Many clients that I work with in my Little Neck office are near or in retirement, and for many this is not their first marriage. How do you handle your budget, investments and estate plans with a second spouse? Sometimes this can be a very touchy subject and it may be helpful at times to get a third persons opinion.
Before youre married, you need to decide how to merge your finances. If you both have similar views on financial matters, that may not be too difficult. However, those with widely different views may find it harder to perform this task.
Even if youve known each other for a long time, you might not know much about each others finances. Explore those issues now so that youre not surprised in the future. Find out things like: How much does each of you save every month? What is your total savings? How much debt is each bringing to the marriage? Do you pay the minimum amount on credit card debt or the entire balance every month? Has either of you ever filed bankruptcy? How is your credit rating?
One issue is the familys budget. Does your new spouse spend all of his or her income? Do they give money every month to an adult child or help support a parent? Tracking both of your expenses for a month or so will give you an idea of where you are spending your income, a good starting place for deciding how to spend money in the future.
Married couples handle the monthly budget differently. If your new spouse was previously married to someone for say 40 years, then they are used to handling the budget and monthly bills a certain way. You may do things entirely differently. Most couples I work with have always pooled their monthly income and paid their bills from a joint checking account. Everything is split evenly. Many other couples maintain separate checking accounts and each pays certain designated monthly bills.
While there is no right way of paying the monthly expenses, you need to discuss these issues to avoid problems down the road. Establishing a budget for the next year will force you to make decisions on how to spend your income, which will likely result in compromises on both your parts. While that might seem like a painful process, addressing these issues now can help prevent future misunderstandings.
You should decide who will handle financial tasks, such as paying bills, preparing tax returns, making investment decisions, etc. One person may be more suited for these tasks due to their background or time availability. However, the other spouse should not give up total control.
Investments and savings can be a bit trickier when both parties have a lifetime worth of assets when getting remarried. You must think through how you want your assets managed. You might have entirely different tolerances to risk taking and should therefore have different investment strategies.
Most importantly you need to discuss how your assets will be handled upon your passing. This can get very emotional especially if one spouse has children from a previous marriage and the other doesnt. Usually, through a combination of special trusts and possibly life insurance, you should be able to come up with an estate plan that everyone is comfortable with. This should be done in conjunction with your financial planner and a good estate-planning attorney.
While merging your money in retirement can be a very emotional and stressful process, working with objective outside professionals can help ensure a good strategy that is fair to all parties. Once everything is set up and there is a good understanding on how you will each handle your money, you can get on with enjoying the rest of the time you have together.
Raymond D. Mignone is a fee-only Certified Financial Planner & President of Ray Mignone & Co. Inc. specializing in retirement planning and investment management; he can be reached in Little Neck at 718-229-2514 or visit www.raymignone.com.
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