7 things you must do before the second "I do"
Bernice and Tom had what appeared to be a storybook late-life romance. The septuagenarians lived next door to one another for decades. When they both found themselves widowed, the couple became close and eventually wed.
But their tale took an unpleasant turn more than a decade later when Tom died and his heirs kicked Bernice out of the home she shared with Tom. Technically, Tom owned it, but after the second marriage he never thought to revise his estate plan, which left it to his kids.
While love may be more beautiful the second time around, many spouses like Bernice learn the hard way that it's also a lot more complex and treacherous, at least when it comes to finances. After all, if you marry later in life, you're likely to have built up assets, debts and could have legal obligations, such as providing support to former spouses and kids, says Dawn Humphrey, a wealth manager at Sun Trust Bank.
"You may not be on the hook for pre-existing credit card debt, but if your new spouse owes money to the government, they could make your life a living nightmare," adds Gemma Allen, co-author of "The New Love Deal."
Indeed, your ability to borrow, get financial aid for college-bound kids and stay in your home can rely on wiping the stars from your eyes long enough to take a hard look at some of the financial aspects of a second union.
Here are 7 things you must do before the second "I do."
Swap credit reports. Patrice Washington, author of "Real Money Answers for Every Woman," says one newlywed couple she works with got a nasty shock when the wife's pay was "garnished" for back taxes her former spouse owed. This woman's ex owned a business that was $70,000 in arrears with the federal government. The IRS got a judgment and, because this woman filed joint returns with her ex during the relevant years, she was held jointly liable.
She claims she had no idea about the debt, speculating that the paperwork had never found her when she moved. However, Washington notes that the judgment was issued a year before she remarried. Had this couple swapped credit reports, they both would have found out about the debt before it caused economic and psychological harm to their marriage.
Credit reports can also flag other worrisome items: joint credit cards with an ex-spouse that were never closed, bankruptcies or credit scars that the new spouse may have failed to mention and the amount of debt each person has outstanding.
Check on aid. If either of you has college-age kids who are hoping to finance a portion of their tuition with student aid, you should know that remarriage of the "custodial" spouse could have a dramatic impact on how much that child could receive. That's because the new spouses' income must be included on financial aid forms.
If the new spouse doesn't work, the children might qualify for comparatively more aid. But if he or she is employed, they'd likely get less or nothing at all. The College Board offers an "expected family contribution" worksheet online that can help calculate the impact.
Share support stories. Not only should prospective partners share the economic support they're required to provide their exes, they should also explain how they would handle those obligations in a pinch. Jackie (who like many of the real people mentioned here asked that her full name not be used) says she wishes she knew just how committed her new husband was to making those payments. Why? He insisted on continuing them even after he got sick and lost his job. Normally a job loss would be cause to adjust (or terminate) support payments. But he wouldn't hear of it, and Jackie was left paying thousands of dollars to her new husband's ex.
Own up to obligations. Some divorce settlements also make one spouse obligated to pay a child's college bills, notes Allen. Since these bills can total hundreds of thousands of dollars -- but wouldn't show up on credit reports -- that's a hidden obligation that needs to be disclosed.
Review the estate plan. Bernice's story is a common one, says Sun Trust Bank's Humphrey. In reality, if you both have homes, you have a choice to make: Do you move into one or sell both and buy another together?
Each decision comes with a series of repercussions, from triggering current income tax to raising questions about estate planning. The income tax issues are obvious, but the estate planning concerns are not. Bernice, for example, says she and Tom didn't think they needed to revise their estate plans because both felt strongly about leaving their assets to their own offspring.
In retrospect, she wishes they had added some codicil to their documents to give the surviving spouse the ability to stay in the home, at least for a year or two. Likewise, she would have wanted Tom to have access to the income earned on her savings (from selling her house) to maintain his lifestyle if she died before him because her pension and Social Security paid a lot of their living expenses.
That's the sort of thing that many couples overlook, Humphrey says. If you have an estate plan, be sure to review and modify it to reflect the joint obligations you take on with marriage.
Consider a prenup. Prenuptial agreements are a great tool because they demand disclosure of all assets and liabilities, says Allen. They also force couples to talk through sticky economic issues that might otherwise fail to surface for years. Some couples balk at these agreements because they seem unromantic -- and they can reveal whether a couple is economically compatible. But wouldn't you rather know that before the wedding?
Get help. Even if you decide to go forward without a formal prenuptial agreement, Humphrey strongly suggests getting a professional review of your finances before the wedding. There are simply so many possible economic shoals with second marriages that she thinks it's worth hiring someone with experience at least walk you through the questions.
The two main financial planning organizations - the Financial Planning Association and the National Association of Personal Financial Advisors -- offer referrals to local planners on their websites. But be sure to interview anyone you hire and ask how much experience they have with second-marriage issues.
