Flying Solo
Nextsteps FlyingSolo Our Store About Us Life Management Home

Browse Resources:



Divorce & Estate Planning

Divorce & Separation

Divorce Mediation

Divorce Tax

Divorce Tips

Frequently Asked Questions

General Divorce

Military Divorce

Remarriage & Stepfamilies

State Information

Un-Married Couples

Stepparent Financial Matters

Stepparent Financial Matters

Stepparent Financial Matters

Adapted for Flying Solo
by Marjorie Engel, 1994

Those who of us who divorce and remarry are responsible for our emotional, social and FINANCIAL futures. Instead of bemoaning the fact that the "traditional" family has changed, we all need to say, "OK, it's changed; how can we deal with it?"

Although divorce and remarriage are two of the most important financial events in a person's life, many are too paralyzed to take steps to help themselves. You just talk about money problems all the time but don't get into whatever has to be done to "get it together."

People who try to be casual about getting organized and learning about family financial quirks are going to end up as casualties. That’s why it’s important to…..

• Prepare for the fact of inevitable financial changes by understanding current and expected changes

• Learn about the predictable stages common to all complicated family financial issues including the effects of earlier financial divorce decisions on the new stepfamily. Find out about government rules and regulations and how they are different in first and subsequent marriages. In blending stepfamily finances, acknowledge different money management styles.

• Understand which expectations and money management styles are no longer adequate in a stepfamily.

This includes Yours, Mine, and Ours—assets and liabilities. We must develop creative ideas, learn new skills, establish a long-term process, and get help when we need it to understand change.

Our social systems have not caught up with the circumstances of today's complicated families. Old rules don't fit new needs. Sometimes, this is simply irritating; other times, it can be life-threatening. Details to follow in our discussion.

When you're connected to another person financially, you're at risk!

Here are the major financial issues we will cover:

(1) The effect of divorce financial decisions on stepfamilies.

(2) How many of our government rules and regulations affect remarriage.

(3) "Second helpings," Integrating family finances when you remarry.

Stepfamilies are formed via several routes:

(1) Divorce and remarriage

(2) Death of a spouse and remarriage

(3) A first marriage for one spouse to a husband or wife from category 1 or 2.

Regardless of the underlying structure, much of this information universally applies.

Whenever I discuss families and money, people tell me that with more money there is one less source of tension. Stepparents often feel overwhelmed by the great financial responsibility they have taken on. Most are stretching paychecks between two homes. The hardest part is accepting financial realities without resentment. This means that both spouses in a remarriage must clarify the new family's financial situation.

So, what about all the financial stuff that you have avoided? Are you afraid of fighting? Of uncovering irreconcilable differences? Of looking foolish because you didn't think about -- or do something about -- these things BEFORE you got married? What if only one of you believes there's a problem and the other partner is beginning to feel, "Who needs this?"

You're not alone. In spite of harrowing war stories in the media and, perhaps, from other stepfamily friends, finances don't seem to be very high on the list of concerns before remarriage. One study showed men mentioning finances as a primary concern about 15% of the time and women with a slightly higher 20% of the time. Discipline of stepchildren and worries over the partner's former spouse rated much more attention.

By the time we remarry, most of us have clearly defined money personalities. These established ways of managing money touch decisions about education, housing, clothing, vacations, medical and dental services, investments, and gift giving. These are not concerns unique to stepfamilies. They are common in every marriage. Your may have additional wrinkles to iron out but don't blame every financial problem or argument on their stepfamily status!

Remarried couples usually bring the following to the new union:

Income and Taxes

Debts and Credit

Investments and Business assets

Retirement plans and Pension benefits

Future prospects (earning ability and inheritances)

Family services (homemaking and child rearing)

Responsibilities to extended family members and, of course,

Financial responsibility for children of a previous marriage

This list forces an accounting of the marriage "balance sheet" in a detailed and specific way. Sooner or later you will need to come to terms with what restructuring your family is costing—not just in dollars but by eating up your precious time and playing havoc with emotions.


If your previous marriage ended in divorce, you know just how many of their divorce decisions were based on dollars.

It's not likely that you made very many of those decisions with an eye toward the potential effects on a future family. At the time, your frequent sayings were probably more along the lines of "Once is enough!" or "Never again!"

Even if you were planning ahead, it's impossible to cross "formers" out of your lives. Whether through alimony, support, or everyday existence, former spouses and their relatives constantly influence and intrude on stepfamily life—usually financially! I've heard them referred to as "bad pennies" because the obligations from an earlier marriage always have a way of turning up.

Once settled, some of the divorce decisions about child support and spousal support tend to become routine. Many unwritten agreements fall into a routine as well. For instance, I see men continuing to perform some of the maintenance on the home that their ex is living in—just to help out, or because of their on-going financial investment.

