Money Managing Habits
People develop money management habits and strategies over time, and these practices can lead to conflicts during marriages when couples disagree about how to pay the bills and utilize credit. Discussions about how to manage money in a second marriage, are more complicated than in first time marriages because people have already adapted their spending habits to compromise with one individual and doing so again can be both cumbersome and impractical.
Many people pay bills on or around payday and residual money covers groceries, gas and miscellaneous expenses. When children are involved, the bill payment process becomes more complicated and setting up auto-debits for everything from mortgages to school-lunch funds, is for some people an arduous process that they do not want to repeat, unless they absolutely have to.
Other people have separate bill accounts and arrange for equal sums of money to go into their bill accounts after every pay day. The bill account money works similarly to an escrow and covers all the years fixed expenses. Suddenly trying to combine the accounts and bills of two people with different cash flow patterns is complicated, and for people on a tight budget, one miscalculation can lead to bounced checks and hefty late fees.
Couples entering a second marriage sometimes choose to keep their accounts separate and set up a new expense such as a new mortgage, electric bill, or car payment separately. They continue to pay their own credit card and magazine subscriptions as they always have within their own money managing system. This method can lead to problems arising from perceived secrecy, flamboyant spending, and lack of engagement but for people with little room to maneuver financially it is sometimes the best way to operate short term with a gradual integration of finances in the long term.
People who are marrying for the second time usually have an established credit history, and many have past or present obligations that may have fallen into arrears if they were involved in a bitter divorce or experienced loss of income due to the death of a spouse. Someone with excellent credit may be negatively impacted if they open new accounts with a partner whose credit is sketchy.
During marriages, many people co-sign with a spouse or a child on a credit card or automobile, and if that debt goes bad, it could become a problem for the new spouse if they start applying for credit together. To avoid any unexpected surprises, like calls from collection agencies or loan declinations, couples should have frank discussions about their credit history before entering a second marriage. Nothing is worse than having a wonderful wedding and honeymoon only to return home and find a stack of letters from debt collectors that result from your spouse’s ex-partner abandoning a car or credit card.
People who owe back taxes to the I.R.S. could see their new joint checking account containing their new spouse’s payroll suddenly being depleted by the I.R.S. The I.R.S. does not consider who earned the money in a joint account. They are only concerned with the account ownership, and if one owner is delinquent on their taxes, they can extract funds. People should consult their tax advisor before making decisions on opening separate accounts; filing separately will likely lead to higher taxes, which may surpass the sum total of back taxes owed.
Planning The Future
When people enter a second marriage, they often have insurance policies, estates, and wills in place that detail how their financial assets will be divided upon their death. People with children may have set aside funds for future college expenses or a car for their child’s 16th birthday. With a new marriage comes new responsibilities, and their spouse might feel the money would be better spent repairing the roof after a storm or saving for college for a new baby. To avoid potential problems, money can be put into college funds or trust accounts for children prior to the new marriage in which case the money will no longer be available for general use. Alimony and child support are legal obligations many people in second marriages have to contend with and although the disbursement of money to an ex-partner might displease the new spouse it is a legal obligation they have to accept.
In the long term, couples need to decide if they will combine their estates or keep them separate. Every state has specific laws pertaining to spouse’s rights if their husband or wife dies. In some states after a certain number of years, a spouse is entitled to half of their partner’s estate when they die. In these instances, the estate may end up in a lengthy probate hearing if children from the first marriage lose their inheritance to the new spouse and contest the will.
These situations become even more complicated when people who are older in life and have grandchildren decide to marry. Setting up trust accounts for day to day affairs, as well as making long term plans for college expenses, helps solve the problem and avoid family conflicts. Candid conversations involving children and relatives about how couples plan to manage money in a second marriage can help prevent most issues.
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