Discuss financial plans before rehearsal dinner

THE BALTIMORE SUN

If you're attending a wedding, there's a good chance that either the bride, groom, or both have been down the aisle before.

Forty-three percent of weddings are remarriages for at least one partner, according to the Stepfamily Association of America. And while love may be better the second time around, it can also be a lot more complicated financially.

Do partners commingle assets built up in an earlier marriage? Do children from a first marriage inherit assets acquired during that union? How much, if at all, is a new spouse expected to contribute to the college education of stepchildren? And can partners who have children from previous marriages afford to have a child together?

The answers aren't always easy and differ from household to household. Experts agree, though, that such financial issues should be discussed long before couples pick a honeymoon spot.

"To find love again the second time is wonderful. To have it clouded with financial issues is very sad," said Ginita Wall, co-founder of the Women's Institute for Financial Education in San Diego. "That's why people don't talk about the financial issues. They let them creep up on them, and that's where the problems begin."

Sixty percent of second marriages end in divorce, a higher failure rate than for first unions. While friction over finances isn't the No. 1 reason for the breakups, it can contribute, experts said.

Rather than wait for trouble to brew, develop a financial plan for your marriage much like you would for a business that's merging or reorganizing, experts advised. "If a corporation did a reorganization and said, 'Let's just play it by ear,' we'd have total chaos," said Barry Miller, a counselor at Pace University in New York.

Contracts are part of business, and most experts recommend a prenuptial agreement in second marriages, particularly when one partner has substantially more assets than the other. Basically, these contracts spell out how assets will be divided in the event of divorce or death.

With prenups, both partners must make full disclosure of assets; each should be represented by separate legal counsel and neither should be coerced into signing the pact, said Baltimore lawyer Paul Dorf. On that last point, it's best to broach the prenup far in advance of the wedding, rather than whip one out at the rehearsal dinner.

John and Jackie Stanford of Columbia began work on a prenup three months before their February 1999 wedding. Both had been widowed after long marriages. Jackie has a daughter from her first marriage; John has two sons.

Under the couple's prenup, assets Jackie brought to the marriage will be inherited by her daughter and John's property will go to his sons. The Stanfords also informed their children of their prenup pact, even though the children never brought the subject up. "We didn't want them to think that either one of us is coming in as a gold digger," said Jackie, 56.

John, 59, said the document assures that "you're marrying because you want to be with each other," and not for some financial reason.

"It doesn't take the romance out; it was putting things in order," agreed Jackie.

Even if you don't go through with a prenup, talking about what you would put into one is often a good way to start talking about finances, said Lois Vitt, founding director of the Institute for Socio-Financial Studies in Middleburg, Va.

Also before leaping into marriage, both partners should get a copy of their own credit report and share it with their intended, said Joanne Hamilton of Maryland Cooperative Extension in Anne Arundel County.

Maybe this sounds even less romantic than a prenup, but it's a good way to make sure that neither partner has financial hangovers from the first marriage.

For instance, an ex-spouse might have reneged on an agreement to pay off a joint credit card, leaving the newlyweds on the hook for the unpaid balance, Hamilton said. That credit problem may come back to haunt them when they try to buy a house, she said.

Also, make sure beneficiary designations on bank accounts, Individual Retirement Accounts and savings bonds are up to date. "Many a spouse has found that when their husband or wife suddenly died, that the beneficiary was the ex-spouse," Hamilton said.

Older couples should make sure each mate has a long-term care insurance policy before marrying, said Baltimore lawyer Jason Frank. If one partner gets sick, care can quickly eat up a large chunk of both spouses' assets before Medicaid kicks in, he said.

If both partners have children from previous marriages, financial planning gets more complicated. Parents must discuss a range of issues, from how much to spend on birthdays to how to pay for college.

Parents also must realize that younger children from different marriages probably have lived under different house rules when it comes to money. Some children may get an allowance, while others must earn their spending money.

If children are old enough to understand money matters, they should be included in the conversations, Vitt said.

Estate planning becomes more of an issue for couples with older children, who are more likely to be concerned about their inheritance. "Kids believe money should follow a blood line and not a wedding band," said Margorie Engel, president of the Stepfamily Association in Boston.

Children may not broach the subject, but parents should, especially if they've made promises about inheritances to their offspring, experts said.

If you want to leave assets to stepchildren, make sure you have a will, advised Engel. Without one, your property at death will be divided according to state law, which usually disburses assets first to your spouse, biological children and other relatives, she said.

Those wanting to provide for a surviving spouse and also control who will eventually inherit the assets should consider a bypass or qualified terminable interest property (Q-TIP) trust, said Brent Lipschultz, senior manager with KPMG LLP in New York.

The two trusts have different tax consequences that must be weighed. Each allows a surviving spouse to draw income from the trust's assets, he said. On the death of the second spouse, the assets will go to beneficiaries designated by the first spouse.

Engel recommends revisiting legal documents, including the prenup, every few years to make sure they still match your intentions.

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com

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