I’m a 65-year-old widow and am considering getting married again. Should I take any financial planning steps before I tie the knot?
Marriage, at any age, is one of the most important personal decisions you can make. And joining your lives and your money when you’re older—especially when it’s a second marriage—can be complicated. Of course, a decision to marry should be based on love and a desire to make an emotional commitment. But the financial implications can be pretty significant, particularly if you’re marrying later in life, after both you and your future husband have had time to acquire and manage assets for many years.
And it’s not just about numbers. There’s an emotional side to marrying your finances. You need to examine your own feelings about things like financial independence. You’ll also want to take into account the feelings of your loved ones, particularly adult children.
There’s a lot to consider—both practical and personal. To me, it’s not just about understanding the financial issues on your own, but about coming to an understanding with your fiancé. Although it may feel uncomfortable, it’s important to talk openly and honestly about your finances with your partner.
Here are some things to consider together.
Dollars and cents
Many of the financial benefits that come with marriage relate to Social Security and estate planning.
For instance, if you marry, you’ll be eligible for both spousal and survivor Social Security benefits based on your new husband’s work record. If you’re currently collecting survivor’s benefits on your late spouse’s record, you could either continue to receive those benefits (because you’re remarrying past age 60) or switch to the spousal benefit if that is higher.
When it comes to estate planning, a married person can leave an unlimited amount of money to his or her spouse without incurring any estate tax, assuming the spouse is a U.S. citizen. In addition, the surviving spouse can use any unused portion of the deceased spouse’s lifetime estate tax exclusion upon his or her death. Under current law, this means that a married couple can pass on up to $10.68 million free of estate tax. For example, let’s say your spouse gives away $4 million and you give away $1 million during your lifetimes. If one of you passes away, the surviving spouse will have a $5.68 million estate tax exemption ($1.34 million of unused exemption from your spouse plus $4.34 million of your unused exemption).1
In addition, spouses who are both U.S. citizens can transfer an unlimited amount of property to each other free of any tax reporting responsibilities or gift tax. You’ll also be able to use “gift splitting,” which allows a married couple to share a gift’s total value so that each contributes half the amount when giving to a third party. Gift splitting requires the filing of a gift tax return.
You may need to make some hard decisions with your fiancé. To help you get through them, approach difficult tasks as partners and come to an agreement on how to handle them. Here are some things to think about:
- Will you need a prenuptial agreement? If so, consult an attorney to draft the initial terms. Even if you decide against a formal legal document, it’s essential to openly discuss your finances and put your decisions in writing.
- How will you handle your estate? Discuss your individual responsibility to children and grandchildren—or any other dependents or family members—and how you want to provide for them. For example, a Qualified Terminable Interest Property trust could provide for a surviving spouse while ensuring a residual amount goes to the children of a prior marriage. Also be sure to update beneficiaries on all pertinent accounts, such as retirement plans, pensions or annuities, and make sure all assets are titled correctly. Talk about any charitable organizations that you want to support. And don’t forget about your late spouse’s wishes for his heirs.
- Do you have someone who can advise you on important financial decisions? Depending on the complexity of your financial situations, it may be wise to consult a financial advisor and estate planner together before you’re married. A trustworthy advisor can help you organize your finances in a way that helps protect both of your individual assets while forging a new, supportive financial relationship.
The importance of communication
There can be a lot of sensitivity around a late-in-life second marriage, so you may want to include your kids and any other close family members in your plans. Assure them that you’ve thought through the financial implications and are protecting yourself. If you decide on a prenuptial agreement, consider giving adult children a copy. Likewise, be upfront about your estate plans so there are no surprises later.
Most importantly, keep talking to each other. I believe the most essential issues go beyond numbers and should be discussed with complete candor before a second trip down the aisle.
Communication is the key to any successful relationship, and talking about finances is an important part of it. While it’s not always comfortable talking about money, if you listen to each other and honor each other’s feelings, you may find that financial honesty actually teaches you about each other’s values and priorities and, ultimately, brings you closer together.
Carrie Schwab-Pomerantz, CFP®, is President of Charles Schwab Foundation and Senior Vice President of Schwab Community Services at Charles Schwab & Co., Inc. Her latest book, The Charles Schwab Guide to Finances After Fifty (Crown Business, 2014), is available in bookstores nationwide.
1. Estate and gift tax exemptions are adjusted annually for inflation.