Second Helpings: Remarriage and Stepfamilies - Expensive Steps
When you're connected to another person financially, you're at risk!
Adapted for Flying SoloŽ
By Margorie Engel
How To Handle Second Marriages
Adapted for Flying SoloŽ
By Margorie Engel
Experience is meaningless if you don't learn from it. If you were divorced and have learned anything from those days, I hope it is that the last people you want to control what's left of your assets are a judge and a couple of lawyers. About a new spouse, you may not be so sure...
Whether carefully orchestrated or patched together, remarriage brings with it needs for a new family money management system and an estate plan. Splintered loyalties, new responsibilities, and changing needs all force remarried couples to make arrangements that are often the paper equivalents of Rube Goldberg's mechanical contrivances.
Your job is to take into consideration the makeup of this new and complicated family -- the myriad combinations of assets and liabilities along with your goals -- in order to put the pieces together so they match your intent. You're dealing not only with the day-to-day issues but also how property is distributed after death, according to law and prior agreements.
It's not a job for one sitting. And I can guarantee that, at any given time, only one of you is going to be interested in the project. It will be an even touchier issue if this is a first marriage for one of you, or one of you has a lot less cash flow than the other. The job will be much easier to tackle if you organize a system that allows you to work on the project in a piece-meal fashion. Don't mistake busy-work for power or control over the project.
The way I see it, remarried people want:
To know what's going to happen
To know what's expected of them
To share in the planning
To feel that the goals are realistic
To conclude, at any given time, that "This situation makes sense to me"
For purposes of communication, knowledge of the actual (as opposed to the imagined) financial facts will help to diffuse anxieties and find practical solutions to real problems. This means an inventory of your major assets and liabilities.
What do you need to accomplish in this financial reorganization and what are your future financial needs? The numbers you use must relate to something!
The best documentation is accurate. Remember the phrase, "Garbage in - garbage out." So, what's a stepfamily financial picture all about? What'll you do? and How will you do it?
You should set up a system for organizing the information and numbers that will make it easier for you to negotiate your financial arrangements from a position of knowledge and strength.
Before we begin, it's only fair to tell you about the ground rules that I impose upon my clients. This kind of business approach brings alternatives to solving problems.
(1) Family financial management is your job. This is no place for "willful helplessness."
(2) Focus on one thing at a time. Slow and steady is the key to accomplishment.
(3) Do not be deterred from organizing your information. You are responsible for the quality of your work. Phrases from others such as "That's not important..." "Don't worry, I'll take care of that..." "Why are you doing this to me?" are to be heard but not acted
(4) Discover some levity each day. If you don't, the financial stuff will crack you. Sources range from books and cartoons to things people say.
Spend time acquiring good tools.
If you think a few programs, books, and organization supplies are expensive, I can guarantee that you won't be thrilled by the cost of ignorance. Life is a time of perceived or very real financial straits. However, you do have some "extra money." It's the money you'd come up with to pay for repairing the brakes on your car. I submit to you that good information about "stepfamily family finances" is as important to your financial future as good brakes are to your physical future.
Resources and references are everywhere - friends, professionals, co-workers, tv, radio, seminars, and books carefully selected to address your specific needs. The trick, of course, is to separate the "war stories" from the truly useful information for your own situation.
Are you familiar with the word VELLEITY? The dictionary says it's a noun meaning "a mere wish, unaccompanied by an effort to obtain it." Life experiences have always been a matter of luck, timing, attitude, and the effort we're willing to put into paving the way for what we want to happen.
A carelessly planned project takes three times longer to complete than expected; a carefully planned project only takes twice as long. Working on family finances is no time to be without the right equipment.
"Filing by piling" isn't going to resolve questions about financial management. Increasingly, couples find that their scarcest resource is time. You may need to be able to put your hands on that important bit of information right away.
The filing system and format developed for documentation of divorce materials is also appropriate for organizing your finances in a remarriage. You organize information so you can forget the details.
You know there are no guarantees in life. Or, at best, your guarantees about finances are about 3 minutes or 300 yards. However, in uncertain times, there are certain things to look for.
