5 Financial Considerations for Later-in-Life Marriage

Pre-wedding planning can avoid problems down the road

Reviewed by Doretha Clemon

When two people marry later in life, there is more to sort through than wedding gifts. A marriage between two people with longer histories requires decisions concerning finances, children, assets, housing, and retirement planning—to name just a few issues.

Here are five issues you will want to work through with your intended spouse to ensure your financial interests as individuals and as a couple are protected.

Key Takeaways

• Older couples who plan to marry need to share information on their finances, assets, and retirement accounts.
• It’s best to be open about everything from debts to your investment strategies and retirement plans.
• Be sure to update your tax information, determine your filing status, and update your benefit status with the Social Security Administration (SSA).
• Review your estate planning decisions to see that your family’s financial needs are met, and update beneficiary information for wills, life insurance policies, and retirement accounts.
• Consider a prenuptial agreement to ensure that your financial assets are protected in the event of a divorce and to clarify property division if one of you dies.

1. Combining Finances After Marriage

Older people have had more time to accumulate significant assets. They also have adopted a money management style. This can make it harder to merge finances, especially if one partner is a spender and the other is thrifty, or when one partner has considerably more resources than the other.

If either partner has young children from a previous relationship, another set of issues needs to be discussed. There may be child support or alimony to consider and issues of inheritance to clarify.

Some smart planning can help you ease this transition. Here are some pointers:

• Discuss each other’s credit histories by reviewing credit reports and scores together.
• Determine each partner’s current indebtedness and comfort level with debt.
• Reach an agreement about how to handle paychecks, savings, and bill payments.
• Set up one joint banking account and an individual account for each partner.
• Decide who will be the primary breadwinner or whether both will be contributing more or less equally.
• Compare investment strategies and styles, such as whether you have been an aggressive or conservative investor.
• Decide what savings goal you’ll have as a couple.
• Discuss how you envision retirement if you’re still working.
• Talk about where you hope to live—now and in the future.
• Discuss how you will handle everyday child expenses and college tuition for kids from a previous partnership.
• Prepare a formal agreement with any ex-spouses about the children.

2. Updating Tax Filing Information

The Internal Revenue Service (IRS) advises newlyweds to ensure that the names on their tax returns match the names registered with the Social Security Administration (SSA). If not, any tax refund could be delayed.

You also need to consider whether it makes more sense financially to file a joint tax return or to file as married filing separately.

Make sure each of you straightens out any tax issues with a previous spouse before remarrying. If your spouse dies and you remarry before the end of that tax year, you can file a joint return with your new spouse.

3. Estate Planning with a New Spouse

Estate planning is imperative to meet your family’s financial needs and goals after you die. Estate planning is especially important when children from previous relationships are involved because it ensures they will receive what is rightfully theirs.

Keep in mind that state laws regarding estates vary.

Make sure the following documents have up-to-date beneficiary designations:

• Wills
• Life insurance policies
• Retirement accounts
• Investment funds
• Any other financial accounts

Prenuptial Agreements

Many financial planners, estate planners, and accountants advise considering a prenuptial agreement when you marry or remarry later in life. In most states, marriage makes all assets and income community property even if the assets are held in one person’s name.

A prenuptial agreement is a written contract (to which both parties voluntarily agree) that outlines the terms and conditions associated with dividing up financial assets and responsibilities if the marriage dissolves. A prenup is especially important when there are large disparities in income or resources between the two.

The agreement should be discussed and finalized with a lawyer before the marriage (because state laws don’t always recognize postnuptial agreements). The prenuptial agreement can help determine what will be left for each of your respective families to inherit if you divorce or when you die.

A prenup addresses only financial issues. Generally speaking, a prenup cannot address matters dealt with in divorce agreements, such as child support, visitation rights, or custody. You also can’t use it to make your spouse promise to make lasagna every Friday night.

Important

Many of the same details that go into drafting a prenup are required for an estate plan. It’s a good way to ensure you are providing for your spouse and managing your children’s inheritance at the same time.

Trusts and Wills

A prenup can prevent your spouse from challenging your will or any existing trusts. Whether or not a trust is affected will depend on who the beneficiary or beneficiaries are and how the trust was set up, such as whether it was within the context of a divorce agreement or a child support agreement, which could make the trust less flexible.

Some trusts, such as a qualified terminable interest property trust (QTIP), offer both support for your spouse after your death and protections for your first family. A QTIP provides income for your spouse but ensures that when your spouse dies, the assets inherited from you will go to the children from your first marriage or other heirs you choose rather than to your spouse’s heirs.

Finally, AARP advises those marrying later in life to have separate wills rather than a joint will. Having separate wills eases potential complications with the future distribution of property, especially considering that life circumstances can change throughout the years you are married.

Make sure to update your respective powers of attorney, including your medical powers of attorney or healthcare proxies. You also may want to change your beneficiaries for the following items:

• Wills
• Life insurance policies
• Retirement accounts
• Investment funds
• Any other financial accounts

4. Updating Info With the Social Security Administration

Newlyweds should contact the SSA when a name change occurs to make sure their earnings are properly reported.

If the marriage occurs after full retirement age, and your Social Security benefit is less than half of your new spouse’s, you can receive the Social Security benefit on your record plus an additional amount to bring you up to half of your new spouse’s benefit. This will generally occur one year into the marriage.

If you are receiving any divorced spousal benefits, generally, those benefits end if you remarry.

Widows’ or widowers’ benefits aren’t available to a spouse who remarries before age 60. If you remarry after age 60 (or after 50 if you’re disabled), you will still receive benefits based on your former spouse’s income history.

5. Reviewing Medicaid Benefits

Marriage can affect benefits paid by Medicaid, the health benefits program for low-income individuals. Medicaid is based mainly on household income, so a person receiving Medicaid benefits who marries someone with a higher income could lose coverage.

Check the eligibility rules for your state to learn how marriage could impact your benefits.

Should I Keep a Separate Checking Account After Marrying?

The wisest course might be to keep your own checking and savings account but open a joint account with your spouse. The two of you can decide on the amount each will contribute to the joint account and what bills it will be used to pay. But you won’t feel you have to justify every minor expenditure or, worse yet, accidentally withdraw cash that your spouse thought was there to pay the electricity bill.

Should We File Taxes Jointly or Separately?

Most couples choose married filing jointly because this tax status makes them eligible for a number of deductions and credits that are reserved for married couples.

However, some circumstances make filing separately advantageous. If two people have very unequal incomes or one spouse has very high deductible expenses, filing separately can help. If you’re unsure, consult a professional tax preparer.

Is a Prenup a Good Idea?

Many financial planners consider a prenuptial agreement to be a good idea, especially when older people marry. These are people who may have a complicated financial situation. They may have continuing obligations, such as children from a previous marriage or responsibilities for an aging parent. They could have substantial assets, significant debts, or both. The prenup makes it clear what their financial expectations and responsibilities are, as individuals and as a couple.

The Bottom Line

Marriage affects every aspect of your financial life. Sit down as a couple to discuss your present financial situation and future goals.

Consider keeping most assets and property separate to minimize complications, especially when you have children from a previous marriage.

If you didn’t make a prenup but think that it would have been a good idea, you can still create a postnuptial agreement. A postnup may be considered less valid than a prenuptial agreement, but some legal documentation is better than none.

Most importantly: Don’t end your discussion at the aisle. Maintain ongoing discussions about finances throughout your married life, for richer or poorer. 

Read the original article on Investopedia.