Are you getting ready to walk down the aisle again? Congratulations! But before you book a DJ or order flowers, make sure you've discussed how you'll merge your finances.
"During my 20 years of financial planning, I've learned that if there's one thing couples usually don't see eye to eye on, it's money," says JJ Montanaro, a certified financial planner ™ practitioner with USAA. "Coming out of a previous marriage, you may have had personal goals that you were working toward. But now you're working together as a team, and you want to make sure that those goals become shared goals."
These four strategies can help you address money matters before, and after you say "I do" again.
1. Start Talking Now
While there's not a one-size-fits-all approach for blending finances, the most important step you can take is to begin having those discussions, before you tie the knot.
"It's complicated, especially for second marriages, but having conversations about it is key," explains Judith Stern Peck, director of the Money and Family Life Project at the Ackerman Institute for the Family and member of the American Association for Marriage and Family Therapy.
Talk openly about debts, assets, obligations, spending habits and anything else that might affect your life together. This financial snapshot can help each partner understand exactly what he or she is getting into, whether it's credit card debt or child support payments. "When you really understand what your values are and how money coincides or contradicts with those values, it becomes an easier conversation to have," Peck adds.
Full disclosure about liabilities and assets may also help avoid major money meltdowns after the wedding by providing a benchmark for budget planning and goal-setting. "As you move into this new relationship, you don't want anything to stay hidden. Bad news doesn't get better with time alone," Montanaro says.
2. Make a Plan
Once you both have a clear idea of where you are financially, it's time to start making a plan for how you will work through money issues as a couple. "You want everyone on the same page as far as where you're at and where you're going," Montanaro says.
Start by making a budget. "When you're bringing together two lifestyles, creating a budget is really important. The exercise itself may help you identify potential opportunities to cut back or save money," adds Montanaro. "In the end, this can help create a situation where you are better able to achieve your financial goals as a couple."
While every couple is different, there are some questions that should be answered before you merge households.
- Will we have joint or separate bank accounts?
- Who is responsible for paying down pre-existing debt?
- How will we handle recurring bills such as utilities, rent and insurance?
- If there are children from previous relationships, how should benefits from life insurance policies, retirement plans and other financial assets be distributed?
- What are our financial goals, such as, buying a home, saving for the kids' education, retirement and so on?
- Which expenses are important to us, such as charitable giving or education, and which are not?
- For active military members, how will things change if one spouse is deployed?
3. Get Started
"Talking through your financial situation is great, but if the talk doesn't result in action or actionable items, you most likely won't achieve the results you want," Montanaro explains.
He suggests putting everything in writing, and then actively taking the steps required to make it happen. This may include formalizing a budget, paying off debt, closing redundant accounts, updating beneficiary designations on retirement accounts and insurance policies, creating a family trust or drawing up a new will.
"The execution is where the rubber meets the road," Montanaro says. "If you don't follow through, then those conversations may fade into distant memory, and you might end up with a situation where there is confusion and conflict — between each other or, if something happens to you, among your children or family members."
4. Measure Progress
Once you've put your plan into motion, keep an eye on it. Are you making progress toward your goals? Has your situation changed unexpectedly? Do you need to adjust the budget?
"The reality is, whether it's a first or second marriage, or wherever you happen to be in life, things can change overnight," Montanaro points out. "You should periodically update your financial plan and make sure that the things you're doing are still right for your life."
Life comes with plenty of ups and downs. A promotion with a salary increase, a new baby or a financial windfall can all be very exciting, but a serious illness, a debilitating injury or an unexpected expense can throw a wrench in your plans. Whatever comes your way, be prepared to adjust your financial plan. Montanaro recommends couples schedule monthly money dates to review the budget, measure progress toward goals and discuss any issues that have come up.
"It's not a once-and-done project," he notes. "Your budget needs to keep pace with your life. As your life changes, so too should your plan."