Couples who marry as young adults usually don't bring a lot of financial baggage to the table, aside from student loans and car payments. But what if you're getting married in your 40s, 50s or later -- after divorce, children and years of building assets have complicated your economic situation? Do you and your spouse-to-be have a game plan for how to comingle your finances?
The key is to have a frank, comprehensive conversation with your partner long before you walk down the aisle. That might well involve seeking legal and professional advice. But before you bring in the professionals to start drafting legal documents, there are a few steps you can take to better know where you stand:
First, catalog each person's preexisting assets and debts. Include assets like income from paychecks, Social Security, investment accounts, bank account balances, retirement benefits (pensions, IRAs, 401[k] plans, whole life insurance) and equity in homes, cars and other major purchases. Debts might include ongoing expenses such as child support, insurance premiums, rent or mortgage payments, credit card balances, outstanding car loans and medical bills.
Use that financial information to launch discussions about important issues such as:
Update legal documents. You'll each probably want to amend your will, financial and medical powers of attorney, life insurance policies, retirement accounts, investment funds and any other accounts where beneficiaries or people who control your health or finances are named. This could be particularly important if you want to remove a previous spouse or to reallocate who should inherit what.
Prenuptial agreement. You also might want to have your lawyer draft a prenuptial agreement (prenup) which is a written contract that outlines terms and conditions for dividing a couple's assets and financial responsibilities -- basically who gets what if you divorce or one of you dies. It's wise to settle these matters before getting married, because state laws don't always recognize postnuptial agreements.
Having a valid prenup might prevent your spouse from challenging terms of your will or preexisting trusts after you die -- sad to say, that does happen on occasion. For example, under state law, unless your prenup says otherwise, your spouse could be entitled to a specific portion of your marital assets after divorce or death, no matter what your will specifies. Laws vary from state to state, but typically your spouse could be entitled to up to one-half of marital assets in a divorce and from one-third to one-half if you die.
Retirement accounts. There are several interesting twists when it comes to bequeathing retirement accounts:
Congratulations on finding love later in life. Don't be put off by all the important financial decisions you'll need to make together, but do be informed, so your marriage gets off on the right foot.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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