. Having separate accounts isn’t an excuse for financial secrecy.
#2. What are some of your financial goals and priorities?
Marital problems arise when you don’t take interest in your spouse’s goals, dreams, and vision for the future. You end up growing apart instead of together. You’ll end up having different goals and different priorities. You also let someone in the door who makes you or your spouse feel special because they listen.
As part of my process of taking on new clients, I have each of them write down their top 5 financial goals. We then rate them in order of importance. If you need some examples of financial priorities, here’s a few that cover 6 key areas of your financial life:
1. Understanding where you are financially
[ ] Knowing your net worth
[ ] Tracking your income and expenses
[ ] Planning for emergency needs
[ ] Managing debt
[ ] Determining the value of your business
2. Accumulating wealth
[ ] Funding future educational expenses (your kids or your own)
[ ] Saving for a special purpose such as a home or vacation home
[ ] Developing an appropriate investment strategy
3. Managing income taxes
[ ] Projecting potential taxes
[ ] Developing appropriate tax-planning strategies
[ ] Coordinating personal and business tax-planning strategies
4. Planning for retirement
[ ] Planning for adequate retirement income
[ ] Analyzing sources and uses of retirement income
[ ] Reviewing investment portfolio and developing an investment strategy
5. Managing your risk
[ ] Planning adequate income for survivors
[ ] Analyzing current life insurance
[ ] Providing for business continuity or liquidation
6. Preserving your wealth
[ ] Analyzing potential estate settlement costs
[ ] Exploring techniques to preserve wealth
[ ] Retaining business and income-producing assets
Go through this list and mark off what concerns you. Have your partner do the same, and do it separately so that you don’t influence each other. When you’re done, number them by order of importance.
Now that you completed this exercise, you have a good basis for a conversation with each other. Discuss why these goals are important and what you’ve done so far. You might be surprised to find out that your partner’s financial priorities are different than yours. You might have goals that are competing against each other.
You might be surprised to find out that your partner’s financial priorities are different than yours. You might even have goals that are competing against each other. You might have just discovered that your highest financial priority is to figure out where your money is going every month. You want to pay off a debt that keeps you up at night. And perhaps you discovered that your partner is focused on buying a BMW M4 that he always talks about. That car is $70,000.
These goals compete against each other. Each makes the other impossible to achieve.
#3. Who’s Responsible for What?
It’s important to determine who’s paying for child related issues like activities, sports gear, holiday gifts and such. As for larger child-related expenses, if it’s her kid, does she automatically pay for them? And if he moves into her house and discovers that the roof needs repairing, and it is going to cost $15,000, who’s going to pay for that?
It’s very easy for remarrying couples to adopt a, “You handle your stuff and I’ll handle my stuff.” It might seem easier and less complicated. But when problems will come up if you don’t discuss each other’s roles in the relationship.
#4. Inventory your debt
Debt is always the elephant in the room, isn’t it? It can be embarrassing to bring it up. But before your can hope to have financial future with your partner, you need to inventory your debts. Who do you owe money and how much? What’s your minimum payment due and what are you paying?
These are important questions, because in a blended family, there’s a child involved. You may discover that you might want to delay merging your finances with each other until after you or your partner gets their money in order. If your partner is looking to make a large purchase, hold the wedding off until after that purchase. When you marry, your credit score will be impacted by each other’s history. If you’re thinking about buying a house soon, and you’ve merged your finances and you have a lower credit score, you may end up spending more in interest on the house.
Here’s how to inventory your debts and assets:
Step 1: Have each person grab a piece of paper and fold it in half lengthwise.
Step 2: On the left side, list everything you own (house, bank accounts, vehicles, investment accounts, etc.) Leave out personal possessions like clothes, jewelry and tools.
Step 3: On the right side, list everything you owe (mortgage, car loan, student loans, credit cards, other monies owed). List all your debt here. Excluded monthly bills.
Step 4: Add it up.
This is your Net Worth. Net worth = Assets – Liabilities.
Review each other’s debts and your plans for paying it off. Talk about it and plan around it.
#5 What happens if one of us dies?
Estate Planning is simply an explanation of what you want to happen when you die. Every estate is planned – either by you or by the state and federal governments. Only by your action while you are alive, can you strongly influence what will happen.
There’s a belief out there that estate planning is only for the ultra rich. That’s not true.
Real Life Scenario:
Like most couples, Jack and Diane married at age 25. They had their first child, David at 29. Unfortunately, the relationship didn’t work out and they were divorced at 35. A couple of years later Diane met Steve -a great guy -very caring and a teacher. Diane and Steve married at 39. Steven was very involved with David and now they’re a “Blended” family of 3.
Sadly, just three years later, Diane suddenly became seriously ill and passed at age 42. Steve and David, now 13 were devasted. It came as a hard blow. Steve found comfort through Jill, also a teacher. While he loved David, he had no biological children of his own. They had a beautiful wedding and produced two children together. They built a new home to fit their growing family.
This scenario isn’t far fetched. It’s not even a rare situation.
The dilemma here is that Diane didn’t complete any estate planning. Like many others, she thought it was only for rich people. All her retirement assets (IRA, 401(k), Savings and life insurance proceeds) passes to her remarried husband, Steve. Diane did communicate to Steve that if she were to pass that her accounts were to go to David. But since Diane passed while David was so young. Steve had to take the assets. David grew up. Steve started another family and now has a wife and two kids of his own. But he doesn’t make much money. He took care of David as he grew up and into college. He used a good portion of the life insurance to pay for the construction of the new home, as well as paid for David’s college. The way he sees it, he’s done enough.
David probably only saw $40,000 of the probably $600,000 Diane left to Steve. ($500,000 tax-free life insurance proceed + $100,000 in retirement savings)
Every couple remarrying with a child in the mix needs an estate plan. You not only need to communicate it with your partner, but you need to make positively sure you have an estate plan.
You might be tempted to pass your assets over to a sibling to ensure that your wishes are executed. This is a mistake as well. Your sibling will get married. They might get into a bad financial situation that is easily fixed by using the monies you inherited over to them in good faith. They will borrow with the intention of returning it. Good luck with that. Your sibling might pass from something stupid like texting while driving. Your assets will then pass over to his/her spouse and your child won’t see a dime. Also divorce is always on the table. If your sibling deposited your monies into their bank account for safe keeping, the spouse will sue for this share of it. He will waive the custody of their child on the table for that money, and he will win.
I hope that you found this post to be both educational and informative.
If you have any money questions, please feel free to leave me a comment below. It might even write a post or do a video on it.