When it comes to finances and estate planning, few situations present more difficult challenges than second marriages. Yet with the high rate of divorce in the United States, second marriages are becoming more common. David Liu, CEO and co-founder of wedding-services provider The Knot
The obstacles that these couples must overcome differ greatly, depending on their personal situations. If neither spouse has children from a previous marriage and there are no large alimony obligations to a former spouse, it's often easier for the couple to treat their new marriage as a fresh start, without any prior financial commitments. However, for new marriages involving stepchildren, the financial issues can be extremely complex, requiring a great deal of effort to resolve in a manner that works for everyone.
Families with adult children
At first glance, you might think that older couples with grown children would have it easier than their younger counterparts. After all, with all the kids out of the nest and on their own, parents' level of financial responsibility for adult children is usually greatly reduced. In addition, older couples can expect their adult children to fully understand financial matters, and can therefore communicate more easily about their decisions with them than with younger children. In a perfect world, adult children might simply be happy for their parents, embracing a stepparent as a new member of the family.
In reality, however, second marriages involving older parents often involve the most conflict. Because older parents have had more time to accumulate assets over the course of their careers, second marriages often put a great deal of money at stake. For good or ill, some adult children treat their prospective inheritance from their parent as a birthright and look skeptically at the impact that a second spouse will have on the family fortune. Especially in situations in which one spouse has much more money than the other, it can be extremely difficult to figure out a fair way of handling money, let alone implement a strategy that will deal with each spouse's finances appropriately.
Building the plan
Nevertheless, the success of a second marriage will rely in part on the ability of the spouses to come up with a plan that works for both of them. If you're in this situation, it's most important for you and your spouse to figure out your financial priorities, both as a couple and individually. It's not uncommon in any marriage for spouses to have different ideas about how to spend or save money, and those who've been married before likely already have strong opinions, based on previous experiences, about which money strategies work best for them.
When working up a financial plan involving a second marriage and adult children from a previous marriage, it's most difficult to help the couple figure out how to balance their mutual needs with the needs of their families. In some families, the adult children are all well-established and on their own, requiring little additional financial assistance from their parent, and therefore taking a great deal of pressure off the newlyweds. However, for those families in which one or more adult children are still heavily dependent on their parent for financial support, it's a lot harder to figure out how to meet the needs of both the children and the newly married parent.
Often, the best compromise in a tough situation is to draft a financial plan that gives something to everyone. In some cases, keeping your money separate from your spouse's money may be a way for both of you to meet your commitment to your respective children, since the children can take comfort from the idea that the new spouse won't spend all of their parent's money. However, while such arrangements often work well when both spouses have substantial assets, they don't always work as well in situations involving large differences in net worth. Furthermore, it's often unreasonable to expect spouses to contribute equally to financial obligations while both are still living. For example, if one spouse has significant health problems, the need to pay medical bills may require the other spouse to handle an unequal share of other living expenses. While you can do your best to treat your children well, you should also expect them to respect your love for your spouse, and to honor your commitment to ensure your spouse's well-being.
As for specific strategies to consider, if you have enough money both to ensure that your spouse will have sufficient care after your death and to leave something to your children right away, then a combination of outright bequests, a marital trust for your spouse, and a bypass trust for your kids can often provide everyone with something. However, if your resources are more limited, you may not be able to make everyone happy. In such cases, good communication among the family members can be extremely helpful. In any event, it's vitally important that you make your wishes clear and have the legal documentation to back it up, including a well-drafted will or trust and correct beneficiary designations for your life-insurance policies and retirement accounts.
For those with adult children in a second marriage, figuring out a workable financial plan can take a lot of effort. Parents of younger children face different but equally difficult tasks in successfully bringing their financial lives together. The second part of this article discusses the particular obstacles that parents of younger children face.
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As the son of a divorced and remarried father, Fool contributor Dan Caplinger has experienced the fun and folly of stepparent finances firsthand. He doesn't own shares of The Knot, a Motley Fool Rule Breakers pick. 'Til death do you part with the Fool's disclosure policy.