Master File Box
All of your financial information and forms go into a portable file box. Use this as a master filing system. In the beginning, you will each have your own separate file box. A third box will contain joint financial issues. You can label your files follows:
Personal papers Children
Education Credit card list
Household inventory & appraisals Personal banking
Money loaned to others Money borrowed from others
Investments Applications/Financial statement
Titles and deeds Medical insurance
Life Insurance Personal property insurance
Tax returns Employment history/resume
Employer policies/benefits Retirement dollars
Proprietorship/partnership, prof. corp., family owned business
By using an accordian file, you will be able to collect the expense information from which you will be able to develop your family expense management system. You will both need to be aware of the monthly household bills such as those from the telephone and electric companies. You can take turns opening them. Included in the list are additional expenses for more holiday gifts and trips to visit the new extended family members.
Set up this part of the system by labeling the accordion file for paid bills and canceled
checks in the following categories:
Banking Children's expenses
Housing Household maintenance
Household, major purchases Insurances
Loan repayments Medical and dental
Miscellaneous Special expenses
Use a rolodex to record names, addresses, and phone numbers. Designate a different color card for each of the following categories:
Family professionals (business, medical, etc.)
A personal Who's Who
Transfer existing systems to this new format; staple old to new, if it seems easier. This may be a good time to update your information. Why carry organization to such extremes? Because no one knows what's going to happen. Big things look like little things. Little things don't have signs on them that say "I'm going to be a Big Thing!"
The thought of this driving you nuts? It's getting rocky but this is financial management - and that's the deal here.
We have just talked about documenting your financial situation. Now, using this information, its time to make stepfamily financial decisions which is a totally separate process. The first job is to gather the correct data. If you don't know diddly-squat about how to plug those numbers into formulas that relate to financial and legal reality, you can hire an accountant or financial planner to work with you. When you provide organized information, you will have saved yourself a bundle of money and then their services aren't as expensive as you might think.
In addition to the kinds of financial information for which we've already developed a filing system, there are stories specific to your own family situation. If you don't have a true picture of the family finances, you can't make good decisions. So, document them! For instance:
(1) Have you agreed to support aging parents?
(2) Do you need money for a business investment?
(3) Is there an upcoming balloon payment?
(4) Is a lack of maintenance (house, auto, appliances, and even on yourself) showing signs of catching up with you?
(5) Are teenagers beginning college soon?
(6) Are you reaching retirement age?
(7) Does anyone in the family have a potential "time bomb" health problem?
(8) Were any benefits given up in order to marry (job, pension, social security)?
The numbers in your financial documentation are important to communicate information and for making choices.
Equalizing financial discrepancies due to remarriage
Older women, especially, worry about what they'll have to give up when they remarry. Will they sacrifice:
(1) Alimony (if this marriage ends in divorce),
(2) Home ownership (if moving into the new spouse's home),
(3) Tax advantages (Head of Household status or filing as a sole proprietor of a small business),
(4) Career prospects (especially if a woman has been fending for herself successfully for quite a while and her new spouse is nearing retirement age),
(5) Pension benefits (if she quits work to care for children, a spouse's aging parent, or an ill spouse)
(6) Social Security
(7) An adult child's emotional and financial support?
What if one spouse brings in more financial liabilities?
(1) Preexisting debts,
(2) Tax problems,
(3) Very needy children (of any ages),
(4) College expenses that will dilute stepfamily money
(5) Shaky job security,
(6) Health problems,
(7) Large, extended-family responsibilities.
Is it appropriate to discuss ways of evening the score or balancing out the risk for each of you?
Separate accounts, joint accounts, a "his"/"hers"/"ours" accounts system. There's no right or wrong way to handle the finances in a remarriage. The comfortable balance will change with the amount of money available, the length of the marriage, and evolving needs.
"We've limited our financial expectations of each other. And therefore, we've limited our resentment."
"We compromise on issues that are our joint financial responsibility. We handle our own accounts independently."
"On most issues, we decide who is going to be the primary decision maker and who is going to be the helper. Neither of us is the same one all of the time."
HOW CAN YOU MINIMIZE THREATS FROM YOUR NEW SPOUSE'S FORMER
MARRIAGE AND OLD DEBTS?
