Q: I am a 50-year-old divorced male. After dating for 3 years, I am about to propose to a lovely lady (48-years-old). She is very financially independent. With my lack of retirement savings (long story involving a divorce settlement and a business venture that did not work out), I plan on working as long as I physically can. I need some sage advice on how we might organize our finances when married that is fair to both parties.—John
A: Money can be a difficult enough topic in a first marriage, let alone a second one. Many surveys show that money is the primary fight inducer for couples and when you’re combining your finances later in life, it’s that much more important to talk about money with your partner and with professionals.
First and foremost, John, I think you should speak with your lovely lady about money. You both seem to know some of the details of each other’s finances and I think an initial, high level discussion is a good starting point–even if the end result is that you guys both agree that you don’t really know how you should handle things financially. At least if you both come clean and determine you need some professional input, you can seek it out without seeming like you’re avoiding your partner and talking to lawyers and financial planners before each other.
I’d say you should both consider a consultation with a family lawyer to make sure you understand the implications of cohabitation in a common law relationship or within a second marriage. Since you’re divorced, I assume you have a family lawyer you can speak with, John. An initial consultation may cost a few hundred dollars and will at least help highlight the risks for both of you and the potential remedies. Potential remedies may include a cohabitation agreement or marriage contract that dictates what happens in the event of a relationship breakdown. This may cost a few thousand dollars, but could be a very good investment. Or maybe if you don’t do a “pre-nup,” the advice could impact the way you pay for your home together or split your expenses or otherwise plan your finances.
Beyond that, I think it’s helpful to consider the services of a financial planner. You guys may have your own planners, but it might be best to speak to a neutral third party.
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In particular, I think you guys would be wise to get guidance to ensure that your financial priorities are well balanced. In particular, if she wants to live a certain lifestyle and the only way you can do so is to work harder and longer than you might otherwise want, that might not be a good compromise. At the same time, should she have to supplement your share of the expenses? Have to, maybe not. But choose to, maybe. Relationships need balance, financial and otherwise.
What happens if you become disabled or you die? You should consider your insurance needs (disability insurance in particular in your case). And combining finances with someone is always a reason to revisit your estate plans, in particular given that marriage will cause your wills to become null and void.
Furthermore, I think it’s important to consider the financial implications of not being together. If you guys move into a big house and you travel, live large and forgo your retirement savings, what happens if you split up 10 years from now and you’re left high and dry?
It might be a good idea to build a retirement plan that looks at the best case scenario (you’re together and happy and financially intermingled) as well as worst case (you split up and fund retirement with your own resources).
In a second marriage, make sure you set ground rules early so that you can do things consistently. Through ongoing discussion, you can help prevent hurt feelings or resentment later on. After all, there’s enough stuff to argue about in a relationship without having to fight about money.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.