Financial Considerations for Remarriages Whether this is the first marriage for one of you or both of you are veteran marrieds, it’s likely that each of you is entering your new partnership with assets much greater in value than toasters and vacuums.

Many couples create pre-nuptial agreements (PNA) to legally sort out the issues listed below. Yes, I know a PNA is not romantic. But if you have significantly more assets than your new spouse, if you have children, or if you own or expect to inherit a business, a PNA makes eminent sense. It’s the best way to ensure that what you bring to the marriage is passed on according to your wishes in the event of your death or a divorce.

When it comes to another trip down the aisle, it makes sense for both of you to be forthcoming about:

Full disclosure of credit histories and ongoing debt. Be open about credit card debt. Disclose credit judgments or bankruptcies. Be honest about what you owe on mortgages or for parental care or medical bills. Sometimes, marriage can make you a co-debtor.

Extent of total assets. Itemize real estate, homes, incomes, pensions, savings, cars, collectibles, business interests, investment portfolios, life insurance policies, and so forth. If you live in a community property state, you may want to title specific assets in your name or jointly with your child, not with your new spouse. Your attorney can advise you on the best path here.

Financial support of the marriage. Determine whether you will both keep separate bank accounts or create joint accounts. One compromise is that each of you contributes to a joint account for the new marriage’s expenses and retains a separate account for individual discretionary or obligatory expenses.

Obligations from previous unions. Discuss your alimony or child support payments and when they end. Do you have preexisting business debts that you incurred with a former spouse? Are either of you required to provide insurance coverage for an ex-spouse? Does a previous spouse have legal claim to your employer-sponsored retirement plan savings?

On the other hand, if you receive assets from a former spouse, will remarrying stop the receipt of a particular inheritance or discontinue financial consideration? Often, if a woman remarries, she loses alimony or social security benefits from a previous husband.

Property issues. When uniting two households, decide whose house becomes the marital home and what should be done about the other. Figure out who will own or live in the house if the owner dies, if the marriage ends, or if a widowed spouse remarries. Decide whether or not the non-owner spouse should be put on the deed or compensated for contributing to the mortgage or home improvements.

If you want to leave the house to children, remove the home from consideration as a joint marital asset. This is often done via a PNA or a trust. But beware that, despite the best preventative measures, you still risk losing the home—all it takes is a judge or an aggressive divorce attorney.

Supporting children. Second marriages often involve blended families or the creation of a new family. You both should establish how much financial support each child will receive—and here I mean for nonobligatory expenses not mandated by a court. Decide whether the child’s biological parent will be responsible for this support, whether it will be a joint expense, or whether it will come from the proceeds of past marriages and/or from future marital assets.

You should also be aware that federal financial aid forms require that a stepparent’s income be listed. Even if the stepparent has no legal obligation to contribute to the child’s education, his or her income will likely affect the amount of financial aid the child receives from the government.

Letting your children know upfront that you’ve made provisions to protect their inheritance may also make them more supportive of your new union, especially if it has created a stepfamily or half-siblings. Similarly, specifically naming your stepchildren in your will as beneficiaries—if you wish to leave them assets—is essential. They may not automatically inherit from your estate.

As the children grow up and build lives and families of their own, this conversation may have to continue. The topic may be especially sensitive if you have significantly more assets than your spouse. The importance of clear communication with your spouse and all of the children cannot be overstated.

Estate planning. Remarriage is an excellent opportunity to review your will and the beneficiaries of your assets. Many former spouses have inherited life insurance policies that were not part of a divorce settlement!

The laws in some states may entitle your spouse to a portion of your estate, even if your will or trust deems otherwise. If keeping assets “in the family” is mandatory, work with your financial advisor and/or attorney to establish trusts that preserve assets in the way in which you intend. Many people who want both to support a spouse and to pass wealth on to the next generation (instead of to a subsequent spouse) consider Qualified Terminal Interest Property (QTIP) trusts. QTIPs allow for flexibility in treating beneficiaries, preserve assets for children of previous marriages, and generate tax savings and estate tax deferrals.

Seek professional guidance, if needed. While your marriage is your commitment to support and rely on each other above everyone else, seeking professional financial help neither undermines this bond nor pre-destines it to failure. If certain issues seem contentious, you and your future spouse may benefit from engaging an outside professional to help navigate them.


This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors may wish to consult a professional tax advisor or a lawyer.

IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Labels: marriage, PNA, post nuptial agreements

  8:43 AM •  0 Comments •

The Economics of Happiness Society and the media lead us to believe that having lots of money and material things is the ticket to happiness. Recent research suggests otherwise. Let’s look at money as an example.

Since Elvis made his first appearance on the Ed Sullivan show in 1956, the average American’s disposable income (in 2000 dollars) has tripled from $9,431 to $27,792, according to data from the Bureau of Economic Analysis. However, as reported in the book “Happiness” by Richard Layard, our level of happiness hasn’t increased at all during that time.

Money does factor into the happiness equation but only to a certain degree. Studies have shown that if we go from making $20,000 per year to $50,000 per year, our happiness will just about double, according to Harvard professor Dan Gilbert. However, going from $50,000 to $90,000 will only yield a slight increase.

Quiz time. Which would you prefer; getting paid $50,000 per year while other people get paid $25,000 or getting paid $100,000 per year while others get paid $250,000? According to one survey, more people preferred the first option.

Happiness from money is relative. As long as we make more than our “comparison” group, money makes us happy. It turns out happiness is partially based on “staying ahead of the Joneses.”

Even our young people are money focused. The latest UCLA annual survey of college freshmen indicated that nearly 75% of them said it was essential or very important to be “very well-off financially.” That’s up from 42 percent in 1966, the study’s first year.

Don’t get me wrong. Money per se is not bad. It’s what we do with it that counts.

It’s a similar story with material goods. Just as a shiny new coin dulls with use, so does our happiness with the goods and services increased wealth can buy. Over time, we become used to our new standard of living and our happiness level flat lines. Continually buying bigger and better things may just lead to what researchers call the “hedonistic treadmill.”

Okay, so if becoming a millionaire is not the passport to happiness, what is? According to various studies, here are seven keys that can make us happier.

First, build strong family relationships. We need the closeness and love of a family. By contrast, (not surprisingly) divorce and separation are two situations that can cause the largest drop in personal happiness.

Second, secure an adequate financial situation. As described above, a certain level of income is necessary for a base level of happiness.

Third, find rewarding and meaningful work. A job pays the bills but finding work that makes us feel like we are contributing to society and helping others is also very important.

Fourth, cultivate friends and a local community. Research from the University of Chicago's National Opinion Research Center indicates that people with five or more close friends are 50 percent more likely to describe themselves as "very happy" compared to people with fewer friends.

Fifth, focus on health. We tend to ignore our health—until we don’t have it. By proactively trying to stay in shape, we can feel better, live longer and be happier.

Sixth, find the “zone.” Whether it’s work or leisure, happiness ensues from being “in the zone;” that state where we are totally engaged in an activity and absorbed in the moment.

Seventh, be grateful. It’s easy to lament what we don’t have but it’s better to focus on appreciating what we do have.

Yes, life can be difficult and unfair; however, by consciously focusing on the seven items above, we can improve our odds of living the good life and experiencing happiness.

Labels: Happiness, Health, Money

  3:05 PM •  0 Comments •