Sometimes the divorce is only on paper. Individuals drag along all kinds of financial baggage into the new marriage. Continued wrangling over alimony or child support are prime examples. And, if you're lucky enough to avoid problems early on, just wait until you hear sweet whisperings about "college tuition."


First and foremost, you should do everything you can to your business contract and court order. If you are not able to do so, then find out about how to return to court for a modification if it is necessary. Beyond these two basics, there are two additional approaches to dealing with financial responsibilities of a first family. You can:

(1) Use money as a weapon for power and control.
(2) Evaluate what you can afford and what you want to do for the children.

Item (2) deserves serious thought. Repeatedly, children tell me that they felt they:

(1) Had no say in the divorce.

(2) Had no say in the terms of their financial care.

(3) Felt no priority was given to their needs or wishes.

It would be a mistake to assume that only women would benefit from closer attention to financial planning for the children. It is clearly in the interest of both women and men to have a clear understanding of obligations in the event of remarriage for either parent.

Issues that couples may consider "unusual" when preparing separation agreements are actually "typical" in reality. They come up over and over again in conversations with stepfamilies. For instance, there are always "unforeseen" issues such as:

(1) injuries

(2) special needs for tutoring, or the reverse

(3) funding encouragement of gifted skills or natural abilities

Every divorced person feels that he/she agreed to at least some of the divorce financial arrangements just for the sake of finally reaching a settlement. Some of these concessions are bound to strain new obligations.

Almost all new spouses are at least somewhat aware of the prior financial obligations. But, the dollars and cents significance can never be completely clear until they start living with it.


Some things couples who marry take for granted may be gone:

(1) Various benefits from retirement plans

(2) The opportunity to be the life insurance beneficiary of a cost effective policy

(3) Specific gifts of household items upon death of spouse, and

(4) Regular child support in the full amount ordered. Unfortunately, too many fathers feel, "My former wife has remarried. Now, let someone else foot the bills."

In my experience, men are more likely to try to avoid conflict by avoiding the issues. Sort of a "put up and shut up" philosophy. Women are more likely to want to get conflicts resolved, even if the end result is not exactly to their liking. In dealing with issues that have to do with a former spouse, we, husbands and wives alike, can be a force for destruction or a bonding agent. By doing nothing, we are allowing problems to exist, continue, and to escalate.


To tell or not to tell children about the terms of the divorce financial settlement?

Obviously, age, and the relationship have a lot to do with the decision. So does your assessment about how much the children are little motor-mouths.

In cases where the children are old enough to understand, it usually makes sense to explain, where they're involved, the terms of the financial agreement with their other parent. When they understand the reasons why certain decisions were made, they have an amazing ability to understand games that adults may be playing.

Phone bills

I have yet to meet the parent who is happy about paying for extensive phone bills—especially when the kids are spending our money pouring out their unhappiness about us or anyone in our new household.

And how many arguments do the couple get into about which long distance calls were made by who's kid? One thing is for sure. Attempts to limit calls will be perceived as attempts to limit contact with their other parent—and reported as such!

On the other hand, parents can't afford to give them free rein. Families have met with at least partial success by:

(1) Finding the best long distance carrier for the type of calls frequently made
(2) Restricting calls to the carrier's low-rate periods
(3) Negotiating time limits. If the conversation needs to be longer, the other parent calls back.
(4) Find out what's involved in providing a separate phone for the children. Parents can pay a
specified amount each month. Beyond that, the children use their own earned money.

Dependents exemption

Parents with physical custody for the greatest portion of the year have the automatic right to claim the children as dependents -- even if they do not provide the majority of support.

Parents can agree to a different arrangement if the custodial parent waives the right to the exemption. To transfer the exemption to the noncustodial parent, the custodial parent must sign IRS Form 8332 that acknowledges this transfer. A signed IRS Form 8332 is stapled to the noncustodial parent's tax return for that year. A new form must be attached to each applicable IRS filing year. Parents do not have to go back to court to renegotiate this.

This issue comes up again in the section on "Government Rules and Regulations."

Medical deductions for children

A child is automatically treated as a dependent of both parents for purposes of their individual contributions toward medical expenses and reimbursements.

Child care expenses

The child care credit (for children under the age of 13) can only be used by the parent eligible for the IRS dependency exemption.


Writing that check can be the pits. I've heard about several different ways to approach this aggravation.

(1) Make an arrangement with the bank to do an automatic transfer of funds on specified days or dates.

(2) If the new spouse doesn't get uptight about this job, ask him or her to write the check. (I've learned that a lot of new spouses do this but not without a lot of moaning and "you owe me"'s)

(3) Set up the obligation so that, psychologically, it looks like any of the other routine bills.

(4) Instead of focusing on the money that your "rotten, conniving" former spouse is getting, they can keep repeating: "What a responsible and caring person I am." Then treat yourself to a hot fudge sundae...


A stepfamily will always contend with the fact that child support set at a point in time will probably not continue to be appropriate for a child's or paying parent's needs as the years go by.

