Financial Help for a Second Marriage

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What could be worse than having money problems ruin your marriage? Having money problems ruin your second marriage.

Resolving not to repeat old mistakes may not be enough, as a second marriage can present financial dilemmas the first did not, such as providing a life insurance benefit for the new spouse while still looking after the children from the previous marriage.

“As second marriages become more and more common, beneficiary designations become more complicated,” says ElderLawAnswers, a Web site devoted to legal issues later in life. “If you are remarried, choosing a beneficiary for your life insurance policy may not be simple, especially if you have children from a previous marriage.”

One of the first steps is to re-evaluate any policy you have covering yourself and providing the benefit to your ex-spouse. Your divorce decree may require you to keep it in place, but it may not. It may be possible to simply change the beneficiary to the new spouse, your children or both.

Once you let your imagination roam, disaster scenarios inevitably arise. Suppose you die and your new spouse remarries and then dies? Would a total stranger end up with your estate and ignore your kids? It has happened.

To prevent that kind of disaster, you can set up a trust and name it as your life insurance beneficiary. This can open up options that aren’t available in the life insurance policy itself.

You could, for example, allow the new spouse to draw income from the trust while allowing your children to inherit whatever is left after your spouse dies.

The best time to start considering your options is before you tie the knot, ElderLawAnswers says. You and your partner should share inventories of all financial assets and obligations. Decide what assets will be jointly owned and which will be in each spouse’s individual possession. If you move into a home one of you brings into the marriage, will both of you own it or just one of you?

It may be best to keep finances separate if one spouse brings a lot of debt or a poor credit rating into the marriage.

Before getting married, consider a prenuptial agreement, which is a legal contract describing your financial arrangements. For many people, prenups carry a stigma, suggesting mistrust, greed or a lack of commitment. But a prenup can be a valuable tool, especially in protecting children.

If you divorce, a prenup can make it clear, for example, that each spouse leaves with the assets he or she brought to the marriage, while assets accumulated during the marriage can be divided according to a formula that was set up earlier. (If you’ve already remarried it’s not too late — draw up a post-nup).

In addition to changing beneficiaries on life insurance policies, look at your pension and retirement accounts, like 401(k)s and IRAs. If your divorce decree allows it, you may want those accounts to go to the new spouse and children rather than the ex-spouse. These accounts typically provide for a secondary beneficiary, someone to inherit it if the primary beneficiary dies.

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