May 7, 2020

Remarriage Financial Checklist

Saying I do, again? Don’t make unintended money mistakes

Couples considering remarriage bring with them plenty of assets and obligations. Kids. A home, and/or vacation home. A few retirement accounts, perhaps. Credit card debt. 

The more you have — kids, assets, debts — the more each of you should want to carefully understand and plan around financial and intergenerational issues. This is especially true for remarrying Baby Boomers. Research from the Pew Center a few years ago found that two in three people between the ages of 55 and 64 who had been married, remarried. And half of people at least 65 years old had remarried.

Consulting with a lawyer who specializes in family law is going to be a worthwhile investment, to help you understand all the moving pieces and create the documents that will avoid any costly (financial and emotional) heartache.

Some issues to consider:

Are you the legal custodian of a future college student? If you plan on applying for financial aid, remarriage will impact that. The Free Application for Federal Student Aid (FAFSA) is the universal document all schools require to be eligible for aid. The FAFSA includes the income of a spouse from a remarriage. Even if you spell out in a prenuptial agreement that the new spouse has no financial obligation to a child, the spouse’s income will still be counted by FAFSA.

Expecting to collect Social Security retirement based on a former spouse’s work record? Spouses are allowed to collect one benefit, based either on their own earnings record, or based on the record of a spouse. If you were married for at least 10 years before divorcing, you are entitled to an eventual retirement benefit based on your ex’s earnings record. You lose that right when you remarry. This is a time to revisit your retirement plan.

If you are a widow or widower and remarry before age 60, you lose your right to an eventual survivor’s benefit when you become eligible for Social Security. Wait until 60 to remarry and you retain your right to claim a benefit based on a prior marriage.  

Intend to leave retirement account assets to your grown children? Federal law mandates that if you are married, your spouse inherits your 401(k) assets, even if you have named other beneficiaries on the account, such as grown children from a prior marriage. 

If you want to leave 401(k) assets to someone other than a spouse, you will need your spouse to formally consent in writing that he/she waives his/her right to the money, and you can assign a “non-spousal” beneficiary. Your plan should provide the paperwork for you. 

With individual retirement accounts, the beneficiary on record gets the money. A new spouse does not automatically become the beneficiary. If an ex, or someone else, is listed as the beneficiary, they are going to receive the money.  (If you live in a community property state, a surviving spouse may be entitled to a portion of the account, even if not explicitly named as the beneficiary.) 

Planning on leaving property to someone other than your new spouse? Whether you are buying a place together, or one of you is moving into the other’s home, remarriage can create a tricky estate-planning scenario: When one of you dies, do you want that person to become the sole owner of the home, or is your intention that your stake in the house be passed along to your heirs (ex: kids from a previous marriage)?

A clear-eyed way to figure this out is for you and your spouse to decide what you want to happen when one of you dies. Is it a priority that the survivor stays in the house as long as he/she wants, but that you each get to specify who the ultimate heirs will be once the home is sold? That is doable, but you need to have the right documents in place.

Let’s say you are going to move into a place together. If your goal is for your stake in a house to eventually be passed to your designated heirs (say your kids or grandkids from a previous marriage), what you want to avoid is taking title as “joint tenancy with right of survivorship.” This set-up means that the surviving spouse takes over the stake of the deceased, effectively disinheriting the children of the deceased. 

A “tenancy in common” set-up can work; you each name the beneficiary for your stake. But that can get messy. If your beneficiary wants to sell after you die, it could leave your spouse in the lurch, needing to move or buy out your beneficiary. 

Setting up a living revocable trust and having the trust “own” the home can make great sense. You can designate in the trust that the surviving spouse can stay in the home as long as he/she wants. But once the home is sold, your share of the sale goes to your named beneficiaries.

If you will be moving into your spouse’s home, you should work through what happens if the “owner” dies first. If the deed is in his/her name only, the surviving spouse does not automatically inherit the asset. If the wife is named as the beneficiary in a will, that can work, but if the husband dies without a will, state probate laws typically mean that the surviving spouse is entitled to only a portion of the asset. 

If ever there was a time to huddle with a lawyer, this is it.

Got an old life insurance policy? If your intention is for a new spouse to be the beneficiary, you need to update your policy. If you are divorced and your ex remains on record as the beneficiary, your ex has legal claim to the money. 

Bringing debts into the marriage? In most instances, any debt taken on before a marriage isn’t the responsibility of the other spouse. If you live in a community property state be aware that once you are married, any debt the other takes on will be the responsibility of both of you, regardless of who is named on the account. For example, you remarry and your spouse has his own credit card, not a joint account. Legally you can be financially responsible for debt run up on that card during the marriage.

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