Money can be a tricky topic in any union, but remarriage can trigger a plethora of special challenges—from how a couple should split expenses and handle debt to whether they should financially help their respective kids.
“It’s a bit of a bee’s nest,” says Carrie Schwab-Pomerantz, president of Charles Schwab Foundation. “There are no right or wrong answers. Any solution that results in a happy life is the right one—even if it doesn’t suit your friends, family or neighbors.”
Michael and Annie, one of three couples1 who shared their second-time-around stories with us, took seven years to come up with a financial agreement that addressed all their concerns. Why? Michael’s first marriage of 31 years “was financially devastating when it ended,” he said, and he resolved never to go through anything like that again.
While Michael’s experience may be unusual, it speaks to the importance of discussing financial priorities early on, Carrie says, “to protect your marriage as well as your long-term financial goals.” Here are some practical tips for avoiding common pitfalls.
1. Address what’s mine, what’s yours, what’s ours
“Yours,” “mine” and “ours” bank accounts can help couples deal with both day-to-day expenses and the challenge of maintaining some economic independence after merging households.
For example, one of the big pain points for another couple, Kate and Steven (mid-50s), was deciding how to share responsibilities while retaining some financial autonomy. Kate, divorced for 14 years, couldn’t imagine having to consult with her spouse to spend the money she earned. Steven didn’t want to debate cash gifts to his adult kids. They had also planned to share their separate residences—in effect, living in both—but cover their household expenses separately.
Their compromise: keeping individual bank accounts, but opening a joint one for travel and leisure—the one big expense they planned to share.
This three-way account system can have an advantage: “It can help spouses better monitor their own financial decisions and keep their long-term plans on track,” Carrie notes.
2. Decide how to handle the expenses of your respective kids
Kids of any age can require financial help, and one of biggest costs that crops up for remarried couples is college.
If you or your new spouse have college-bound kids, bear in mind that financial-aid formulas count all the incomes in the custodial parent’s household. So if a custodial parent remarries another wage earner, the children are likely to qualify for comparatively less aid. Remarriage to a stay-at-home spouse, on the other hand, could boost the student’s chances for federal financial aid.
If marriage triggers a drop in financial aid, you should discuss whether the stepparent is willing to help defray the child’s education costs—or if you want to address the issue another way. You could even consider changing your custodial arrangements if doing so is more favorable to the financial aid calculation.
If your kids are already in college, you’ll want to hash out each parent’s position on supporting adult kids who “boomerang” back home or may otherwise need financial help. Steven and Kate, for example, handle their kids’ financial needs separately. Again, there are no perfect solutions, Carrie emphasizes, but discussing how you’ll address the needs of kids and stepkids will help the family row together and head off long-term acrimony.
3. Revisit your estate plan(s)
Estate planning issues can be tricky. Even if each of you comes into the marriage intending to leave your assets to your own heirs, the longer you’re married, the less separate those assets could become.
Take Michael and Annie (with the prenup that was seven years in the making). Although Michael, the wealthier spouse, said he was more protective early in the remarriage, he feels increasingly comfortable spending on his stepkids and shifting assets to his wife—now that their union has lasted more than a decade.
Nonetheless, to prevent unpleasant surprises, Carrie’s advice is to revisit your estate plan every five years or so to make sure these documents reflect your current wishes.
A cautionary tale of what could happen if you don’t take this step comes from another couple, Tom and Bernice. They remarried and moved in together in their 70s, and although the sale of Bernice’s home should have triggered them to revisit their estate plans, it didn’t. So when Tom died 15 years later, his children inherited Tom’s house—and insisted that Bernice move out.
A qualified terminable interest property (QTIP) trust would have prevented that problem and protected Bernice, Carrie says. These simple trusts give the surviving spouse the use of some or all of the other spouse’s assets for a set period. It can range from a few years or for the remainder of the surviving spouse’s life—while preserving the ultimate heir’s rights to the property in the long run.
If you aren’t sure about your estate plan, consult a professional.
4. Review powers of attorney, guardianships and life insurance
During the divorce process, most attorneys are likely to recommend updating a variety of legal documents like bank and brokerage account beneficiaries, guardianship arrangements, and health and financial powers of attorney. But once you remarry, all those documents require a second look.
Consider whom you’d want to act on your behalf if you’re unable to make financial or medical decisions. But be sure to allow for a backup, just in case your first choice is unwilling or unable to fulfill the role.
Remarriage should also spur a reevaluation of your life insurance policies and beneficiaries. After all, adding to your household could change the financial impact of your death. Make sure your policies adequately cover any financial gaps that an untimely death could create for your new and old family, Carrie says.
5. Agree on the bigger picture
For many, retirement is the culmination of life dreams—conjuring visions of world exploration and other bucket-list pursuits. Make sure you talk to your new spouse about your long-term goals and what it may take to finance them. According to Carrie, you should “visualize the life you want together and operate as a team.”
A final thought: “These are all sensitive issues and can take time to resolve,” Carrie says. “It’s really important to have patient, kind and nonjudgmental conversations about how you want to save, spend and share. If you can come together on that, you can have a very fulfilling life together.”
1We use pseudonyms to protect the privacy of interviewees.
What you can do next
- Find a Schwab Financial Consultant who can help you identify and resolve issues as you blend finances.
- Talk to your lawyers about making your decisions legally binding.
- Inform any adult children of changes that will affect them.