Remarriage Finances: Planning For A Family Merger--Not A Hostile Takeover
Part 9: Getting Started As a Remarriage Couple:
Putting Your Remarriage Financial Plan Into Action
By: Joseph Warren Kniskern, Esq.
In the past three installments of our continuing series on financial issues, we have reviewed many of the unique and perplexing issues most couples face in remarriage--stepfamily estate planning matters, housing and re-titling of assets, insurance for all blending family members, support obligations with ex-spouses, among many other concerns. Now it's time to begin putting your remarriage financial plan into action!
Experts offer the following general guidance for handling marital finances:
Make Joint Financial Decisions. This is true even if one spouse earns all of the family income. Remember, you and your spouse are a financial team.
Schedule Regular Talks About Finances. Be sure you have enough time to review and discuss all of the issues--preferably on a weekly basis. Plan your talks at specific times, when there's no additional pressure. Make it an interesting time. View it as an intimate way to get to know each other better. Listen to each other's opinions regarding money without being judgmental. Be careful not to detour into destructive criticism. Each spouse should prepare an agenda in advance of this meeting listing the topics of concern. Make sure that each partner receives equal time. And, above all, don't forget to pray!
Keep Accurate and Complete Records. Why do disreputable businesses operate primarily on a cash-only basis? The same reason you shouldn't--the money is untraceable.
Computer programs such as Quicken and Microsoft Money easily help track a family's annual income and expenses. They provide very helpful and informative printouts and even graphs to keep a remarried couple fully informed as to their financial plan.
But you do not need a computer to track your family finances. Some couples use a loose-leaf binder. In one column, they record all the money they have coming in, with the date and amount of each bill for the next three months logged in the next column. In minutes they know exactly where all the family money will go.
Disclosure. Share information. In a divorce situation, if one spouse has all of the financial information, there is a temptation to control and stonewall the other spouse and even hide assets.
Make sure each spouse is fully aware of how the finances are being handled. A woman who doesn't know about her husband's finances and becomes a widow may find out--too late--that her husband's pension plan or life insurance is inadequate to support her and her children, or that he ran up debts for which she may now be responsible.
But just as it is important for the "bookkeeper" spouse to input the data and provide reports to his or her mate, it is just as important that the receiving spouse read the reports to keep up with what is going on. I know of one couple where the husband provided the wife with regular written reports and offered to sit down with her to review and discuss the details. She refused saying, "I don't want to know about this stuff. You take care of it." But when the couple divorced, one of the first complaints made by the wife's attorney was that the husband did not keep the wife informed about finances.
Decide Whether To Pool Assets. Make a mutual decision on whether you and your spouse want to blend incomes, pool your assets or keep some private. "In some marriages, both partners have their own pools of money, because they realize they're two separate individuals with two brains," notes Diane Sollee, Director of The Coalition for Marriage, Family and Couples Education, an information clearinghouse in Washington, D.C. For other couples, however, having independent finances may prove to be a big problem. As we discussed earlier in this series regarding the significant issues of separateness, having completely separate accounts could be a "red flag" for deeper problems down the line. Also consider how any decisions made in this regard will affect your respective children in the remarriage.
Watch Out For The Small Stuff. Couples can cut 20%-30% of their expenses by eliminating some of the pesky little extravagances, such as premium cable channels, ordering "caffe lattes" instead of regular coffee, and similar items. Forget about buying lottery tickets--not only is it gambling, but your odds of winning are about the same whether you play or not!
Monitor Debts. Since either spouse could become liable for his or her remarriage mate's personal debts, each spouse should be aware of how much indebtedness exists--especially since joint and personal liabilities can adversely affect each other's credit ratings. One partner's bad loan can hurt a couple's mortgage loan application.
By year-end 2001, the collective legacy of all Americans is that we are $7.3 trillion dollars in debt. From 1989 to 1998, the average American family's net worth jumped 20 percent. That's the good news. The bad news is that debt also increased. In 1990, the average household credit-card balance was $2,985, but by 2000, the average balance had more than doubled to $8,123. And while 401(k) contributions increased dramatically during the 1990s, Americans did not save cash. Savings plummeted from 10.9 percent of disposable income in 1982 to negative 0.1 percent in 2000.
