Congratulations! You’re getting remarried! How exciting! And maybe a little terrifying? Like just about every big decision in life, there are probably many layers to the emotions you’re feeling. There are a lot of things to consider in a second marriage… things you didn’t think of in your first marriage, things you think about differently after your first marriage, lessons you learned, and vows you made to yourself along the way.
In every marriage, financial considerations are a huge component of a successful relationship. But in second marriages, combining assets, debt and financial goals can be a bit more complex. It requires careful planning and open communication.
Our advisors have been helping blended families structure the foundations of their finances for years and we’ve learned a few strategies we hope you’ll find helpful. Let’s dig in.
Start with Open and Honest Communication
Sometimes surprises are awesome… not so much when it comes to money. Before you merge your financials, you need to have an open and honest discussion about your financial situations. Both partners should lay out the details of their income, their debts (balances, monthly payment amounts, interest rates, etc.), their investments, and any other financial obligations. Be honest about your spending (including any help you’re still giving to your adult children).
Sounds hard? It might be. But don’t put off the hard conversation. The details of your finances will eventually be revealed so it’s best to be honest about it from the start.
Create a Budget and a Plan for the Future
Develop a joint budget that lists all of your shared expenses like your mortgage or rent, utilities, groceries, and insurance. Then set an appointment to talk with your financial advisor about your long-term goals (retirement planning) as a couple. This will help you determine how much needs to be budgeted to fund your future.
Establish Joint and Individual Bank Accounts
One of the first things you’ll need to decide is whether to maintain individual bank accounts, open joint accounts, or a combination of both. Our experience has been that a combination of joint and individual accounts seems to work best for a lot of couples. It’s a effective budgeting tool and, at the same time, allows for some “independence” in your personal spending.
Joint Accounts for Shared Expenses:
Establish a joint account for your shared budget items. Both partners can contribute a predetermined amount to the joint account to cover these expenses.
Individual Accounts for Personal Spending:
By the time you enter your second marriage, you’ve likely been managing your own finances for quite awhile. You’re not used to having to consult someone else for each purchase you make. Maintaining individual accounts allows each person to retain some level of independence over their daily spending. Individual accounts can be used for personal expenses like hobbies and discretionary spending.
Determine Contribution Levels:
50/50 might seem like the obvious way to handle contributions to the joint account, but there are other ways to do it too. You could base it on your individual incomes and financial obligations. For instance, if one partner is making $100,000 a year and the other partner is making $50,000 a year, the joint expenses could be split accordingly. In this case, the person with the $100,000/year income would contribute two thirds of the money required to cover joint expenses and the spouse making $50,000 would cover one third.
There’s no right or wrong way to figure your contribution to the joint account as long as both partners feel comfortable with the strategy you’ve agreed upon.
Set Clear Guidelines:
Establish clear guidelines on how the joint account will be used. Decide together which expenses are “joint” expenses and how you’ll handle any excess in the account. It SOUNDS easy, but as you get into the discussions you might find that you have different ideas on what expenses the joint account will cover (like dining out, car payments, unexpected home maintenance, etc.)
Regularly Review and Reassess:
Even with all of this planning and talking, it’s unlikely that you’ll get it perfect the first time. Set a specific date and time for the two of you to reassess the joint account arrangement to make sure that each of you still feels like it’s fair and meeting your needs.
Even if you both feel like things are working well, you’ll likely need to make some adjustments as financial circumstances change, or new financial goals come up. Setting a specific time to review and reassess will help you tackle these things constructively.
Consider Direct Deposits:
Setting up direct deposits (or automatic transfers) into the joint account can simplify the process of managing your shared account. This helps ensure that the amount you’ve agreed upon is automatically deposited into the joint account, making it easier to stay on top of joint expenses.
Maintaining Financial Privacy:
While joint accounts promote transparency, individual accounts provide some privacy. Agree in advance about how much to put into the joint account and then resist the temptation to judge how your partner spends their discretionary money. This helps each partner to maintain a sense of financial independence… that’s usually a pretty important component in a second marriage.
Other Considerations
Estate planning, tax planning, and investment planning all require special consideration in second marriages too. Keep an eye on our blog for more on pre (and post) nuptial agreements, trusts, beneficiary designations and more!
The MOST important component to successfully merging your finances in a second marriage is open and honest communication. If each partner feels seen, heard, and respected, everything else is figure-outable.
Our attorneys want us to remind you:
Impact Wealth Management LLC is a fee-only Registered Investment Advisor (RIA). We are based in beautiful Sioux Falls, SD and regulated by the State of South Dakota and Arizona. The opinions in this blog are intended as general advice and not specific to your personal situation. Since everyone’s situation is unique, seek professional advice from attorneys, accountants, and financial advisors on your personal situation. Throughout this site, we went out of our way to present unbiased data believed to be from reliable and respected sources. However, its accuracy, completeness, and relevance are not guaranteed, and no responsibility is assumed for errors or omissions. Always consult your financial professionals before implementing an investment strategy. And remember the age old financial advice: past performance is no guarantee of future results.