The blind spot in your second marriage

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G D Lengacher thought he’d done everything right — financially — when he married his second wife in 2013. To prepare for sharing bank accounts, as well as lives, the couple combined finances on paper and ran a joint budget for almost a year.

It wasn’t enough. They were quickly surprised by the cost of their combined family of seven. “It started with my wife’s house not selling quickly like we thought it would,” said Lengacher, 46, who lives in Indiana in the US and produces a weekly podcast on surviving divorce. “We also grossly underestimated what our utility bills would be as a combined family. Add to that the expenses of having three kids in college and it quickly became apparent that we were overly optimistic in our budget estimates.”

The worst mistakes are the emotional ones where you get married expecting something to be a particular way and it’s not that way. — Hilary Hendershott
Second (or third or fourth) marriages aren’t uncommon — and neither are the financial challenges that often ensue. In the US, 12% of men and 13% of women have married twice, and 3% of Americans have married three or more times, according to the Census Bureau. In the UK, about 37% of nuptials each year are remarriages, according to the Office of National Statistics. And in Australia, 17% of weddings each year involved one partner who had previously been married, according to the Australian Bureau of Statistics.

Aiming for wedded bliss — again — has some pitfalls, particularly when it comes to finances. Here are a few pointers on making it work:

What it will take: You’ll have to work out the details of combining two separately operating families into one. That means agreeing on how things will work financially, as well as how the household will run and how you will raise children together, if applicable. “What you’re creating to a certain extent is an operating business,” said Julia Chung, a financial and estate planner with Facet Advisors in Langley, British Columbia in Canada. “You’re taking two businesses and you’re merging them.”

How long you need to prepare: At least six months before exchanging vows, you should start having the necessary conversations and make preparations with your soon-to-be-spouse. “That may mean seeing a family facilitator or therapist, accountants, financial planners and lawyers to ensure that everything is in good order,” Chung said. “Rushing important conversations isn’t a good way to kick off a long, fruitful relationship.”

Do it now: Talk to each other. As unromantic as it may seem, you must discuss the nitty gritty of your money lives. “Very often you have people coming in with assets, income, with independent ways of managing their finances, and you have to talk,” Chung said. “How are we going to do this? What makes the most sense? It’s important to figure out how you’re paying for things, and those conversations are really tough for people.”

Understand what’s already in place. Are there any financial agreements due to a prior divorce, such as child or spousal support? Is your betrothed’s name still on the mortgage on the house she used to share with her ex? “That’s going to impact your ability to buy another house,” said Hilary Hendershott, a financial planner in California in the US. “And if the ex-spouse, for whatever reason, stops making payments, your credit is on the line.”

See your estate planner. A second marriage can create a host of estate-planning issues, particularly if children are involved. For instance, in France, children are “protected heirs” and are entitled to receive a proportion of their natural parent’s estate. “Thus, in the absence of appropriate planning, if the survivor is a stepparent, he or she may be poorly protected,” said Daphne Foulkes, a financial planner for the Spectrum IFA Group in the South of France. “In addition, the potential inheritance tax liability for stepchildren can be substantial, since they will be taxed at 60% on any assets that they inherit from their stepparent.”

In general, it’s important to understand how you both want the money to flow after your death — and how everyone feels about it. Do you want it to go to your new spouse, to your children, or to both? What about stepchildren? Are any children minors? “If children are under 18, often that needs to be managed with a trust account and a professional trustee,” Hendershott said. A planner can help you determine what makes the most sense.

Know your local laws. In Canada, for instance, family law is ruled by province, so the laws in the province where you get married will govern your union. In British Columbia, a family law states that the assets you bring into the marriage are yours, but any growth on the value of those assets belongs to the marriage and will be divided if you divorce. So it’s important to know the value of your assets coming into the marriage. “Having the valuation done ahead of time and sharing that information with your partner is a really good step to keep things as clean as possible if things fall apart,” Chung said.

And in France, it’s not possible to add the name of a new spouse to a property deed without encountering some tax liability, Foulkes said. Consult with financial and tax experts to make sure you don’t make any costly mistakes.

Do it later: Adjust your beneficiaries. For accounts that allow you to choose a direct beneficiary, such as life insurance and retirement accounts, revisit your designations after you remarry to make sure everything will go where you want it to go. These accounts generally bypass your will, so even if you’ve updated your estate paperwork. “I know someone who was divorced from a man for 10 years and he died in an accident,” Hendershott said. “He was remarried but had left her as the beneficiary on his life insurance policy. She got a million dollars.”

Do it smarter: Don’t go in blind. As with any marriage, make sure you know what you’re getting into. “The worst mistakes are the emotional ones where you get married expecting something to be a particular way and it’s not that way,” Hendershott said. “For example, someone who marries in and doesn’t like the children, or doesn’t like the way the money is handled, and they don’t talk about it. Not talking about it is the biggest mistake.”

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