According to Debtor's Anonymous, there are three different aspects of debt problems: (1) compulsive spending, meaning an inability to control spending; (2) unsecured debting, such as using credit cards to build up a mounting debt load; and (3) under-earning, or spending more than you earn or ever have a chance to earn. But by far, one of the greatest problems facing most couples is credit card debt. In a 1977 survey, 27 percent of people said credit cards were "bad" for consumers. By 2000, that number jumped to 51 percent, with 41 percent agreeing that everyone would be better off if credit cards didn't exist. Even so, cardholders are charging faster than ever as their credit cards feed frivolous shopping and nurture a "luxury fever" that sinks too many families into bankruptcy. Savings are falling, while spending and tardy mortgages are rising.
According to the National Foundation For Credit Counseling, here is how to bail out: (1) shelve your credit cards for awhile and curb spending, since you cannot reduce your debt by constantly adding to it; (2) total up the debts you have and the respective interest rates you are paying; (3) develop a repayment plan, paying off the credit cards with the highest interest rates first and always paying at least the minimum amount to avoid late fees; and (4) raise extra money by cutting expenses, holding garage sales, taking a part-time job, etc. Once out of debt, stay debt-free by never charging anything you cannot pay off in 90 days. And, although it does carry the advantages of interest being tax-deductible with a lower rate than credit cards, resist the urge to refinance and increase your home mortgage. Why? You just do not get out of debt by borrowing more. Debt consolidation in a home mortgage is like putting "Band-Aids on bullet wounds". If these steps do not solve the problem, get professional help and credit counseling.
Maintain An Emergency Fund. If at all possible, a good rule of thumb is to set aside a "rainy day" emergency fund of after-tax income equal to three to six months of household expenses in easily tapped interest-bearing savings accounts or money-market funds that allow you to write checks quickly. But the real amount may be more or less, depending on how much you make and spend, as well as the particular needs of your blended family. These funds help pay for life's unexpected events (illness, job loss), and allow you to keep saving money while covering regular living expenses.
Each Spouse Should Have Discretionary Funds. Each spouse needs some "fun money" to spend without feeling that every expenditure needs to be accounted for or "begging" for money from each other.
Understand Tax Returns. Ask questions--don't worry about sounding ignorant. Don't clam up simply because you feel it is not romantic to deal with these issues. Ignorance about tax matters can be very costly!
Remember also that, upon remarriage, you and your spouse will need to make sure that the married names you use on your tax returns match those registered with the Social Security Administration. Any mismatch between a new remarried name on the tax return, and a Social Security number under a spouse's former married name, could unexpectedly increase a tax bill and reduce the size of any refund. It is easy to inform the Social Security Administration of name changes by filing Form SS-5 at any local Agency office. It usually takes approximately two weeks to have the change verified.
A remarried couple also must provide Social Security numbers for each dependent child claimed on the tax return. If the couple has any adopted children without numbers, the parents can apply for an adoption taxpayer identification number, or ATIN (which is used in place of a Social Security number on the tax return), by filing Form W-7A with the Internal Revenue Service.
Never Sign Contracts You Don't Understand. Whether it is a contract to buy or sell a house, purchasing a maintenance contract on home appliances, or even your own estate planning documents, make certain that you know what you are signing. If you are unsure about anything, ask questions first--not later. Seek legal counsel if you need it.
But there is still another "sticky issue" which many couples considering remarriage after death or divorce of a spouse cannot ignore, and that is the inevitable subject of...premarital agreements and other private arrangements. We'll tackle some of the legal and emotional issues inherent in that controversial topic in the next two installments of our series.
Next: Private Trusts and Premarital Agreements In Remarriage.
Joseph Warren Kniskern is a Christian attorney, mediator, and author of "When The Vow Breaks: A Survival and Recovery Guide For Christians Facing Divorce," and "Making A NEW Vow: A Christian Guide To Remarriage And Blending Families," both available from Broadman & Holman Publishers, Inc. in Nashville, Tennessee.
/ Some of these principles appear in What Every Woman Should Know About Her Husband's Money, Shelby White (Turtle Bay Books: ,1993).
/ Quoted in "Don't Let Money Troubles Ruin Your Marriage," Janine S. Pouliot, Parade Magazine, April 16, 2000, Page 25.
3/ Newsweek Magazine, August 27, 2001, P. 36-37.