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Love and Remarriage: How to Avoid Pitfalls

Before entering a second marriage for both of them, Shawn Britt and her fiancé talked about money. That’s money as in not only how to pay household expenses but also how to pay for potential long-term care expenses, as well as how to handle estate and legacy issues.

It may not sound very romantic, but Britt said they hashed things out this way because they love one another. Many of the solutions, by the way, came from life insurance.

Also, “We knew what to do,” she said in an interview. She is director of advanced sales with a specialty in life insurance and life/long-term care insurance at Nationwide Financial, she explained, and her husband is a retirement planner focusing on insurance, annuities and securities.

“Too many people don’t think of the ramifications of a second marriage,” she contended, citing examples gleaned from work as well as from her personal connections. What’s more, she added, many don’t know what to do. That combination can zap even the most promising of second unions. Britt said there’s another way.

Many couples don’t realize that a second trip to the altar can be filled with financial and estate planning pitfalls. Proper planning with life insurance can help couples and families avoid many of these potential hazards.

Taboo?

Many who plan to remarry don’t even talk about the financial aspects involved. “They assume that everything will work out fine, they have stars in their eyes or they think their spouse will save them from any financial problems,” Britt said. “Some even feel insulted if the other person brings up the topic.”

The no-talk approach might work for a while. The couple might buy a home together, establish a two-income lifestyle and maybe split the household expenses 50/50, she said. The spouses may even retire together with a nice retirement income from their respective Social Security checks and earnings from their respective assets.

But later on, one of the spouses may become seriously ill or die. That’s when the earlier failure to address financial issues can create some nasty surprises.

Often, the husband dies first, Britt said. If he has left his assets to his children from a prior marriage, and if there has been no planning around that, the new widow suddenly finds she no longer has her husband’s assets or his income. Or if the wife does get the assets, the husband’s children may get no inheritance. Either way, someone is left hurting from financial woe as well as from grief.

The issue can affect a large number of Americans. According to 2009 Census data estimates, 11.9 percent of nearly 116.8 million people ages 15 and older had married twice and only 9 percent were still married that year.

Researchers point out that while remarriage rates have declined in the last two decades, cohabitation rates have increased. For example, the remarriage rate per 1,000 previously marrieds declined by roughly 40 percent from 1990 to 2011, according to Susan L. Brown and I-Fen Lin at the National Center for Family & Marriage Research at Bowling Green State University.

However, at least some of the formerly married have elected to cohabit. As Brown and Fen put it, much of the drop in remarriage rates is due to the rise of cohabitation as well as the older ages at first marriage. The data do not show the formerly married who have elected to cohabit post-divorce, but a 2011 analysis of government data by Pew Research confirms that national cohabitation rates are up. Specifically, the share of opposite-sex 30- to 44-year-olds living as unmarried couples more than doubled from 1995 to 2010, according to Pew researchers Richard Fry and D’Vera Cohn.

“Not being married doesn’t solve the problem,” Britt commented. “For instance, one man who had been cohabiting with his love ended up developing Alzheimer’s disease. The man’s son removed the man from the couple’s home, put him in an Alzheimer’s unit and wouldn’t let the woman (the father’s companion) get near him.”

 

Do the Planning

People who remarry or cohabit need to put their financial issues out in the open and do some planning, preferably even before the wedding takes place, she concluded. Five of her suggestions follow.

 

[1] Discuss financial realities that the first death will bring. By the time the remarried spouses are in their mid-70s, a surviving spouse is not going to be in the position to go back to work to make up for any income shortfalls created by the spouse’s death, Britt said.

If the husband is the breadwinner and the couple has been married to each other for 10 years, and if he wants to be sure his wife will have an income if he should die first, “a trust can be set up to provide income to the wife while she lives and to pass the assets on to his children when she dies.”

This is particularly important to women, she said, because women are twice as likely as men to be widowed by age 75.

If the man is much older than the woman, that could pose problems for the children, though. As Britt put it, “They would have to wait forever to get the money.” In that case, life insurance can be structured to solve the problem, “and for pennies on the dollar.”

 

[2] Change the beneficiary designations. Many times, people forget to change the beneficiary designations on their financial documents after they marry. “I see this often, and in first marriages too,” Britt said.

For example, one couple decided to live off the husband’s salary and save the wife’s salary and retirement plan money for their retirement years, she said. However, the wife died in her late 50s, and all the money ($1 million) went to her sister, who had been named the beneficiary during the deceased wife’s single years. “The sister would not disclaim the inheritance, so the husband got nothing. It was very sad,” Britt said.

A related point is to be sure to rethink the assets held at each spouse’s place of employment, such as for the 401(k) and group life plan. Each spouse needs to decide to whom that money should go, and then follow through on signing the necessary documents, Britt said. Depending on the situation, the spouses might benefit from obtaining guidance from an advisor on this.

 

[3] Plan for loss of Social Security payments. If both spouses are receiving Social Security and then one spouse dies, the surviving spouse will experience the loss of one of those monthly checks.

Even if the surviving spouse gets the higher of the two amounts, the monthly income still will not equal the amount that had previously come into the household, Britt said. “This cuts into the lifestyle of the survivor, and it can be a serious problem if the deceased spouse left a boatload of assets to kids from a prior marriage but did not provide for the surviving spouse.”

 

[4] Realize you can’t work forever.  Some people who remarry may be earning high incomes, and they “spend, spend, spend” because they think they’ll work forever or even live forever, Britt said. The living is so good that they just don’t think there is any need to plan – not for premature death, not for job loss, not for serious illness requiring long-term care and not for divorce.

Britt’s suggestion is for the advisor to affirm the spouses’ mutual trust but also to keep asking, “What could go wrong?” That could open the door to talking about insurance solutions like life insurance, long-term care insurance and hybrid life/long-term care insurance.

 

[5] Provide for the blended family. There are numerous trusts than can help remarried couples with planning for the needs of children (his, hers and theirs), parents and others in the now-combined families, Britt said. “The advisor could refer such couples to an attorney who specializes in financial and trust matters.” 

 

It’s Complicated

Many of these points apply to people entering first marriages too, Britt said. But couples who remarry often enter the union with children, bank accounts, houses, businesses, debts and more, so the planning can be more complicated.

There are many ways to set things up to make it work, she said. “That’s why seeing an advisor is so important. You feel so much better when you do that, and you won’t have the worry at the back of your mind about how it’s all going to work.”

 

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected] [email protected].


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