Been married more than once? Welcome to the club.
Marriage and money can be a tough mix for any marriage. Complications only increase when you enter wedlock with kids, homes and property from prior marriages.
Here’s this week’s reader question:
You seem to always find answers to many of life’s matters, so I’m going to see if you can give me advice about a second marriage. How should a couple handle moving into a home owned by either one of the partners and doing finances together? How should the new couple handle putting a life together for themselves? Thanks. — JG
As it happens, JG, you came to the right place. Not because I’ve studied this topic; I’m living it.
I just celebrated the fourth anniversary of my second marriage. (Technically, it’s my third, but the first was so short I don’t count that one.)
Here’s the skinny on mixing money and marriage, whether it’s your first or fifth time around.
Is there a prenup?
Suze Orman has said that everyone should have a prenuptial agreement, calling it “a sign of incredible trust and financial openness.”
To put it politely, this statement is hogwash.
A prenuptial agreement is a legal document whose purpose is to divide assets in the event of divorce. Calling it a “sign of incredible trust” is oxymoronic. They’re also expensive, typically costing several thousand dollars and up, so it’s silly to suggest even couples with no money should pay for one.
That being said, there are at least two instances when you do need to consider a prenup. One is when one partner comes into a marriage with a great deal more money than the other. Another is a second marriage, especially if there are children from a previous marriage.
Whether there’s a prenup is an important question, because it sets the stage for how you’ll lay your financial foundation. For example, JG asks, “How should a couple handle moving into a home owned by either one of the partners?”
Before Sara and I married, we got a prenup. I bought the house we live in and built this business long before we met, so the prenup designates these things, along with my retirement accounts and other stuff, as my separate property. But since that’s the case, I pay the expenses associated with these things, such as the mortgage and the costs associated with maintaining and upgrading our home. That’s only fair.
If we needed both incomes to pay housing expenses, however, what would be fair would be for Sara to build equity in proportion to her contributions.
In short, if you have a prenup, use it as a financial road map to help determine who’s responsible for what. If you don’t, simply sit down and discuss what’s reasonable. Come to an agreement, and if possible, make it legal. (You can do a prenup after marriage. It’s called a postnup.) If not, try to at least write it down so you’re both clear.
As Sara and I were putting together our prenup, I was also putting together a new will. This is super important, especially in second marriages.
Why did I need a new will? First, my old one still had my former wife inheriting the bulk of my estate, something I’d let slip. In addition, I needed to make sure in the event of my death my property would go where I wanted. In my case, that was primarily to my new spouse, but in many second marriages that’s not the case.
Example: Say you inherited your mother’s silver, which she inherited from her mother. Upon your death, you want that silver to go your daughter. Now you enter into a second marriage. Three weeks later, you die without a will. As your spouse, your new husband automatically inherits the silver. While he’s free to give it to your daughter, he’s also free to take it to the pawn shop and go play the ponies.
If you don’t care what happens to your money or stuff in the event of divorce or death, you don’t need a prenup or a will. The more you care, the more you need to have your wishes reflected in a legal document.
While prenups are expensive, wills aren’t. Everyone should have one, whether they’re rich or not so rich and whether they’re on their first marriage or their umpteenth.
There’s a lot of opinion out there about how couples, married or otherwise, should conduct their finances. Some say if you share a bed, you should share a checking account. Others say keeping your money separate keeps you together. Then there are those espousing a hybrid approach, with some accounts commingled and others separate.
Which is best? You tell me.
In my case, Sara and I have no commingled accounts. We have our own checking accounts, credit cards and savings accounts. Her car is in her name, mine is in my name. When she wants to buy something, she does, and I do likewise.
We don’t use this system because we’re fiercely independent, nor do we believe it’s the secret to marital bliss. We do it because that’s how we did it before we got married and simply haven’t had any incentive to change.
As for bills, when it comes to the mortgage, as I explained earlier, I pay that, along with the car and home insurance, property taxes, water and electric. She pays for cable, our cellphones and food. When we go out or on vacation, sometimes she’ll pay, sometimes I will. Since I make more money, I tend to pick up more expenses. But since she makes good money and is an awesome and generous person, she never hesitates to offer.
This works for us, but may be completely wrong for you. If both your incomes are required to meet your monthly obligations, it would certainly make sense to have a common account to pay them, perhaps with contributions being made in relation to your incomes. If there’s only one income, both spouses need access to family funds. And no matter what, I believe both should have at least some of their own money to do with as they please.
So how do you decide what will work best for you? That brings us to the final, and most important, point.
The simple answer to all marital questions
While it may sound like our approach to money is cavalier, Sara and I discuss money a lot. When we first started living together, we talked about how to split the expenses. We still review our bills, our savings, our incomes and our goals. We talk about when to retire and how much we’ll need. We’ve discussed whether we should try living off my income and saving hers, opening a joint savings account, buying a different house together, and just about anything else you can imagine.
You name it, we talk about it. That started when we met and hasn’t stopped.
The way to decide what’s best for your money and your marriage may not be easy, but it is simple: communication, and lots of it. Forget what the so-called “experts” recommend. Simply be open, honest, truthful, flexible and available. The path to painlessly merging your money will become clear.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
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I founded Money Talks News in 1991. I’m a CPA, and over the years I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.
This article was originally published on MoneyTalksNews.com as 'Ask Stacy: What’s the Right Way to Mix Money and Marriage?'.