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How to Advise Clients Planning a Second Marriage

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CEO Renee Kwok CEO and president Renee Kwok of TFC Financial Management.

Couples looking to remarry often face a unique set of financial issues and should take several important steps, starting with a financial plan and prenuptial agreement, according to Renee Kwok, CEO and president of TFC Financial Management.

More than 1.2 million Americans are expected to get remarried this year, and of all the challenges to making a second or subsequent marriage successful, finances — and clear agreement on what’s yours, what’s mine and what’s ours — are near the top of the list, according to the Boston-based, fee-only advisory with $958 million in assets under management.

Those remarrying tend to “have more knowledge and more baggage” when it comes to financial issues, Kwok told ThinkAdvisor on Wednesday. So, having already been married is often “both an advantage and a disadvantage” for married couples, she said. Although folks who have already been married may have learned lessons from the money mistakes they made the first time around, they also tend to have more assets the second or third time, along with kids and grandkids who enter into legacy planning, which complicates things, she noted.

As is the case when entering any marriage, those getting remarried should maintain an “open line of communication” with their partner and each of them should respect any differences of opinion they have with their mates on money issues, she said. “There’s a lot of emotional baggage that comes along with money and I think the baggage grows over time,” she said, adding that “acknowledging differences” of opinion and “bridging those differences” is important.

One “real mistake” that happens all too often is one spouse staying out of financial discussions and allowing the other to serve as the CFO of the house, she said. Noting that she’s been a financial advisor for more than 30 years, Kwok said she’s seen divorces where one spouse had no idea what assets, debts and liabilities they had in the marriage and what the other person had been spending because they had delegated all financial issues to the other spouse.

Kwok insists on discussing financial issues with both spouses in a second marriage at least once a year, she said, pointing out that can head off a lot of problems because it “reduces the stress between couples and reduces the potential for a financial conflict,” which is “one of the primary source of marital discord and ultimately divorce again.”

One common mistake that advisors often make is that they don’t talk through the potential family implications of estate planning and other financial decisions, she said. Kwok will often meet with a couple to discuss a financial plan before they are remarried and before attorneys enter the picture, and the structure of the financial plans she helps clients create often goes into prenuptial agreements set up by attorneys, she noted.

Kwok strongly recommended that anybody remarrying enter into a prenuptial agreement, “especially when you have two sets of multi-generational families blending, or actually more getting mashed together later in life,” she said. Although many people understand the “legal importance” of such agreements, the process involved to agree on a prenuptial agreement “has as much value as the agreement itself because it forces the couple to face and disclose and discuss often difficult and controversial issues, air out differences and work out how they’re going to operate financially going forward,” she told ThinkAdvisor.

Regardless, couples who are remarrying need to discuss multiple financial issues before a wedding to make sure both are on the same page about their financial resources, debts, obligations to family members, and expectations about spending, charity, gift-giving, retirement and more, she said, noting the many questions that need to be asked include: What will our lifestyle look like? Are we going to keep our houses? Are we going to move into one household together? What are the combined family finances? What are our combined assets? What do we want to keep separate, what’s shared and what’s joined? Where are we going to live? How are we going to budget? How are we going to spend money? Who’s going to be paying the bills? How often do we review this together? And, if one person earns twice as much as the other person, are they going to contribute twice as much?

Kwok, as well as Dan Kern, who is chief investment officer for the 39-year-old TFC, have also witnessed the financial issues involved with remarriages firsthand, because each of them is in a second marriage. Kwok has been remarried for 11 years and “I practice what I preach,” she told us, saying she and her spouse are “very compatible financially even though we have very different views about money and finance.”

Engaged couples and newlyweds make some of the same mistakes as those remarrying. Although being on the same page financially is critical to a happy, long-lasting marriage, 72% of those recently surveyed by Northwestern Mutual and The Knot didn’t have a clear plan when it came to saving for their passions and only 37% of them were talking about their finances monthly, ThinkAdvisor recently reported.

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