May 22nd, 2018
Congratulations. A second marriage can be a wonderful new beginning! Whether you are remarrying after a divorce or the death of a spouse, it is important to enter your new union with smart financial planning on your side. From previously named beneficiaries to income taxes, there are many things which must be considered to set you on a healthy financial path.
Let’s start with a thorough review of both of your assets and liabilities. Your assets may include bank accounts, stocks, bonds, a house, car, retirement plans, insurance contracts and other investments. Liabilities may include credit card balances, student loan debt, car loans, mortgages, etc. Knowing the big picture is helpful for both of you to fully understand your new financial situation.
How will your day-to-day bills get paid? Some couples combine their checking accounts while others continue to maintain separate checking accounts while also creating a new joint account into which both parties contribute each month. From this joint account, joint expenses are paid while certain personal expenses can continue to be paid from separate monies. Be aware of the rules in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) where asset ownership is much different. In community property states, the law presumes that assets will be owned jointly.
Who will be responsible for getting the income taxes prepared every year? Who will pay the income tax liability? Is it better to file jointly or married filing separate? Who will manage the investment accounts? How will all of the financial responsibilities get split up? These are just a few of the many details that should be discussed.
Check your Beneficiary Designations
Retirement plans (such as IRAs, 401(k)s, etc.) have named beneficiaries that should be reviewed and potentially updated. In addition, insurance policies and annuities have named beneficiaries. Getting married is the perfect time to review who is currently named and who you wish should be named. Any agreements made during your first marriage could potentially inhibit your ability to update your beneficiaries and should be reviewed as well.
Estate Planning Updates
A will, also known as a last will and testament, is a document that states your final wishes. It outlines how certain property gets distributed to your heirs. It is also where you name guardians for minor children and your executor who will make sure your wishes get carried out. Marriage is a good time to review your will to determine if you should execute a new will, make changes to the existing will, or to reconfirm that no changes are needed.
Blended family dynamics can also come into play when reviewing your estate plan. If either spouse has children from a previous relationship, adjustments to your estate plan may be necessary. Beneficiary designations on life insurance policies, retirement accounts and annuities may also need to be changed. A variety of trusts, such as a Bypass trust, Q-tip (qualified terminable interest property) trust or Spendthrift trust can provide useful ways to transfer wealth to children, while imposing some constraints on the recipients. However, it’s important to remember that dividing your assets between a surviving second spouse, children from that marriage and children from your first marriage(s) can potentially cause friction. A helpful solution to this problem is to give an independent trustee the ability to make adjustments so that everyone is treated fairly and according to your wishes.
In addition to updating the ways in which your assets will be distributed, it’s financially wise to review and possibly amend several critical and powerful documents. Your health care proxy allows you to delegate your health decisions to another in the event you cannot make them yourself. You may have previously designated your first spouse and may want to update this. Your power of attorney is also something to carefully consider. This legal document establishes the right for another person to act on your behalf regarding financial assets, including the potential for making gifts and changing beneficiaries. It’s common to give this power to a family member, however in a blended family that could cause conflicts. Again, appointing an independent party from outside the family could be beneficial, giving them durable rather than general power of attorney.
With thoughtful planning you can meet your family’s fiscal needs and create a strong financial future with your new spouse. We at Frisch Financial Group are here to help you achieve your financial goals. We can review your current assets and help you make any amendments or appropriate updates to your asset titling, asset allocation, beneficiary designations and estate plan.
As fee-only advisors, we will make recommendations to best suit your specific needs and will custom-tailor a plan to enhance your wealth. If you have any questions, please contact us.