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Financial Planning > College Planning > Student Loan Debt

Before They Tie The Knot, Ask Them to Ink the Plan

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Few things can imperil a marriage faster than differences over money. The tolling of the metaphorical wedding bell, which once united bride and groom in marital bliss, may later turn into a warning bell for one spouse, signifying the urgent need to prepare for retirement. For the other, the bell might herald winning the jackpot at the local casino or deals to be had at a department store grand opening.

The danger of a financial rift leading to a break-up, advisors say, is potentially greater among boomer couples who remarry than among 20-something newlyweds. One reason: With retirement age closing in, and greater assets and debts to manage, remarrying boomer couples have more at stake.

“You don’t want to wait to ask about your prospective spouse’s retirement plans until after you’ve tied the knot,” says Joslyn Ewart, a financial planner and certified divorce financial analyst with Entrust Financial, Wayne, Pa. “[Boomers] who are planning to remarry often avoid money questions because they feel the probing will create hard feelings. But it could be too late when they discover that the spouse-to-be hasn’t prepared at all.”

Carol Ann Wilson, founder of the Financial Divorce Association of the financial planning firm Carol Ann Wilson LLC, Longmont, Colo., agrees, adding that boomer newlyweds need to invest time putting together a workable savings plan. That’s all the more crucial in cases where one of the spouses is a spendthrift — and prepared to unload a mountain of debt on his or significant other.

That outcome is less likely, advisors say, where one of the spouses is determined to keep personal finances separate, often because of bad experiences during a first marriage. Typically, advisors say, newly married couples will use informal approaches to maintain a division of assets.

Initially, this may entail keeping separate checking and credit cards accounts; and, perhaps after some years, establishing a joint account for mutual expenses. Or they might simply agree that certain debts — a student loan, business loan or second home mortgage — will be repaid by one or the other spouse.

“Debts, which I see enormous amounts of, can make for a tough situation,” says Wilson. “If, say, the husband brings a huge amount of debt to the marriage, he might agree the debt will always be his and that she will never share in it. But a court could decide [in the event of divorce] that the debt is jointly held.”

Hence, the value of a prenuptial agreement. Though not widely used except among the high-net-worth, a “prenup” commonly provides rights to spousal supports during or after the dissolution of marriage, plus provisions for the division of property should the couple divorce.

A carve-up of assets might extend to a spouse’s restricted stock or pension plan, money to be directed to a child’s college education or funding of long term care costs for an aging parent. If the husband or wife is also a business owner, a prenup can also prove crucial to maintaining the integrity of a succession plan.

Wilson cites the case of a female owner of a successful florist shop that she held as marital property. Upon divorce, her ex-husband secured half the value of the business — assets that she intended to go to the children.

“It’s absolutely a good idea to draft a prenuptial agreement. Couples who are just starting out typically don’t think this because there is less at stake. But if the spouses are bringing substantial assets and/or children to the relationship, or if there is great disparity in earnings potential, then they definitely should have a pre-marital agreement.”

To be sure, a prenup can be a double-edged sword. Many divorce decrees, for example, stipulate that upon remarriage, alimony payments stop. Formerly dependant spouses thus need to weigh the financial benefits of remarrying against the loss of alimony.

Advisors say that individuals should also not remarry before drafting or revising a will, particularly if each of the partners is bringing kids from a previous marriage to the relationship. If a hypothetical Sarah and John marry, and Sarah later dies without having designated certain assets for her children, then John gets the assets and may pass them on to his kids. Or he may hold the assets for the benefit of a future wife and children.

Then again, he might not. Ewart says that the “money messages” that clients receive from an early age can dramatically affect how they conduct their finances as adults. Advisors, she adds, should probe clients about these messages, as they can shed light on the client’s needs and values. More often than not, such messages come as a surprise to the spouse.

“The starting place for me is always to talk about how money was handled in your home when you were growing up,” says Ewart. “More than 50% of the time during discussions one of the partners will say, ‘Wow, I didn’t know that about you!’ It’s very revealing because dysfunctional or even effective behaviors that partners exhibit can usually be traced to something they modeled when growing up. That sets the stage for the conversation.”


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