Littlejohn: Five steps to protect yourself financially before remarrying
If you’re considering remarrying after divorce, you’re not alone. In fact, around 58% of adults decide to remarry after their first marriages end in divorce, according to Legal Jobs’ divorce statistics.
For many, that second or third marriage comes later in life, often accompanied by additional considerations like children from a prior marriage and existing investment accounts, real estate, and business interests. That’s why it’s important to understand how to protect your assets before remarrying.
Because while no one anticipates their remarriage ending in divorce, it happens. In addition, if your marriage lasts, failing to make your wishes known before you pass away is likely to leave the distribution of your assets up to the laws of your state.
Fortunately, there are steps you can take to protect and potentially distribute your assets before remarrying:
1: Consider a prenup.
A prenuptial agreement or “prenup” is a contract two people enter into before they get married.Typically, it will (a) list all the assets and liabilities each person has coming into the marriage and (b) specify their ownership rights if the marriage ends.
In other words, it details who owns what right now and who will own what in the future if the marriage ends. A prenup can be essential when remarrying, especially if you have children from a previous marriage or assets you want to protect.
In some ways, a prenup is like an emergency landing plan for an aircraft. You don’t plan to use it and odds are you won’t have to, but if you do end up needing it, it’s essential. It outlines what should happen in the worst-case scenario, solely operating as a backup plan if your marriage ends prematurely.
Here are some of the ways a prenup can help:
- It clearly defines the financial rights of each party before and after marriage. This can help prevent arguments and disputes in case of divorce.
- It can provide protection from debts. This can be especially helpful if your new spouse has debts when you get married.
- Upon your death, it can pass separate property directly to any children from prior marriages. Otherwise, state law could stipulate that your spouse has a right to most or all of your assets. This could leave some or all of your children with nothing.
2: If you’ve already remarried, consider a postnup.
A postnuptial agreement or “postnup” is like a prenup, but it’s created after marriage rather than before. It can be a critical tool for anyone who regrets not signing a prenup before walking down the aisle or for anyone whose financial or personal circumstances have changed since getting married.
Like a prenup, a postnup specifies a delineation of assets, detailing who owns what now and who will own what in the future if the marriage ends. It can also outline the financial obligations (alimony, legal fees, etc.) of each spouse in the event of divorce or separation. Additionally, for those remarrying with children from a prior marriage, a postnup can distribute your assets according to your wishes after you’ve passed.
3: Discuss the possibility of keeping your finances separate.
While many choose to combine finances when they marry, it’s usually not as simple when remarrying. Many second or third marriages occur later in life, when your financial situation is more complex.
As such, it may make sense to keep your finances separate, allowing you to manage your assets, income, debts, and expenses individually. This allows both spouses to maintain financial freedom and independence while working together to achieve common goals and aspirations.
4: Establish a revocable living trust.
A revocable living trust is an estate planning tool you establish during your life that can be changed at any time. It comes with a number of unique benefits. For example, it allows your estate to avoid the probate process and specifies what will happen to your assets after you die.
To establish a revocable living trust, consult an estate planning attorney. They will work with you to draft a trust document that will best fit your needs.
5: Update your estate plan and beneficiary designations.
Lastly, consider updating your existing estate plan and beneficiaries before remarrying. Many people are aware of the importance of an estate plan, so they often create one during their first marriage. However, many then fail to update these plans and their beneficiary designations after their marriage ends. This can lead to unintended (and potentially unfavorable) consequences if tragedy strikes.
While this is not a comprehensive list, these steps should at least get you started when it comes to thinking about what you should do in order to put yourself in the best possible position before remarrying. Time spent on these steps now can prevent headaches and hurt for you and your loved ones in the future. Be sure to enlist the help of a trusted wealth manager and/or estate planning attorney along the way.
Brian Littlejohn, MBA, CFP®, CFA is the founder of Sherwood Wealth Management, an independent registered investment advisor firm. He lives in Woody Creek and works with clients in the Roaring Fork Valley and beyond.