By Karin Mizgala, Co-Founder and CEO Money Coaches Canada
Almost thirty-five per cent of married Canadians are married for the second or even third time. And while it would be nice to believe that the experience of divorce improves chances for a subsequent marriage, statistics don’t bear that out. Financial issues—the cause of many a marital breakdown—may have something to do with that.
The good news; with joint planning and consistent communication, you can address the array of new money concerns that come with a second marriage; and avoid the financial resentments, anger and misunderstandings that can undermine any couple’s relationship.
Here are 5 areas to consider:
1. Combining Household Assets
While certainly not always true, couples in first marriages tend to be starting out; building careers and just beginning to invest. They often haven’t purchased a home or, had children. In general they are on similar financial footing.
In second marriages, especially if it’s the second marriage for both partners, there may be significant financial differences. If there is an imbalance of money, there can be an imbalance of power within a relationship. Yet, the financial stress that may have tainted the first marriage, and caused even more anguish during the divorce, can make money the last thing either new partner wants to talk about.
But a conversation, especially with a third party advisor, can clarify issues and get your new marriage off to an honest, open and respectful start. Putting a pre-nup or domestic contract in place can mitigate stress by ensuring both of you feel financially protected. This can be particularly important if either one of you is bringing in significant debt or substantial assets.
2. Planning for the Future
While having a plan for what you bring into the marriage is essential, it’s equally important to have a vision of what you will build together. Mutual goals will create strong motivation for being clear and organized financially. Our Money Coaches Canada Goals Worksheet may be useful to you.
There will likely be challenges. Your partner’s financial behaviors or attitudes could trigger negative emotions from your first marriage. But it’s important not to paint a new situation with an old brush; for example, if your ex couldn’t be trusted to pay bills on time, don’t micro-manage your new spouse because you assume he or she will behave the same way.
It’s important to be respectful of each other’s “baggage” and point of view. The older we get the more entrenched we become in our ways of thinking and reacting (both good and bad!).
Along with your couple goals, you may each have individual goals that need to be discussed and planned for. If you have children from a previous relationship, you may personally take charge of planning for their higher education (perhaps in conjunction with your former spouse).
3. Managing Cash flow
It’s the day-to-day interactions with money that usually creates the most financial stress in a relationship. You are more likely to argue about your partner’s shopping habits than their investment strategy. This can be heightened if one partner is a spender and one is a saver. If you are both spenders, rising debt may leave you anxious and arguing.
In second marriages, cash flow gets more complicated if there is child or spousal support payments tied to the first marriage. If there are children from the first marriage living within the new marriage full time or in shared custody; that will also affect living expenses and discretionary spending. If both partners have children living under the new roof, even if only part time, differing parenting styles around money can create a lot of tension between the couple and between the children. Maybe one parent believes a single extracurricular activity per season is enough and the other likes to let the kids explore multiple interests. It isn’t as simple as each doing it your own way at your own expense. Two sets of rules in one house won’t lead to family harmony in an already delicate new balance.
Even if the “kids” you bring into the new relationship are young adults and not under your roof, you have years of relating to them financially that may create stress in your new marriage. Maybe you like to treat them to dinner, or have always been a soft touch when they were short on cash but your new partner believes adults should be adults and handouts are inappropriate.
A Money Coach can help you create a spending and savings plan that keeps you on the same page for your couple goals and, as a neutral party, can help you get in sync in dealing with the kids (young or old). Hash it out, be honest, and find common ground before you have to deal with bigger problems and resentments later.
Part of the equation will be deciding if you’ll manage your money separately, each contributing to a joint account for common expenses like food, housing, utilities, and vacations (sometimes evenly, sometimes proportionately to income), or if you are going to combine your incomes and share all expenses. There is no right answer for everyone. The key is to have a clear system that feels fair to both parties.
I’ve had 2nd marriage clients happily married for over 20 years who split all expenses down the middle—even to the point of writing separate cheques for my financial planning fees.
4. Retirement – Run the Numbers
A new marriage likely comes with a new vision for retirement.
What does retirement with your new partner look like? Where will you retire? What will it cost? Are you both on track to retire at the same time? If not, how long is the time gap between your dates? How does this affect your investment strategy? Did your previous divorce settlement entitle your ex-spouse to any of your pension benefits or retirement savings? How will you adjust for that?
It can be useful for each partner to run the numbers with their retirement assets and income, and then to run the numbers as a couple as well. If you find that there is a gap, how will you work together to address it? A Money Coach can help you open up the dialogue, clarify your retirement vision and create a savings and investing plan to reach your goals. Planning creates space for conversations, clarity and building trust.
5. Estate Planning and Insurance
It’s vital for every couple to consider their insurance needs and plan for the division of their estate, but couples in second marriages often have more financial responsibilities to consider.
Run through the “what ifs” of death, disability and serious illness. What would the financial impact be? If you are unsure, speak with a financial planner or insurance specialist.
Revisit your wills, and get a new updated one, especially if you are living with your new partner and not legally married. Only marriage nullifies previous wills, divorce does not.
Planning the division of your estate can be complicated when it comes to second marriages, especially if you have children from your first marriage.
Here is just one example. It is not uncommon that spouses leave their estates to each other, and then specify a further division among the children after the second spouse’s death. The division can be written into each partner’s will. But if, after your death, your spouse had a falling out with your children (a not impossible scenario if they feel their future inheritance is being mishandled), your spouse could write them out of the will and your children would inherit nothing.
One way to avoid such a scenario would be to set up a spousal trust instead of bequeathing the estate to your spouse directly. That would ensure that your estate provided for your spouse while he/she was living, but whatever remained after his/her death would be distributed according to the instructions you set out in the trust.
Another, less complicated way to provide a legacy for your children, is to purchase life insurance and name them as the beneficiaries. For peace-of-mind it can be worth speaking with an estate planning professional to consider all the angles and interests.
Your Life, Relationships, and Finances are Ever Evolving
You’re older and wiser and know yourself better, but in a second marriage there is more at stake—emotionally and financially—if you aren’t prepared. Make a plan and keep the conversation going. It’s important to adjust your plan to the ever evolving nature of your life and relationship.
Don’t hesitate to hire professionals. You’re busy, and there are a lot of complex moving parts to consider. You owe it to yourself, your family (past and present) to make the best decisions for all concerned.
