Friday, September 14, 2012

Finances and Second Marriage

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Marriage is a wonderful union between couples who love each other and want to spend their lives together.  However marriage takes good communication skills, hard work and compromise.  Marriage has many benefits such as:  getting reduced rates on insurance, avoid paying estate tax, gifts between spouses are not subject to gift tax, and assets are owned jointly and other tax benefits. 

The New York Times reported that two out of three second marriages fail.  One of the major factors in couples getting divorced is due to finances.  If you are considering marrying a second time answer questions and discuss the following topics prior to getting married:

  1. Preexisting debt
  2. Spending and budgeting habits
  3. Financial obligations to family or others (alimony, child support, loans, assistance, old debts such as judgments, student loans, etc.)
  4. Credit reports and credit scores
  5. What you owe and who you owe?
  6. Who will pay each bill?
  7. How will bills be paid (online, checking account, automatic payments)?
  8. How will purchases be paid?
  9. How will finances be tracked?
  10. Who will track finances?
  11. How will credit cards be used (everyday purchased, balances paid monthly, low balance)?
  12. Prenup
  13. Estate Planning
  14. Retirement goals

When paying bills one issue to consider is how money will be stored. There are three options available:  create joint accounts for everything (investments, checking, savings, etc.) which will pay for all the bills plus individual uses.  Put money in two accounts – where all accounts are kept separate (two individual accounts with no joint accounts).  The last option is a combination of the two previous options where there are joint accounts and then each spouse has a separate account.

If you have financial obligations to others it might be best to have a separate account until those obligations are complete.  Here are 9 tips to consider when marrying a second time.
  1. Create a budget.  Track your spending daily, weekly or monthly.  Include debt and savings in your budget.  Create short and long-term financial goals and stick to them.
  2. Stay honest. Keep open and honest communication about your individual and joint finances.
  3. Share Financial Duties. Make all financial decisions jointly. If you are unable to come to an amicable agreement seek professional assistance.
4.       Protection.  You may want to consider using a prenuptial agreement, trust of other tool if you want to protect asset acquired in the past.
5.       Estate Planning. Think about your future and create a will and trust.  Setup strategies to protect your assets and map out a plan for your heirs.
6.       Credit.  Check your credit report at least once a year and at least 3 months before making a large purchase.  Fix any errors on your credit report and work together to pay down debt.
  1. Reduce Spending.  Spend less than you earn and reduce spending by 30%.
  2. Emergencies.  Create an emergency fund to cover all monthly expenses for at least 9-12 months.
  3. Seek professional help. Consult a financial coach, financial planner or advisor to help you create a budget or spending plan and provide recommendations to help you stay on track.

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