Financial Planning for Later Marriages

Couples who marry as young adults usually don't bring a lot of financial baggage to the table, aside from student loans and car payments. But what if you're getting married in your 40s, 50s or later -- after divorce, children and years of building assets have complicated your economic situation? Do you and your spouse-to-be have a game plan for how to comingle your finances?

The key is to have a frank, comprehensive conversation with your partner long before you walk down the aisle. That might well involve seeking legal and professional advice. But before you bring in the professionals to start drafting legal documents, there are a few steps you can take to better know where you stand:

First, catalog each person's preexisting assets and debts. Include assets like income from paychecks, Social Security, investment accounts, bank account balances, retirement benefits (pensions, IRAs, 401[k] plans, whole life insurance) and equity in homes, cars and other major purchases. Debts might include ongoing expenses such as child support, insurance premiums, rent or mortgage payments, credit card balances, outstanding car loans and medical bills.

Use that financial information to launch discussions about important issues such as:
  • How do you plan to share expenses and what will be your living arrangements? For example, will you maintain separate banking and investment accounts or open joint accounts? Will you move into one spouse's home and sell the other?
  • Whose medical insurance will you opt for -- your own employer's plan vs. spousal coverage?
  • How long until each of you qualifies for Medicare, and how will you pay for coverage until then?
  • How do you want your estates to be distributed? For example, how much of your pre-marriage assets should go to children from previous marriages?

Update legal documents. You'll each probably want to amend your will, financial and medical powers of attorney, life insurance policies, retirement accounts, investment funds and any other accounts where beneficiaries or people who control your health or finances are named. This could be particularly important if you want to remove a previous spouse or to reallocate who should inherit what.

Prenuptial agreement. You also might want to have your lawyer draft a prenuptial agreement (prenup) which is a written contract that outlines terms and conditions for dividing a couple's assets and financial responsibilities -- basically who gets what if you divorce or one of you dies. It's wise to settle these matters before getting married, because state laws don't always recognize postnuptial agreements.

Having a valid prenup might prevent your spouse from challenging terms of your will or preexisting trusts after you die -- sad to say, that does happen on occasion. For example, under state law, unless your prenup says otherwise, your spouse could be entitled to a specific portion of your marital assets after divorce or death, no matter what your will specifies. Laws vary from state to state, but typically your spouse could be entitled to up to one-half of marital assets in a divorce and from one-third to one-half if you die.

Retirement accounts
. There are several interesting twists when it comes to bequeathing retirement accounts:
  • By federal law, you can bequeath an IRA to anyone you like, but spouses are entitled to inherit other non-IRA retirement benefits, such as 401(k) and pension plans, unless they sign away their rights.
  • Amounts accumulated in 401(k) plans during a marriage typically are considered marital property, so if you were previously divorced, the court should have divided your accounts through a qualified domestic relations order as part of the divorce settlement.
  • Division of pension benefits can be even more complicated, so make sure your attorney reviews prior divorce settlements very carefully when drafting your prenup.
A few other financial considerations to keep in mind:
  • If you were widowed, or married at least 10 years before divorcing, you can draw Social Security benefits based on your dead or former spouse's earnings, if that's more favorable than your own accumulated benefit. However, if you remarry before age 60 (50, if disabled) that option goes away. See Social Security's Survivors Benefits for details.
  • It's important to note that prenups don't supersede Medicaid rules. The government considers the combined income of both spouses when determining eligibility for receiving Medicaid benefits, including long-term nursing home care. To learn more about your own state's Medicaid program, follow the links HERE.
  • Alimony payments from ex-spouses will almost certainly end when you remarry, so factor that into your new budget.
  • Widowed spouses of public employees (including military, police, firefighters and civil servants) often lose some or all of their survivor benefits upon remarriage, so research terms of any survivor annuity or health insurance policies carefully.
  • When a widowed or divorced parent with primary custody remarries, income and assets of the new spouse may count toward the "expected family contribution" used to calculate federal student aid available through grants and subsidized loans for college.

Congratulations on finding love later in life. Don't be put off by all the important financial decisions you'll need to make together, but do be informed, so your marriage gets off on the right foot.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.