The original payment schedule may become too high for a paying parent who has:

(1) lost a job
(2) become ill
(3) had some kind of family emergency

Financial agreements that worked for years may become inappropriate for a child who:

(1) develops a chronic illness
(2) requires extensive therapy
(3) starts college or a special training school

Financial liabilities to children of a former marriage can never be permanently fixed. Courts retain the right to reevaluate child support orders. One of your green sheets is a graphic representation of procedures the court currently uses for recovering delinquent child support payments after they have been ordered by the court.

{Court-Ordered Child Support}

The court's primary focus is upon the concept of wage withholding. You can attach a paycheck or just about any other regular source of income stream—ranging from social security checks to IRS refunds. More about that effect on joint tax returns later.

Since a family's total financial picture is taken into consideration, the stepparent's financial situation is vulnerable. If payments fall into arrears, the court can order that jointly held assets will be used to satisfy child support obligations. For instance, money saved for a vacation may need to be spent to pay for orthodontia. Or, less directly, your spouse is ordered to pay for unplanned bills and you have to pick up more of the current family expenses.

Families routinely reallocate available funds. This is nothing new. The difference is that it's easier to swallow the anger or disappointment when it's for "our" kids.


When couples remarry, they may not realize it but they also say "I will" to potential financial liability for their new spouse's old debts, tax liabilities, business problems, and lawsuits. When you're attached to another person financially, you're at risk.

When a new spouse has financial responsibilities, that means there will be less to go into the new marriage. And, basically, obligations to an ex spouse and old debts are the same—they're both creditors.

The segment on "Second Helpings" will give you ideas on ways to help you manage this problem.


It's a good idea for you to check their credit record on a regular basis, say, once a year. It is their responsibility to see that the records are accurate. It is not the credit bureau's responsibility. Errors are inevitable. You are encouraged to make the time to clear them up.

I think this is important because I have heard horror stories about an ex spouse's poor credit rating erroneously lousing up otherwise good credit reports. However, it is not a mistake for obligations they continue to have with a former spouse to be on their current report.

One item commonly viewed as a mistake, probably isn't. The most frequent example of continued credit attachment to a former spouse is a home mortgage. Transfer of title as part of a divorce settlement does not cancel responsibility for the mortgage debt. Only two things cancel responsibility for that mortgage:

(1) payment in full
(2) a new mortgage without your your signature as a borrower

Prior divorce decisions will affect financial planning as a stepfamily. So will the government's rules and regulations affect a remarriage.


Public policies sometimes work to our detriment when we remarry. Federal and state laws may create difficulties when you are dealing with children, alimony, taxes, property ownership, credit, debt, retirement, illness, and wills.


According to common law, stepparents do not usually have a direct financial responsibility for the health, education, or welfare of their stepchildren. It notes two exceptions for direct responsibility:
(1) in loco parentis
This is a voluntarily assumed obligation.
"In loco parentis is a Latin phrase which means "in lieu of a parent. Teachers, camp counselors, stepparents, and others who take responsibility for children have a duty to act in loco parentis. This means you have the same power and authority over the children as do the parents, at least during the time that the children are under their control." (Family Law Dictionary, Leonard & Elias.)

Millions of stepparents voluntarily provide financial resources for their stepchildren. According to common law, they have a right to be reimbursed by the children's biological father. I don't know of a case where this has been ordered by the court. Time and money bestowed on a stepchild is a gift—of love, or necessity. And if the parent and stepparent later divorce, the stepparent is virtually never legally required to provide child support.

It is remotely possible that a stepparent could be obliged to pay in a dire emergency. The court has a primary responsibility to keep people off of public welfare. Given the choice of welfare or approaching a wealthy stepparent, the welfare department might bring this action against the stepparent on behalf of the child.

(2) the "estoppel doctrine"
This prevents a stepparent from taking a different position or going back on a promise if the other party would be harmed by the change. It is based on fairness when the following conditions occur:

* Representation
stepparent offers self as the child's parent including providing financial support
* Detriment
stepparent interferes with the child's relationship with the biological parent and blocks financial support from that parent
* Reliance
child relies upon the love and financial support of the stepparent

If these three conditions exist and a divorce occurs, the court may rule that the stepparent is responsible for child support.

You are encouraged to give love and financial support to your stepchildren. Just help them avoid creating a problem for themselves by:
(1) Aggressively interfering with the child's relationship with the biological parent
(2) Developing a pattern of paying for a child's necessary expenses when the biological parent is willing and able to do it.


The exemption usually goes to the parent who has physical custody for the greater part of the year—no matter how little either parent actually contributes toward the child's financial support. The IRS recognizes an exception when the custodial parent waives this right.

{IRS form 8332 transparency}

You can use IRS Form 8332 to notify the IRS of this waiver. A new form must be completed each year that the divorced parents want to use the waiver. It must be signed by both parents and filed by the non-custodial parent claiming the exemption.

