"Second marriages are a real mixed bag," says Judith McGee of McGee Wealth Management in Portland, Ore.
Specifically, she’s talking about their financial implications. Case in point: a middle-aged client who happened to get laid off from his well-paid job around the time his second wife bore twins. Besides needing to secure new work, he already had four children from his first marriage—and an alimony obligation of more than $90,000 a year for life.
"[He] would like to renegotiate his alimony," says McGee. But, she explains, the new law dictates that modifying the divorce agreement could make the alimony payments no longer deductible.
Per the divorce, he'd also split all assets—including stocks, 40l(k)s, pensions and real estate—and agreed to maintain life insurance naming the first wife as beneficiary. So even when he found new employment, at lower pay, there was only one way this new reality could keep from wrecking his retirement plans. "He would need to continue working past normal retirement age," says McGee.
It's not the second marriage's fault, to be sure. But the additional obligations can complicate even the best laid plans.
Brent Lindell of Savant Capital Management in Madison, Wisc., recalls meeting a pair of newly married, middle-aged clients. "The husband, who had the money in the new marriage, stated his estate-planning intention to bypass the new wife in favor of his son from a previous marriage," Lindell says. "There was a look of utter shock on [the new wife's] face."
Somehow this subject hadn't come up before.
Lack of communication is a common problem. For second marriages to succeed, and not derail retirement plans, it's crucial to discuss "each other’s finances, retirement assets and long-term retirement goals," says Matt Archer, a partner at Archer Investment Management in Raleigh N.C. "Many times, [people] want to keep their assets separated and are not on the same page when it comes to what they need to do to retire. A basic plan incorporating all the assets and liabilities from both parties can help avoid future heartache."
Often, a key component is a prenuptial agreement. "A prenup is a safeguard against liabilities," says Kyung (Kathryn) Dickerson, an attorney at SmolenPlevy in Vienna, Va. "It protects you from the downside of a potential divorce or other unforeseen circumstances."
In simplest terms, prenups define what is whose, and what isn't. They can establish separate financial obligations and individual pre-marital assets, which is particularly important in community-property states such as California. They can also codify how an estate is allocated and eliminate a court battle among heirs.