There are several ways to have ownership of assets. Each method has specific advantages and disadvantages. Unfortunately, one size does not fit all remarriages nor will one form of ownership be appropriate for every asset within any given marriage.
Arrange for the ownership form that will suit your circumstances best. This may mean the difference between preserving or losing your assets if things go wrong in the future.
The most common ways to hold assets are:
(1) Individually (Sandra Lynch, James Lynch)
(2) Joint tenants (Sandra Lynch and James Lynch)
(3) Tenants in common (Sandra Lynch or James Lynch)
(4) In trust for someone else (Sandra Lynch in trust for James Lynch)
Library books, financial and accounting seminars, and professional financial planners are all available to help you assess your particular situation. The way you hold your assets depends upon your goals. In general:
(1) If you want to make sure that your assets go to your children when you die, hold them "in trust for" your children.
(2) If you want to make sure that your assets go to your spouse when you die, hold them "in trust for" your spouse.
(3) If you want to make sure that the co-holder can get access to the assets if you become ill, hold them as tenants in common.
(4) If you want to make sure that no one can get your assets without your permission, hold them in joint tenancy with two signatures required or "in trust for" the person you ultimately want to inherit them.
(5) If you want to make sure that your spouse doesn't get your assets in case of a divorce, get a prenuptial agreement because anything that has your name on it may be considered a marital asset.
(6) If you want to make sure that your spouse's creditors don't get your assets, hold them individually or "in trust for" your spouse or your ultimate heirs.
(7) If you want to make sure that your own creditors can't get your assets, none of the above will help. (There is a certain type of trust that may help...)
Additional responsibility means more or different insurance. Add more kids, more cars, more pets, more family and friends traipsing in and out and you have added potential for problems.
Additional furniture, electronic equipment, and just plain "stuff," means you need to take a look at your coverage. First, assess what you have. Consider a personal articles floater (PAF) to extend protection to expensive personal items, such as heirloom jewelry or antique collections, that are not covered in full on standard policies.
A larger group increases the chance of someone getting hurt. If you have fairly substantial incomes, look into umbrella coverage that may protect you from large liability claims, especially if you have several teenagers driving.
You may either break your pocketbook or get a break on this one. Sometimes there is a fleet rate for a number of cars registered at one address. On the other hand, teenage drivers can be expensive. Fleet rates for all the cars may be less that the sum total of what each independent household was paying before. However, if one of you has been insuring a single car for yourself as the adult driver, you're going to have sticker shock when you see the bill for several teenaged kids.
Reorganizing insurance policies
Photocopy the household, automobile, and umbrella policies that you each have at the time of remarriage. Send a set to each of your insurance carriers. Ask them to match up coverage and give you a quote on their best deal for equal or better coverage.
As a general rule, if you each had a million dollar umbrella policy prior to remarriage, that will be the combined coverage for both of you -- not $2 million as you might think -- unless you make other arrangements. In my experience, the company that insures the automobiles will assume coverage for umbrella policies. Cars present the greatest liability exposure.
If you are both employed, you may find that you have expensive duplicate medical coverage. However, if your plan pays 80 percent and your spouse's plan will pick up the remaining 20 percent, you will have full coverage when the benefits are coordinated. Two policies may not be too many depending upon your current health needs and potential health "time bombs." Compare notes with each personnel benefits office to make the best arrangements for your family.
Do you need additional life insurance to protect your new spouse? Probably. If your divorce agreement assigns your former spouse as the irrevocable beneficiary, that is the agreement. You can change the beneficiary, on paper, to your new spouse but all he or she will end up with is legal bills -- and no insurance. The former spouse will sue to collect under the terms of the divorce agreement.
For centuries, people have used insurance to protect their most valuable assets. Yet relatively few have sufficient disability-income insurance. For a 30-year-old, the risks of long-term disability before the age of 65 are three times greater than the risks of death.
In general, a person should have a disability policy that would replace 60-70 percent of gross income. The policy should kick in if you are unable to work in your current profession.