If you have court-ordered joint physical custody, the separation agreement will probably specify which parent is to claim the exemption. Even so, parents may agree to one or more "waiver" years without going back to court for a change in the divorce agreement.

The operative word is "agree." If the court order is silent on the topic of exemption, it automatically goes to the custodial parent. Or, the agreement may specify who will take the exemption. In either case, you and your ex have an opportunity to agree to "exception" years. If there is a tax savings to the non-custodial parent, I suggest that the exe’s negotiate sharing the savings.


A child is treated as the dependent of both parents for purposes of their individual contributions toward medical expenses and reimbursements.

Provisions of insurance coverage for children in other households or for residential stepchildren is a gray area. Insurance policies may cover residential stepchildren if they are the income tax dependents of the remarried couple. You must read the fine print about limitations, especially if the children are cared for in a joint physical custody arrangement.


Statistics supporting the economic justification for a college degree are compelling. Lifetime earnings exceed those of non-graduates, unemployment rates are lower for those with at least four years of college, and the basic skills in analysis, critical thinking, and effective oral and written expression enable the college graduate to cope with a rapidly changing world. Parents are investing in their child's future.

The court will generally not order a stepparent to pay expenses for a stepchild. However, it will take into consideration all resources available to the parent who is obligated to pay for support. And, a stepparent who is contributing funds for the household bills is freeing up money to use for expenses of children from a previous marriage. Practically speaking, there is no way around this logic.

In past years, divorce agreements usually dealt with the issue of college in vague terms. "Each parent will be responsible for college costs in proportion to his/her ability to pay," was a typical entry—if it was mentioned at all!

Today, more and more states are raising the age of emancipation from the former age of 18 to the age of 21, and in a few states to 23 years old—if the child is an unmarried, full-time student. This forces parents to make specific agreements about college expenses.

This area of the law is relatively undefined. But as college expenses soar and incomes sag under the weight of a sluggish economy, many former spouses are finding themselves back in court fighting over what each is obligated to contribute toward the education of their children.

Remarriage and financial aid
The parent who is most active in helping the child get an education will bear the scrutiny and the burden for payment.

College aid offices always ask to see the financial statement of the custodial parent. They have their own forms for you to complete as well as requiring a copy of the front page of their IRS tax return.

If the custodial parent has remarried, they will ask to see the new spouse's financials too, even though they already know that a stepparent has no legal financial obligation. Stepparents can certainly refuse to comply. That's not a problem for the colleges. They simply refuse to process the child's financial aid application without the requested information.

For students who are already in college on financial aid, be aware that their aid awards will be reevaluated each year. I know of many children who lost their financial aid when the custodial parent remarried and the stepparent's income increased the overall family income level. "Married —Filing Separately" does not resolve this problem.

I think matters such as this would be far less complicated if the country instituted a system in which we all filed separate tax returns. Then, information for biological children could be obtained easily and clearly from each of the biological parents. It would not be necessary to distinguish children from different marriages—the moral and financial obligations would be the same for each of our children.

It would also eliminate the "penalty" when the custodial parent remarries. Have you noticed that "blame" for the financial problem is heaped on the custodial parent -- the one whose remarriage changes the financial picture for aid applications?

Children can apply for financial aid on their own, under certain circumstances:
(1) The child is over 18.
(2) Parent has provided less than half of the support.
(3) Parent has not claimed the child as a dependent within the past two years on IRS filings.

This requires planning ahead and is difficult to adequately document. For all practical purposes, if the child has lived at home, the parent is considered to have provided over half of the support.

Most financial aid forms are completed in the fall prior to the academic year under discussion. To produce front pages of IRS tax returns, parents must go to the two years prior to the current year that is almost over -- which means three years ago. A real catch-22 situation.


The IRS frowns on parents who fall behind in their child support payments and assists custodial parents in the collection process. Federal and state tax refunds can be intercepted. If you are delinquent and filed a joint tax return with the stepparent, both portions of the refund will be snagged.

It may be possible for the stepparent to get his/her portion of the refund check by filing the "Injured Spouse Claim and Allocation Form #8379."

To get a copy of this form, call (800) TAX-FORM. Needless to say, it will probably be some time before your you see any money.

If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and possibly Wisconsin with it's Uniform Marital Property Act), refunds are divided according to state law, not according to who earned them. According to instructions on the current form, "Generally, claims from [community property states] California, Idaho, Louisiana, and Texas will result in no refund for the injured spouse."


Unfortunately, family law does not presently provide clear rules defining the responsibilities or rights of parties to the stepparent-stepchild relationship. To date, results to clarify the legal aspects have had inconsistent results at both the state and federal levels.

