When two households merge, it can get complicated. A good financial plan and a marriage contract can get second marriages off to a solid start

By Kirsteen Macleod

Money ranks right up there with sex and religion as a leading cause of marital discord. And the potential for financial conflict is even greater the second time around. People who remarry bring more financial responsibilities, as well as assets, to their union. Their respective households are typically a jumble of alimony payments, businesses, children from first marriages, credit cards, overlapping insurance policies and duplicate cottages and homes. They have to sort out the tangle, defuse potential conflicts – all the while developing joint goals for the future.

      Advisors suggest there are two blocks upon which second-timers can build a stable union. First off, to avoid potential money problems and lay a solid foundation for future financial security, remarrying couples need a comprehensive plan to deal with their complicated financial situation, says Michael Nairne, president of Toronto-based financial planner The Equion Group. And “comprehensive” means reviewing estate planning considerations and making new wills. “Make sure you have a will – a new will that survives the remarriage,” says estate lawyer Barry Corbin, a partner at Borden & Elliot in Toronto. “The general principle in most jurisdictions is that marriage revokes an existing will.” 

      Secondly, while it may not be very romantic to be negotiating the demise of your marriage just before you say ‘I do’, a marriage contract in place before the wedding is “right at the top of the list” for a financially sound remarriage, says Corbin. That’s because a marriage contract, often called a prenuptial agreement, lets you opt out of the sharing provisions of provincial family law rules (see story page 35). It is typically used to protect a home or business – assets that you bring into the marriage. And providing for children from a previous marriage is a key concern for remarrieds, says Corbin. “One purpose of a contract is to ensure you’re free to leave your estate to whomever you wish – likely children from another marriage – without restraint.” 

      Unfortunately, many people remarrying are reluctant to discuss finances with their betrothed, especially if money problems contributed to a previous divorce. Lorne Wolfson, a specialist in family law at Torkin, Manes, Cohen and Arbus in Toronto, says discussing a prenuptial agreement with your intended is the first step in that process. He suggests, however, that you never present a contract fait accompli. And don’t underestimate the possible impact of this conversation. “It is not uncommon for weddings to be postponed or cancelled over contracts,” he stresses.
 
      Why are Cupid and contracts such a volatile mix? “There are a lot of things money triggers: security, power, control issues,” says Deborah Mecklinger, a Toronto lawyer and social worker who specializes in family mediation and counselling. “And it is all the more complicated in a second marriage, as there is often more money, and more people involved, such as children or grandparents.” 

      Despite first-hand experience that marriages can take unexpected turns, many remarrying couples don’t consider their finances until they’re already married and facing the difficulties of combining two households. Barbara Garbens, regional vice president and general manager at Toronto-based T.E. Financial Consultants Inc., says many remarrieds come to her after the honeymoon, not before. After walking couples through some of the common financial planning concerns, she refers them to experts, such as lawyers, insurance brokers and investment advisors.

      Here are some of the things you’ll have to consider when you remarry:

Review all beneficiary designations
 
      Consider life insurance policies, pension plans, RRSPs, RRIFs and annuities to make sure beneficiaries are appropriately designated. “Sometimes people forget to change to the second spouse’s name,” says Garbens. “I’ve seen that happen – the first spouse inherited the ex’s insurance policy while the second spouse didn’t get anything. It’s the fine points people really forget about.”

Review life and disability insurance

      “If there are two incomes, it may be that if one person becomes disabled the other could support them. A review of cash flow and expenditure patterns would determine if coverage is sufficient to meet the surviving spouse’s needs.”

Decide how you want to consolidate households
 
      Whether couples decided to pool or keep assets separate depends on individual money personalities, as well as whether there’s any potential to split income in order to reduce tax, says Garbens. Two people with similar assets and incomes usually find it convenient to pool for joint expenses, she adds. And it is important to discuss whether you’ll each contribute to the join account in proportion to your respective incomes. If income splitting is a goal, however, a separate personal account is needed.

Consider taxes
 
      Whether it is best to split income – a strategy that can reduce your overall income tax as a couple – depends on the respective tax bracket of each spouse.
 
      If one spouse is in a high tax bracket and the other a low one, setting up a spousal RRSP in the low-income spouse’s name is one good tax strategy. The higher-income spouse would make the contributions, and get the tax break. The lower-income spouse would be taxed at the lower tax rate when funds are withdrawn.
 
      If both spouses work and one is in a lower tax bracket, having the lower-income spouse direct all income to his or her own personal bank account while the higher-income spouse pays the bills may be the best strategy. “This would allow the lower-income spouse to accumulate capital in their own name so that at retirement, any income derived from this capital could be taxed at the graduated tax rates,” says Garbens.

Decide on your retirement or other goals

      This entails long-ranger planning and goal-setting. “You have to do a cash-flow analysis: if your goal is to have three trips a year in retirement, you need to know what you’ll need to reach that objective,” says Garbens. “Investment planning means setting goals by knowing how much you need to spend per year to get there and determining the rate of return on investments you’ll need to reach your retirement or other goals.”
 
      Laying the financial groundwork pays dividends in future security and happiness, says Nairne. “A lot of people try and ignore it, which means you’ve postponed the problem until someone’s death, disability or marriage breakup. Then a whole host of unresolved issues leap to the fore, and you get bruised feelings, litigation, and it gets really messy.”
 
      Thinking ahead simply means fewer surprises, concurs Wolfson. “It is a matter of, do we want to live with uncertainty ad worry about these issues, and maybe have a fight down the road; or do we want to be upfront, identify the sources of concern, and agree on them now before the bad thing happens?”