Divorce at any age can cause a tremendous amount of stress, both psychological and financial. But when a baby boomer ends a marriage late in life, it can make preparing for retirement especially challenging. The situation gets even more complicated when one or both members of the former couple remarry.
That’s one reason financial advisors and attorneys urge you to take precautions. They include financial counseling, prenuptial and postnuptial agreements and financial transparency between the partners. These negotiations are particularly important when marrying for the second or third time. Here’s how to prepare your finances for a new marriage as you approach retirement:
Sit down with your spouse (or future spouse) and talk about finances. “Look at all your finances before you enter into the love game,” says Mischelle Copeland, a financial advisor with Wells Fargo Advisors in Fort Worth, Texas. “One of you might have more to bring to the table, especially if you’ve been through a divorce.” Start with a simple discussion about your assets and liabilities. Couples also need to discuss their financial goals and philosophy and share information about financial challenges, as uncomfortable as it might be for some people. “Do we have separate accounts, or do we co-mingle? Do we get a new home, or do I keep the home I have, and you keep the home you have?” Copeland asks. “If only one partner has a house, how does the other person feel about living in someone else’s home?” There are a lot of personal and financial decisions that need to be discussed before the wedding party.
If you are already married, it’s still worth having a discussion. “Couples are reluctant [to share financials] because it may taint the atmosphere,” Copeland says. “We see a lot of postnups because of that.”
Make sure your estate plan is up to date. You need to be extra cautious if you have children from a previous marriage. “You want things to work out with your current spouse and also make sure your kids are not disinherited,” says Brian Singer, president and CEO of Singer Financial Group in Brownsburg, Indiana.
Clearly spell out the assets you plan to allocate to your children or other heirs. “We want to make sure the beneficiary on accounts are set up and trusts are set up that says who gets what and why,” says Kirk Cassidy, president of Senior Planning Advisors and Strategic Investment Advisors in Farmington Hills, Michigan. “There are ways they can be fair to the new spouse and preserve assets for the heirs.” An estate planner, financial advisor or other professional can help you set up documentation to get assets to the correct recipients.
Update your will. Your will and beneficiary designations need to be updated for many major life events, including the birth of a child, death of a family member, marriage, divorce and remarriage. “You need to update your will every so often,” Copeland says. “As you become more confident that the marriage will stand over time, the conversation changes. It’s not as emotional as it was when you first got married.” As you age, it becomes more important to have a plan for the possibility of one spouse passing away before the other and to set up documentation for potential health care decisions.
Consider a prenup or a postnup. Prenuptial agreements can protect both spouses, but especially the one with more assets. But talking about setting up a prenup or postnup is often an uncomfortable discussion. “Anybody getting married who has any assets to protect should have a prenup,” says Marc H. Wander, an estate attorney in Bloomfield Hills, Michigan. “Meet with separate attorneys regarding a prenuptial agreement.” This document should spell out what happens to the properties owned by each spouse and any retirement accounts they are each bringing to the marriage. It’s equally important to address any significant debt each partner has acquired. “If they are not going to do a prenup, that is a recipe for disaster,” Wander says. “If they get married and find out that one spouse is living over his head and there is not only credit card debt, but tax issues, and they co-mingle accounts, then the IRS and the creditors will come after you.”
Prenuptial agreements can help prevent conflicts between children and the new spouse in the event that a parent passes away. The rules for prenups and postnups vary by state, and you should be especially careful when setting up postnups. “The requirements can be a little different than a prenup,” Wander says. “Be careful setting up a postnup to follow the state laws to make sure it is enforceable.”
Review all your documentation. If you are entering your second or third marriage, you may need to make significant changes to your estate plan, beneficiary designations and even your emergency contacts. Make sure that all the documents you leave behind clearly spell out your wishes. “Take the time to do proper estate planning, because a prenup may say one thing and the estate plan may say something different,” Wander says. “If they don’t realize it, at death there could be a problem if [the estate plan and the prenup] are not consistent in their goals.”