At the present time, the only way stepparents can assure themselves of the same rights as biological parents is through adoption. Adoption requires the legally approved form of consent by the biological parent who is waiving legal rights (and responsibilities). Adoption also means that if the remarried couple later divorces, the legal adoptive relationship between stepparent and stepchild will not end. Adoptive stepparents have the same lifetime responsibilities for their adopted stepchildren that they do for biological offspring.

After adoption, the stepparent is recognized legally and can sign medical release forms, driver's license forms for minor children, etc., and inheritance questions are solved for once and for all. Otherwise, stepparents wishing to maintain contact with their stepchildren following divorce or death of the biological parent spouse face substantial legal and procedural difficulties.

When courts grant visitation privileges, they typically do so to protect the "best interests of the child" and not because of any legal rights held by the stepparents themselves. They do this based on the philosophy of in loco parentis. On the other hand, they can also refuse a stepparent visitation rights because the stepchild is not "a child of the marriage."

Potential legal options
Many of the day-to-day difficulties that stepparents encounter while they are acting in loco parentis can be avoided. The most frequently encountered are:

(1) Medical treatment is unnecessarily delayed if the stepparent cannot authorize emergency medical procedures.

(2) School teachers and counselors refuse to talk with stepparents about ways they can provide academic and emotional support for residential stepchildren.

Biological parents might look into providing the stepparent with a limited power of attorney for the child. Another possibility is signing a notarized letter authorizing the stepparent to represent the parent under certain situations.

While the benefits to the children are obvious, adding a stepparent as a recognized authority figure for children is often more complicated than it sounds. Anger between the parents may be expressed by refusal to sign the necessary papers.

As the parents and stepparents of minor children, you need to be aware of the necessity for such an authorization. It is necessary for the overall health, education, and welfare of their children.


When you are preparing a will, the prior divorce agreement may have locked you into naming the other biological parent as guardian. If the child's contact with that parent is limited and there is a long and close relationship with the stepparent, you should talk with an attorney about appropriate wording in this new will.

Wills generally should not violate anything your have already agreed to in a separation or prenuptial agreement. And there is no guarantee that the court would decide against a biological parent in favor of a stepparent. However, it does not hurt to document extenuating circumstances.


If you receive alimony, in almost all cases, alimony payments permanently cease upon remarriage. Although everyone certainly hopes that this new marriage will last forever, you must consider the possibility that this marriage will end in divorce.

There is no guarantee that your will be granted alimony from—or have to pay to—the new spouse if this marriage ends in divorce. The focus now is on short-term rehabilitative alimony, if you were married "long enough." And, the timing is subjective.

Withholding alimony payments
Alimony is tax deductible to the payor and taxable income to the recipient. If you are withholding alimony payments for any reason, and still deducting the court-ordered alimony amount on the tax return, the IRS can go after back tax, penalties, and interest from both spouses in this marriage—if you filed a joint return.

I see this happening when alimony payments are being held as ransom until property is returned or legally transferred per divorce agreements. And, I understand that the IRS receives more leads about tax irregularities from angry ex-spouses than any other source.


The primary decision is whether or not to file a "Joint" tax return or to go with the "Married, Filing Separately" status.

If one partner has significantly less taxable income (and therefore a lower tax rate than the other), a joint filing may reap a small saving.

When one spouse earns considerably more than the other and you file jointly, there are a couple of ways to handle the tax payments and distribute the refund.

(1) The simplest would be to apply a ratio of each spouse's income to your share of the taxes. However, the income tax system is progressive so a simple proportion may not be equitable.

(2) Another arrangement is to agree that the spouse with the lower income will not pay more taxes than s/he would have paid as before remarriage when using the "Head of Household" status.

The risk factor

Many tax preparers advise people who bring assets to a marriage to use the "Married, Filing Separately" format to protect each of them from unexpected tax liabilities.

Your signature on a joint tax return exposes you to serious consequences if the IRS challenges information that either spouse provided on the return. Once a joint return is signed, both assume responsibility for the accuracy of all the information, not just their own portion. This includes items such as:

(1) Under-reported income
(2) Unjustified deductions

While you may be able to demonstrate that you are an "innocent spouse" and had no knowledge of the irregularities, it is not easy. You may face additional taxes plus penalties and interest, right along with the spouse.

By the way, if the discrepancy is less than 20%, the IRS tends to view it as an honest error and the statute of limitations is three (3) years. The IRS automatically regards anything over 20% as possible fraud, in which case the statute of limitations is six (6) years.

Remarriage does not eliminate potential problems with the IRS and a former spouse. If you and your ex filed a joint tax return, the IRS can come after him/her and whatever assets you hold individually or with a new spouse years later.


"You can deduct moving expenses, subject to certain dollar limits, if the move is closely related to the start of work and if s/he meets the distance test and the time test." So says the IRS Publication 521, Moving Expenses.

When, as a result of remarriage, you move and change jobs, this tax deduction might be available. In broad terms, if you find a new job within one year of the move and it is at least 35 miles farther from the former home than the old main job location was, it is probably a valid deduction.

