It’s complicated enough to combine finances when you’re young, have few assets and no children—and you’re preparing to spend your entire adult life with a partner.
But many people find themselves marrying again, once they have assets of their own, retirement accounts, life insurance and, importantly, children. This could be the case for anyone who gets married later in life, but is more likely to crop up in second marriages.
Start with Honesty
The first step to combining finances in any marriage is to have an honest discussion with your partner—ideally before you get married—about everything related to money. Discuss your assets, your debts and all of your income sources and financial responsibilities. This is a good idea in first marriages, too, but because second marriages often come later in life it’s more likely that you or your spouse will have complicated financial pictures. It’s most important at this stage to be completely open and honest, no matter how uncomfortable it makes you.
Consider a Prenup
Some people come into a second marriage after a disastrous end to their first marriage. But any marriage, whether it’s your first or your third, can end in divorce. If you have assets you want to make sure you don’t lose even if the marriage doesn’t work out, a prenuptial agreement can protect you.
Consider the ‘Pot’ System
Instead of keeping finances either completely combined (as in all money is kept in jointly-held accounts) or completely separate (each partner keeps money in his or her own account), many experts recommend a 3-pot system. Both partners have their own accounts, but there is also a joint account that is used to pay for joint expenses, like groceries, housing expenses and vacations. This gives each partner the freedom of an individual account while still creating a sense of shared financial responsibility. It also allows couples to decide what kinds of financial responsibilities really are jointly held, and which ones should be individual responsibilities.
Don’t Neglect Estate Planning
If you or your spouse have children from a previous relationship, it’s essential to create an estate plan in case of your (or your spouse’s) death. [Here's a full guide on estate planning for a second marriage.] The default rules depend on your state, but failing to have a plan in place could mean your children are disinherited… or that your spouse has to sell your joint residence and give your kids from a previous relationship half of the proceeds. Exactly how you want your assets distributed after your death is personal, but it’s something that should be discussed as you talk about the extent to which you want to combine finances.
The bottom line is that every couple will solve the financial puzzle differently. The key is to have open, honest discussions about money that respect everyone’s priorities and to recognize that money can be an emotional topic. Addressing financial issues will not only protect you if your second marriage ends, either from death or divorce—it will also make your marriage stronger and more likely to succeed.