In previous generations, men traditionally handled the family finances. While these arrangements may have worked reasonably well during the husband’s lifetime, the consequences of the wife’s lack of involvement often became very clear when she was suddenly on her own. Today, more women are taking an active part in directing the outcome of their future financial security. And for good reason.
The truth is, women need to plan for a time when they may be on their own. Through divorce, widowhood, or merely the single life, the odds are very high that a woman will be caring for herself at some point in her lifetime. Financial preparedness is essential for women throughout life, but it becomes especially important in the event of remarriage, since financial considerations may have to be made for ex-spouses and children. If you are in a second marriage or are about to enter one, here are some areas that you and your spouse will need to consider.
Bank Accounts. Sharing joint accounts may help to dissolve any mysteries about where and how family income is spent. Many couples decide to split expenses evenly, but seriously consider having the higher wage earner pay the larger portion of the bills.
Prior Debt. Will each spouse be responsible for the other’s debt incurred before the marriage, and if so, to what extent? Keeping the indebted spouse’s prior debt separate will help ensure the other spouse’s property remains out of reach of creditors.
Property Acquired before Remarriage. Owning previously acquired property in your own name can prevent the risk of losing personal property to your spouse’s potential creditors. Also, doing so may have estate tax benefits. Every individual may exclude a certain amount of assets from estate taxes.* Keeping your own property in your own name can help ensure that you minimize estate taxes while providing an inheritance for children from a previous marriage.
Home Ownership. The majority of couples choose to title property jointly as tenants by entirety. When one spouse dies, the home passes to the surviving spouse tax-free.
Retirement. Saving enough for retirement is a major financial objective for married couples, and women have unique concerns when considering this goal. First, women typically live longer than men, so their retirement funds need to last longer. In addition, women often spend more time out of the workforce than men as a result of caregiving responsibilities, and because of this, they are less likely to have pensions and full Social Security benefits. When they do work, women typically earn 81% of the amount earned by their male counterparts, according to the 2012 Annual Social and Economic Supplement compiled by the 2010 U.S. Census Bureau.
Furthermore, according to the 2010 U.S. Census Bureau’s Current Population Survey, women age 65 and over earned an average income of $17,379 compared to $27,937 for men. Consequently, it is especially important for women to prepare for retirement.
Insurance. Disability income insurance can provide financial protection in the event you or your spouse are unable to work because of an accident or an illness. These policies can ensure that funds for bills and expenses will continue to be available. Similarly, life insurance can provide a measure of financial security upon death. Life insurance can help ensure that children from a prior or current marriage will have the funds to attend college, the mortgage will continue to be paid, and the surviving spouse will have some replacement income.
Estate Planning. Blended families have unique estate concerns, so it is important to plan for the final disposition of your assets. Trusts can be a valuable tool to minimize estate taxes and to help ensure that your assets are distributed to your heirs according to your wishes. For example, at death your assets can pass to a trust, from which your surviving spouse will receive income without access to the assets themselves. At the death of the surviving spouse, the assets can then pass to children from your current or previous marriage. This gives the surviving spouse financial security and provides an inheritance for your children as well. In addition, if the surviving spouse later remarries, the trust precludes your assets from their marital or community property.
Every woman who remarries needs to balance her financial past with her financial future. By addressing your financial strategies as soon as possible, you can avoid disputes and build financial security for your extended and blended families.
*The Federal estate tax in 2013 has an applicable exclusion amount of $5.25 million and a top tax rate of 40%.