There are some detailed hurdles to pass but the potential savings make this worth looking into.


If you are 55 or over, you may exclude up to $125,000 of gain from the sale of a principal residence, as long as you owned and lived in this home for at least three (3) years out of the five (5)-year period ending on the date of the sale.

This is a once in a lifetime deal.

The rule seems simple—until you remarry. Then it becomes complicated. If you or your new spouse has already filed a tax return, single or joint, in which the house tax exclusion has been taken, it cannot be taken again by either of you. The spouse who has already participated in the exclusion taints the new spouse.

Married is the operative word. You may be eligible in your or you own right but the legal connection to someone who has already taken the exclusion eliminates the option. That is why accountants advise folks who are eligible for the house tax exclusion to postpone the wedding until the property is sold.

If you have already remarried and has become ineligible because the new spouse has already taken the exclusion, there are two circumstances that will regain the right to the exclusion:

(1) you outlive the ineligible spouse
(2) you are divorced.

Capital gains and the former spouse
Under the law, if you and your former spouse sold your home and each of you reinvested your share of the money from the sale in a primary residence of equal or greater value within two (2) years, neither of you would owe tax on the capital gain. It would be deferred and become part of the tax basis of each of your new homes.

If you and your former spouse filed a joint tax return for the year the home was sold, you and your former spouse are at risk for tax adjustments if either of you fail to reinvest the proceeds in a new primary residence within the two year period. As a matter of fact, either of you can be technically liable for the full amount in the event of a default.

Husbands and wives can fail to reinvest in a home for a number of reasons. Bad investments may need to be covered. An entrepreneurial business may require additional capital.

The IRS does not care why. And, they'll go after the deepest pockets to collect their money. Spouses in a remarriage may find a lien put on their new home until the bill is paid.

Accountants will tell you that this kind of problem can be avoided if couples file separately. That way, all of the collective property and assets will not be involved; just those of the spouse who signed the joint return in a previous marriage.

Miscellaneous notes about property

Combining two households worth of financial records can result in a rather large pile of papers. If you sold a home and reported the sale on IRS tax form #2119, generally all you need to keep are the settlement statements, a copy of IRS form #2119, and receipts for home improvements that were used to adjust the cost basis.

Reminder: If you want to transfer ownership of real property, in part or total, to the new spouse, it must be conveyed in a legal fashion. This means recording the transaction with government authorities. Transfers done between spouses, after marriage, avoid taxes.


Divorce financial settlements are not binding on creditors. If you and your former spouse continue to have both of your names on a loan or account, you are at risk for each other's financial behavior.

A typical example is continued responsibility for a house mortgage. The divorce judgement may have transferred the deed to the former spouse. However, unless the mortgage was paid off or refinanced without you as a co-borrower, you continue to be ultimately liable for the timely and in-full mortgage payments.

I also see this continued financial connection to an ex-spouse with automobile loans and, to a lesser extent, credit cards.

You should take an inventory of their financial obligations. A good system for doing this is in the other financial file that is available on Flying Solo.

It is a good idea to keep accounts separate. Those in one partner's name alone cannot be attached by the other spouse's creditors.

The current state of our economy has given us an unprecedented rate of bankruptcy filings. Bankruptcy is governed by both federal and state laws. There is a misconception that bankruptcy dissolves all debts. It doesn't. Debtors still have bills to pay. Typically, they must still contend with car payments, house payments, and federal taxes. In many states, student loans, alimony, and child support must also be paid.

Horror stories abound of ex-spouses wiggling out of financial obligations by declaring bankruptcy. Divorce decisions that are most vulnerable come under the heading of property distribution, not alimony or child support. A carefully drafted divorce agreement—one that includes adequate provisions for additional collateral for property not yet distributed—is your best protection.


If you have been eligible to make pre-tax contributions into an IRA account, remarriage may affect this. Even if you continue to be eligible for a tax-deductible IRA and has been doing it for years, if the new spouse isn't eligible, you may not be either – so seek professional assistance.

Once you haver remarried, if you file jointly, the only way either of you can continue to claim an IRA deduction is if neither of you is an active participant in a qualified retirement plan. As always, there are exceptions and, in some cases, one may be eligible if their adjusted gross income doesn't exceed $50,000.

When I remarried, I lost my pre-tax contribution option because my husband's bank had a qualified retirement plan. Actually, I could have continued making IRA contributions with after-tax dollars. But it would have involved so much additional paperwork and accountant bills at tax time that it didn't make much sense. When the bank failed, so did my right to share in the retirement "protection" that had kept me from making my own contributions.

Social Security
Some people are concerned that remarriage will mean that, as a couple, they will receive less Social Security than if they lived together as an unmarried couple. But that's not always the case.

Once eligible for Social Security, each spouse will independently receive benefits based on how long each worked and how much each paid into the system. When married, you have the option of receiving benefits based on what you paid into the system, or one-half of the spouse's benefits, whichever is greater.

