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Oct 22, 2020

Second Marriages and Personal Financial Planning Priorities

At the PICPA Personal Financial Planning Conference on Nov. 5, Brian Carney, cofounder of RiversEdge Advisors in Wilmington, Del., will present a session on personal financial planning considerations for individuals entering into a second marriage. Among the topics he will discuss are budgeting concerns, assets and debt management, and estate planning. In this podcast, he offers a sneak peek at his upcoming presentation.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor


Podcast Transcript

On November 5th, at the PICPA Personal Financial Planning Conference, presented via webcast, today's guest Brian Carney, cofounder of RiversEdge Advisors in Wilmington, Del., will present a session on financial planning for remarriage after divorce. Among the aspects he will address are budgeting considerations, insurance and benefit plan issues, asset and debt management, and so much more. On this episode, he offers a sneak preview of his session.

What budgeting considerations should be made when planning for remarriage after divorce?

[Carney] I think the first thing is that the new couple has to determine what we call you vs. me vs. us. So, are we going to be managing one pot of money as an “us,” or are we going to be managing two separate pots of money? So, your money and then mine. That really helps us come up with a solution for what's the best way to budget.

Having a system in place – I always call it a financial system – helps people run money in a family. Having that discussion before you even get married is wildly important, okay. The other thing is I always say that you need to have a budget and most people always have them. They say, "Oh, I have a budget," and then they look and it's really in their head.

We really want that budget to be on paper or using some sort of a software system, like in Excel or mint.com or Personal Capital, so you can see exactly what's coming in and exactly what's going out. I think being totally transparent with your new spouse is going to set you up in the long run.

So we want to make sure that we include any possible expense. That could be alimony and child support to an ex-spouse, and it could also be tuition obligations for kids from a previous marriage. Being able to have all of that down on paper will really be helpful for the new couple.

Would there be any recommendations you might have as it relates to estate planning when you're remarrying?

[Carney] I think this is one of the most underlooked parts of a second marriage, and anytime you have children from a previous marriage, you have an estate planning situation that's a little bit complicated if you're going to get married again. If you have children from a previous marriage and children in the new marriage, that makes things even way more complicated.

The first step that we always want to talk about is making sure that before you get married, you have upfront and candid conversations about what you intend to happen once you do combine assets and once you do combine your family wealth situation, what's going to happen at a death.

You can really knock a lot of problems off the list if you just have a candid conversation about what's going to happen. The most important document that can be signed is really a beneficiary designation form. Unfortunately, in the past, we've seen ex-spouses get rich from an old life insurance policy that the insured forgets to change the beneficiary designation.

Taking five minutes just to update and make sure all your beneficiary forms are complete is a really good first step and then you really need to have the conversation about what's going to happen to ... there's certain big stumbling blocks, like the house. If I am getting remarried, I'm going to leave living in this house with my new spouse and, in the event that I die, what's going to happen to that? Is that going to go to my kids? Is it going to go to the spouse? You really want to make sure that that's taken care of beforehand and that conversations had ahead of time.

The other recommendation we always make is you really should probably consider a trust. Now, I'm not an attorney and I don't pretend to be, but having a trust can really help design and control money from what we call “the grave.” You can make decisions after you die and have everything set up once you pass away to be sure that your intentions are carried out.

When you're entering into a second marriage, what are the insurance and benefit plan issues that should be considered?

[Carney] I would say that's twofold. First of all, when you have health insurance, unfortunately, health insurance is a huge expense in many marriages today. You do want to do a full analysis to see if it makes sense to combine and get on one plan, or if it makes sense to continue to be on separate health insurance plans.

A lot of money can typically be saved by going to the better plan that's provided by the employer and, with the cost of health insurance, that really can be a significant amount of savings that happens.

The second piece is, how are you going to tackle retirement? Not to bring it up again, but that goes back to the you vs. me vs. us. Are we planning on retiring on one pot of money or am I retiring on my money and you're retiring on your money? If the goal is to retire on the same bucket of money, we want to be sure that we're maximizing all of the retirement options available to us through our employer. That means really trying to get as much money away for the family in order to be able to retire successfully once you do decide that it's time to retire.

What would you say is the best way to manage assets and debts in a post-divorce remarriage?

[Carney] The first step is you really need to determine your why. Why are you saving money? What's the point? Really when you think about things with the end in mind, that helps us build a better strategy. We always talk about creating a bucket system for when you plan to use money and really break in your money and your investment strategy into timeframes.

We would say your first bucket would be zero to three years. That would include your emergency reserve fund, which should be roughly three to six months of expenses. Also, any goals that you have in the next three years. Are you going to buy a new house? Are you going to buy a vacation home? Are you going to redo your kitchen?

Anything in that bucket has to be invested conservatively or put completely into a savings account and then you go to the next bucket, which would be a mid-range bucket. Any goal that's three to 15 years out – and that would have a different investment strategy – and then finally long-term, and oftentimes that's retirement money. That could be your most aggressive bucket of money because you have the longest amount of time to be able to overcome the downturn in the market.

So being able to create an investment strategy based off of when you plan to use your money is really the way that most second marriages can be successful long-term.

The other thing is you really want to create a family, what we call, investment policy statement. That allows us to say, “This is our strategy. We're going to be completely strategic and tactical in the way that we attack investments,” so that really prevents emotions from coming into play. Emotions can really wreak havoc on an investment strategy, especially when the market goes down.

Most of the time, it does cause people to make rash decisions about what they want to do with their money or their investments. If you have a written-out investment policy statement, it allows you to go back to that when the market's going haywire and say, "Oh, this is our strategy. This is why we decided to go in this direction. This is the plan that we came up with. We're going to stick to it no matter what happens with the market."

Being able to remove that emotional, or that behavioral, finance aspect out of it really can help things from an investment management perspective.

This is an open-ended question, but are there other financial situations to consider for those that are in this circumstance of moving into a second marriage?

[Carney] I would say the biggest one is in the event that your next spouse, when we go into a second marriage situation, if one spouse is significantly older than the other that creates unique planning issues and what sometimes will happen is when you're talking about retiring, you may have one person retiring 10, 15, or 20 years before the other spouse. That creates a special planning situation.

The other aspect that falls into that is likely the older spouse is going to die before the younger spouse, and we want to make sure that we have enough money in place that, if that surviving spouse is 20 years younger, they have enough money to live for an extended period of time. That's one of the really big planning issues with second marriages that we see, and being able to make sure that you have enough money for the years required to either retire or post death.

For the couple that's planning for a second marriage, what would you say is a final takeaway here? What's your most important financial recommendation for that couple?

[Carney] I can't stress enough the importance of having upfront and candid conversations before you get married. Being able to be completely upfront and honest about everything that's going on financially really will set the marriage up to be successful.

One of the top five reasons that people get divorced is due to finances. If you tackle everything upfront before the wedding, it really will have great benefits long-term. The one thing that I always will say is you really want to let all of the skeletons out of the closet.

Do you have a bankruptcy in your past? Have you had a house foreclosed on? Is your credit horrible? Are you afraid to invest money? What are your overall feelings about money? Are you a spender? Are you a saver? If you can have this upfront and open dialogue and really be able to have the marriage be started on the right foot, and finances do play a role in marriage. Money is a key ingredient in any marriage, and how you handle it, and the structure that you have behind it. If you come up with a plan before you get married, there can't be any surprises and we all know how most people hate surprises.

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Podcast transcripts are provided as a summary of the conversation and have been lightly edited for the written medium. The transcript is not a verbatim representation of the interview.
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