The insurance industry is going through some unstable times. Companies have declared bankruptcy leaving policy holders with no insurance and with unpaid claims. Once again, there are no guarantees. You may gain some added assurance by buying your policies from an established company that has been doing business in your state for a long time.
At some time during the course of your marriage, you may conclude that you wish you had gone through all of this financial stuff and drawn up a premarital agreement. Postmarital agreements are gaining in popularity because they spell out contractually all of the kinds of things that could have been covered in a premarital agreement.
The same basic rules apply:
(1) Full financial disclosure
(3) Lack of duress
(4) Representation for both parties
The purpose of a postmarital contract is to design a better-fitting set of rules than those provided by the state. These contracts are a relatively new concept so there is very little case law to back them. If you like this idea, enlist the services of professionals with experience in matrimonial law.
STRUCTURING YOUR WILL
If you don't have wills, remarriage makes them more important than ever. A prenuptial agreement is not sufficient protection that your property, your spouse's property, and your marital property will be distributed exactly as you intend.
State laws differ. If you die without a will, your spouse and your children usually are the beneficiaries -- though the percentages of what each gets vary by state.
Biological or adopted children of first and remarriages are treated the same. On the surface, that seems fair -- until you realize that the first group is through college and the second group are pre-teens. Previous money spent and future needs are dramatically different.
In the case of inheritance, most children expect money and property to follow a blood line, not a wedding band. This is a particular concern of adult children. Mistrust, and a human tendency to think the worst, comes when there is a lack of information.
If you have a good relationship with your adult children, make time to talk over their concerns and expectations -- and yours.
At the same time, consider whether you have clearly identified your position to your new spouse. He or she should be aware of promises you have made such as:
(1) You have told your daughter she will be inheriting your art collection.
(2) You and your brothers and sisters send your mother support money each month.
(3) Your insurance policy names your former spouse as the irrevocable beneficiary.
(4) You want the loan to your grandchild to be forgiven if the loan has not been repaid by the time of your death.
Ethical commitments do not have to conflict with new love. But sometimes they do require future adjustments and, perhaps, compensations.
By the way, this may be a good time to talk with your children about what family objects have symbolic value to them. They may be thrilled to have now items such as:
(1) old family picture albums
(2) specific pieces of furniture
(3) kitchen appliances
These may be the things that you would otherwise pack away because you chose not to have them in your new home. Sometimes it is possible to make everyone happy at the same time!
Even when you've carefully planned out who gets what, time has a way of altering those judgements. Relationships change and so do the tastes of recipients. The child who loves antiques now may hate them a few years from now.
You're dealing with relative values for relatives. Plan to review your bequests and the terms in your will every few years or so.
Wills and dependent children
Dependent children are a primary reason to have a will. As a parent, you want to have a say about who's going to rear them and look after the property you're leaving to them. And yet, between 80 and 90% of parents with young children have no formal instructions specifying who will care for the children in the event of a parent's death!
As I mentioned in the earlier section about children, wills should not violate anything that you've already agreed to in a divorce or prenuptial agreement. On the other hand, if circumstances have changed dramatically, such as a very close relationship with a stepparent and negligible contact with the other biological parent, please document this as carefully as possible. Include this information with your revised will.
The final resting place
What kind of funeral arrangements do you want? Are you donating your body to science? If not, where do you want your body or ashes to be buried?
Children of a first marriage may express strong feelings about having their parents buried near each other, especially if the marriage was ended by a death instead of divorce. If you have a long and happy remarriage, you can certainly be pulled in two directions.
I heard a story about one woman who was vacillating between being buried near her first husband and being buried near her current spouse. She's currently thinking of cremation and having half of the ashes buried with each husband. My husband quipped, "That's a half-ash idea!" See Flying Solo Resource Library for items relevant to remarriage.
This material was developed with experienced professionals to give you basic information which is not intended either as a substitute for advice from an attorney or as an attempt to answer all questions about situations you may encounter. Because all situations are different, because the law of each state varies, and because you may have questions that are not covered in this material, we urge you not to rely on this material as legal advice and not to make decisions without the advice of a family lawyer whom you should consult for appropriate advice about your specific legal problems. This material is sold as is, without warranty of any kind, either expressed or implied.