If you had a limited earnings record, but is eligible to collect approximately the same amount:

(1) as a single person on the former spouse's earning record
(2) as a married person on the"new" spouse's earning record

it doesn't make any difference. You only need to think long and hard about this if the former spouse earned a lot of money and the intended spouse only earned a little bit.

If you have already remarried, neither of you can expect to share in a former spouse's retirement benefits. You are only eligible for those benefits if we were divorced after 10 years of marriage and we are single.

If your second marriage ends in divorce in less than 10 years, you will not be eligible to collect Social Security through the second spouse. Ten years is the key. As a single person once again, you will have two options:

(1) Collect the benefits that you qualify for because of your own earnings record.
(2) Collect benefits available through the earnings of the former spouse.

The Social Security Administration will be able to clarify application details. (800) 772-1213.

While married to a second spouse, s/he can collect on the new spouse's earnings record as long as s/he is over 62 and the marriage has lasted at least one year before applying for benefits.

A former marriage can impact Social Security benefits because:

(1) If your spouse is receiving Social Security, these checks may be garnished to satisfy support obligations to a former wife or children.

That's the bad news. The good news is that Social Security benefits can be paid to multiple spouses. For example, this may occur when a former wife has not remarried and becomes eligible to collect on her former husband's earnings record. When the current wife becomes eligible, she also collects her share. Social Security pays double, it does not split the wife benefit between two women.

Death benefits are paid in the following order:

(1) Surviving spouse (as long as the marriage lasted over nine months)

(2) Minor child(ren)

(3) Disabled adult child (if the disability occurred prior to age 22 and is already part of the Social Security records)

You should contact the Social Security Administration for a copy of your Personal Earnings Benefits Estimate Statement (PEBES), Form SSA-7004. It will indicate earnings history, the amount of money paid in Social Security taxes, and an estimate of future benefits. Call (800) 772-1213 for information.


If you receive a survivor's benefit from a private pension, the pension income may well be lost upon remarriage. Although Social Security and a few government plans permit remarriage after a certain age, there is no requirement that plans offer that protection, so they rarely do.

This is a holdover from the days when pensions were considered the sole property of the worker and the survivor's benefit a mere gratuity to a grateful widow. Today, many state marital property laws confirm that pensions are properly considered the property of both members of this economic partnership called marriage. However, many pension plans have not been amended to reflect this.

Typical examples are that:

(1) A benefit that ends upon the remarriage of one partner but not the other.

(2) If you marry after your husband has retired, most plans will not permit him to amend his single-life annuity to leave the new spouse a survivor's benefit.

And the news gets worse if the pension plan "goes under." ERISA (Employee Retirement Income Security Act of 1974) does provide some insurance for employees who belong to a pension plan funded by a now-bankrupt business. However, coverage is limited:

(1) Maximum benefit is $28,000 (regardless of the amount you may have "earned")

(2) Spousal death benefits are eliminated

(3) Minimum age for retirement is 65 (even if the plan made provisions for early retirement at 62)

This loss hits hardest:

(1) Dependent spouses
(2) Workers who had accumulated retirement nest eggs of considerably more than $28,000 in the plan
(3) Individuals who have already retired—under provisions for larger distribution amounts Joint and survivor annuity

This is a lifetime monthly payment for the plan participant and, after death, a survivor annuity of at least 50 % of the monthly amount for the spouse. A recent law covering pensions required all qualified retirement plans to include the joint and survivor annuity. It also requires that the spouse be named as beneficiary. The spouse can waive the benefit but only by written consent in front of a notary public or possibly a plan official.

The Retirement Equity Act is part of the Tax Reform Act of 1984. It required the spouse to be named as beneficiary to eliminate frequently occurring bad surprises. Too many wives had been lulled into false security by the fact that husbands had been paying into hefty pension plans -- only to learn upon widowhood that the death benefit had been assigned to a mistress.

Since many, but not all, retirement plans fall under the Retirement Equity Act, discuss your plan with an attorney or accountant. For instance, profit sharing, employee stock ownership, and 401K plans are exempt from the annuity requirement but not the spousal waiver provision.

State and federal military pensions are exempt from both. Examples:

(1) Under the military retirement system, the survivor benefit is called the "Survivor Benefit Plan (SBP) annuity." It can be paid to a wife or former wife, whichever the member selected, but not both at the same time.

(2) Usually, the State Department will only pay out an amount equal to one survivor annuity, whether it is paid all to the worker's current wife or all to the former wife, or divided between two wives.

While asking questions, you should find out about rules for borrowing money from the pension plan and what happens if employment terminates. In some cases, the employee can take the pension out in one lump sum without spousal consent.

Most of the confusion about eligibility comes from the large number of different plans. Once you have found out which plans apply to your family, you can focus on the specific options that are and are not available to you.

