Ask Stacy: How to handle money in a second marriage
A reader wants to know how to merge money in a second marriage. That reader came to the right place.
This post comes from Stacy Johnson at partner site Money Talks News.
Here's this week’s reader question:
You seem to always find answers to many of life's matters, so I'm going to see if you can give me advice about a second marriage. How should a couple handle moving into a home owned by either one of the partners and doing finances together? How should the new couple handle putting a life together for themselves? Thanks. -- JG
As it happens, JG, you came to the right place. Not because I've studied this topic; I'm living it.
I'm about to celebrate the second anniversary of my second marriage. (Technically, it's my third, but the first was so short I don't count that one.)
Is there a prenup?
These are absurd statements.
A prenuptial agreement is a legal document whose purpose is to divide assets in the event of divorce. Calling them a "sign of incredible trust" is oxymoronic. They're also expensive, typically costing several thousand dollars, so it's silly to suggest even couples with no money should pay for one.
That being said, there are at least two instances when you do need to consider a prenup. One is when one partner comes into a marriage with a great deal more money than the other. Another is a second marriage, especially if there are children from a previous marriage.
Whether there's a prenup is an important question, because it sets the stage for how you'll lay your financial foundation. For example, JG asks, "How should a couple handle moving into a home owned by either one of the partners?"
Before Sara and I married, we got a prenup. I bought the house we live in long before we met, so the prenup designates it as my separate property. Since that's the case, I pay the mortgage and most of the costs associated with maintaining and upgrading it. That's only fair.
If we needed both incomes to pay housing expenses, however, it would be fair for Sara to build equity in proportion to her contribution.
In short, if you have a prenup, use it as a financial road map to help determine who's responsible for what. If you don't, simply sit down and discuss what's reasonable. Come to an agreement, then, if possible, make it legal. (You can do a prenup after marriage. It's called a postnup.) If not, at least write it down so you're both clear.
As Sara and I were putting together our prenup, I was also putting together a new will. This is something super-important, especially in second marriages.
Why did I need a new will? First, my old one still had my former wife inheriting the bulk of my estate, something I'd let slip. In addition, I needed to make sure in the event of my death my property would go where I wanted. In my case, that was primarily to my new spouse, but in many second marriages that's not the case.
For example, say you inherited your mother's silver, which she inherited from her mother. Upon your death, you want that silver to go your daughter. Now you enter into a second marriage. Three weeks later, you die without a will. As your spouse, your new husband automatically inherits the silver. While he's free to give it to your daughter, he's also free to take it to the pawn shop and go play the ponies.
If you don't care what happens to your money or stuff in the event of divorce or death, you don't need a prenup or a will. The more you care, the more you need to have your wishes reflected in a legal document.
While prenups are expensive, wills aren't. Everyone should have one, whether they're on their first marriage or their eighth.
There's a lot of opinion out there about how couples, married or otherwise, should conduct their finances. Some say if you share a bed, you should share a checking account. Others say keeping your money separate keeps you together. Then there are those espousing a hybrid approach, with some accounts commingled and others separate.
Which is best? You tell me.
In my case, Sara and I have no commingled accounts. We have our own checking accounts, credit cards and savings accounts. Her car is in her name, mine is in my name. When she wants to buy something, she does, and I do likewise.
We don't use this system because we're fiercely independent, nor do we believe it's the secret to marital bliss. We do it because that's how we did it before we got married and haven't had any incentive to change.
As for bills, when it comes to the mortgage, as I explained earlier, I pay that, along with the car and home insurance, property taxes, water and electric. She pays for cable, our cellphones and food. When we go out or on vacation, sometimes she'll pay, sometimes I will. Since I make more money, I tend to pick up more expenses. But since she makes good money and has good manners, she never hesitates to offer.
This works for us, but may be completely wrong for you. If both your incomes are required to meet your monthly obligations, it would certainly make sense to have a common account to pay them, perhaps with contributions being made in relation to your incomes. If there's only one income, both spouses need access to family funds. And no matter what, I believe both should have at least some of their own money to do with as they please.
So how do you decide what will work best for you? That brings us to the final, and most important, point.
The simple answer to all marital questions
While it may sound like our approach to money is cavalier, Sara and I discuss money a lot. When we first started living together, we talked about how to split the expenses. We still review our bills, our savings, our income and our goals. We talk about when to retire and how much we'll need. We've discussed whether we should try living off my income and saving hers, opening a joint savings account, buying a house, and just about anything else you can imagine.
You name it, we talk about it. That started when we met and hasn't slowed.
The way to decide what's best for your money and your marriage may not be easy, but it is simple: communication, and lots of it. Forget what the so-called "experts" recommend. Simply be open, honest, truthful, flexible and available. The path to painlessly merging your money will become clear.
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