What happens as blended couples hit their later years, and their children move out of the house? This major season of life can often be overlooked, but it is especially important for blended couples. With an empty nest, their priority and their financial goals may change, and they can focus on being a couple.
This time of life can be exhilarating and difficult all at once! To be successful as a blended couple, you need to answer four key financial questions:
- Commitment Ceremony or Legal Marriage?
Many couples in the U.S. choose not to legally marry, and that decision often directly relates to financial reasons. Couples should weigh the financial pros and cons when it comes to marriage.
Marriage provides some legal benefits for a couple, but it can also make elements of their finances more complicated. Maybe there’s a family business or property owned by the previous generation. Inheritances often transfer to children or nieces and nephews, so being married doesn’t guarantee that when the time comes the remaining spouse will be financially secure. Also, Social Security benefits* are available for some divorced spouses who remain unmarried, which should be factored into decision-making.
A sensitive area to work through is if one spouse has significant debt or tax problems. If there are major financial risks and money stressors, my advice is often to have a commitment ceremony but not legally marry.
- What’s Mine, Yours and Ours?
Make a plan for how to handle cash flow as a couple. Establish a purpose for bank and investment accounts as well as credit cards and retirement funds.
I regularly recommend that blended couples keep some finances separate — each person maintaining their own separate bank accounts and credit cards. From my experience, when couples can make individual choices with some of their own money, they can feel more confident in their money discussions and there is often less conflict. While that gives each person some financial independence, it is important for couples to be transparent and disclose all assets, passcodes and balances with each other.
However, all blended couples should establish a joint checking account to manage household expenses. I recommend paying all fixed expenses such as utilities, mortgage, insurance, etc. through that account. Even better, make those payments automatic so it is easy to manage in case there’s some incapacity of the primary bill payer.
A joint savings account for emergencies, goals and large purchases should also be maintained. This joint savings account is a safety net for sudden expenses as well as a necessity for right after the first spouse dies – to give the remaining spouse funds to transition to their next living arrangement.
- What’s Your Plan B?
Where do you want to live if there is incapacitation of one spouse — both physical and/or cognitive situations? Plan B happens. There are many considerations based on whether incapacitation is long-term or temporary. We see cognitive decline become an issue in financial planning if the family didn’t establish how the loved one wanted to handle the situation ahead of time. You don’t want to leave the decisions to family members when there’s so much to consider. Are there adult children able and available to care for you if you are no longer able to manage your money and financial affairs? Update your financial plan and share it with your loved ones.
- What’s Your Legacy?
We all have a legacy. Your legacy includes memories and your life story, not just financial wealth. Take time as a couple now to build your legacy. Discuss what’s important to you individually and what messages you want to leave behind for others. How would you leave your financial wealth to each other? How do you leave something for the family? How are your charitable contributions carried out? Do you have a plan for that now?
Review all assets and determine how to transfer and distribute wealth when one person dies. Define how you equalize inheritances or feel about equalizing them, for kids or grandkids. Depending on the state you live in, the probate process can be quite costly and confusing. This is a critical conversation between you and your significant other, and extended family, to make sure your wishes are followed.
Your CFP® professional can work with you and an estate planning attorney to help you understand the flow of money and how it transfers. Find a CFP® professional at LetsMakeAPlan.org today.