Of course, stepfamilies might have the added confusion of rights and benefits having been assigned to a previous family.

Qualified Domestic Relations Orders (QDRO's)

There may be some great benefits in you pension plan but you may have already been given to someone else. That someone else is most likely to be an ex-spouse or the children from a previous marriage.

Pensions are an important marital asset. In some cases, they may be the largest asset. Divorce settlements that include a QDRO assign a portion of the benefits, earned during the marriage, to be paid out as part of the financial settlement. Funds may go directly into a separate account or be attached for payment at a future date. Once awarded, they cannot be taken back. A subsequent spouse is out of luck.

If a QDRO exists, your will need to check the divorce agreement to find it. Details about the terms will not be part of the pension plan documents.

In this remarriage, it may be appropriate to arrange some form of security compensation. In any event, double check the listed beneficiary for benefits from vested pension plans, annuities, and other assets to make sure they agree with current laws and your current intention.


Being sure that the couple is protected by health insurance should be one of their top priorities. In addition, coverage for their children is important, whether or not they are the custodial parents.

We'll talk about this is the blending finances section. In this segment, I want to tell you about two issues to recognize in remarriage: the effect of catastrophic illness and health care proxies.

If you or your new spouse is hit by a catastrophic illness requiring a nursing home, you will most likely be wiped out financially. Not even a prenuptial agreement, no matter how carefully drafted, will protect the assets of either spouse. All assets, no matter whose name is on them or who brought them to the marriage, are lumped together and all are considered joint and subject to being spent on a nursing home.

Insurances don't cover long term care. Nursing homes cost anywhere from $35-60,000 per year. How long can they afford this kind of additional expense?

A health care proxy, also called an advance medical directive, deals with the kinds of life-sustaining measures that are acceptable to the individual. This legal document can relieve a spouse and other relatives of a terrible burden and give you the peace of mind of knowing that you will be able to die with dignity.

If you already have a health care proxy:

(1) Is it written for the state in which they currently reside?
(2) Who is the person designated to act as their proxy?

Not all states automatically remove legal powers, previously designated to a spouse, upon completion of a divorce. If you do not want a former spouse to continue with health care proxy authority, power of attorney, or as the beneficiary of financial benefits, you must make sure that authority previously given is properly revoked.


You must know what the laws of your state specify about your financial rights in a marriage. Remember that marriage is now recognized as an emotional relationship and an economic partnership. Each state has slightly different rulings about the distribution of the things you own and the things you owe when you get a divorce—or one of you dies. To find out how your state decides these matters, you can:

(1) Read your state statutes in the library.

(2) Ask a lawyer or the local Legal Aid Society.

(3) Visit a family law clinic at a nearby law school.

If the results of your state rules are pretty much the way you would like property and debts handled, you do not need to make special arrangements. If they want something different, you will need a well thought out and legally enforceable prenuptial agreement. This will require full financial disclosure of all of your assets and liabilities.

This issue is not as simple as it seems on the surface. The element called time is a critical factor. State rules about distributions when the deceased did not have a will (intestate) apply whether the marriage was 2 days or 20 years in duration. Twenty years and it may be appropriate for a spouse to receive maximum benefits allowable. Two weeks and children from a prior marriage may be more than a little appalled by the substantial loss of family money, property, and heirlooms.

We have limited ability to plan death and accidents do happen. Consider the time factor.

I suggest that you invite a probate lawyer to address your local chapter. You can learn about your state's rulings, inheritance rights, and management options such as "living" trusts.


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.

© 1997 Flying Solo™. All rights reserved. Legal Notices

Need more advice or help with this topic? Click here to get information about taking the "Next Step".

Create your personal health plan now and make your wishes known ® using My Final Decisions

© 1986 - 2018 Jan Warner. Please See our Terms of Service and Privacy Policy.
Please feel free to contact us with any comments.

Planning Your Future with 20-20 Vision™



Today, more than 36 million Americans are age 65 or over. There are more than 22 million family-member caregivers. Then there are the Baby Boomers. All are grappling with the major decisions that accompany the latter stages of life. This book is for them. Written by two experts with decades of experience between them, it is a comprehensive guide that instructs readers about how to create a plan to deal with all aspects of aging, helps maximize options and ensure wishes are carried out.

Learn More
Order the book
Create your personal health plan now and make your wishes known ® using My Final Decisions
Suggested Reading:
Separation and Divorce Guidebook
Click for more ....

FS-Be Wary of Credit Issues with Ex
Click for more ....

FS-Becareful of Bargaining Away Alimony As Child Support
Click for more ....

FS-Lawyer Tells Me to Lie & Pension Double Dipped
Click for more ....

FS-On and Off Again Reconciles Can Create Agreement Disasters
Click for more ....

FS-The Dangers of Family Loans
Click for more ....

FS-Transference of Affection & 10 Tips of Divorce
Click for more ....