By Cristin Rigg, CFP®, CFDA™
Congratulations! You are getting married again. There are probably other things on your mind, but let’s talk finances for a moment. Building the financial cornerstone of your marriage should begin well before you walk down the aisle for the second time. After all, your life is likely more complex than it was the first time around. Here are some concepts and ideas to help you make the right money moves before repeating “I do”.
It’s a common mistake to wait until after the wedding to lay your cards on the table (financially speaking), which can lead to unnecessary surprises and discord later down the line. As a couple, tackle the financial discussion early and talk openly about one another’s assets, debts and financial goals. Discuss any factor that could potentially impact your new life together including past experiences that trigger fears about finances.
Set the stage for a judgment-free zone, where you both feel comfortable asking questions and sharing all the nitty-gritty details. If it’s easier to let the paperwork do the talking, you might decide to exchange financial documents, like bank records, investment statements and tax returns and follow it up with a candid conversation. Do whatever it takes to be as transparent as possible and don’t hesitate to ask your team of financial, tax and estate advisors to provide clarification.
Marriage is all about teamwork and the financial side of it is no exception. Building trust in this area can strengthen your relationship overall. Start by discovering how you can work as a financial team:
• How do your fiancé’s financial preferences and investment style compare to yours?
• Is he or she more of a spender or saver?
• More risk-seeking or risk-averse in investing?
Pinpoint the differences and similarities between the two of you, and after establishing a baseline for your individual styles, move on to discussing how you’ll manage your finances together.
A standard method is the “yours, mine and ours” bucket approach. The basic idea is to keep finances between spouses predominately separate while setting aside a pool of money to take care of household expenses or future goals. With this approach, it’s important to keep assets and debts within each bucket separately. A common mistake is to use existing assets held before the marriage to pay for joint expenses or build pooled assets, rather than using income earned after marriage to fund the “ours” bucket.
If you’re taking the joint approach right out of the gate, it’s a good practice to establish spending and saving priorities along with a clear definition of the “ours” bucket to better set expectations.
You’re embarking on a big change and transitioning into a new phase of your life with a new life partner. As with any critical turning point, it’s important to stop and consider how the change will affect your vision for the future and long-term goals. Sit down with your fiancé and discuss your dreams and goals. Are you planning to relocate? Do you want to start your own business? Will you retire at the same time? Once you have a joint understanding of your ideal future together, you can adjust existing plans or build a new joint plan to achieve it.
A prenuptial agreement is something we ask our clients to consider before marriage, but of course, it depends on your personal viewpoints and situation. On a basic level, a prenuptial agreement is a formal statement of your property, business ventures (if applicable) and the associated financial rights for you and your heirs. It articulates how to handle your assets if the marriage ends or if you pass away.
There are many pros and cons to a prenuptial agreement, which are definitely worth weighing and a financial advisor and attorney can be great resources for working through the pros and cons of this decision. Even if you’re not going to pursue a prenup, there are simple steps you can take to protect your assets; the most important of which is creating a solid financial inventory and set of records that show the nature and value of your property before the marriage.
We hope you found these tips helpful. Getting money matters like these settled before remarrying can make all the difference in your success and journey ahead. Reach out to us if you’d like help putting some of these elements into practice or want more ideas on how to prepare financially for your second marriage.