How financial advisers can help with second marriages

Second marriages are exciting times as couples look forward to a new chapter in their lives together. One practical consideration is the need for careful financial planning for the changes their new life, family relationships, and responsibilities may create.

“CPA financial planners can help clients who are remarrying consider all the things they should be thinking about,” said Jeff Wilson II, CPA/PFS, CDFA, principal at The W2 Group. “Although discussing the couple’s future tax return strategy with a CPA is important, this goes far beyond just tax planning.”

“The most effective financial planners in this area are open, good listeners and patient,” said Natalie Perry, CPA, J.D., a partner at Harrison LLP in Chicago, a firm that specializes primarily in estate planning and family law. “Many clients have not thought about the challenges, and we need to establish a comfort level.”

Estate planning

Estate planning is one of the most critical areas to consider prior to a second marriage. Having some estate planning in place before marriage may help to protect assets. It is important for financial planners to have upfront conversations with their clients about where the couple’s money will go after they die.

“If clients already have a prefunded living trust before they remarry, state law may provide some basic protection for what separate property is, but it varies by state,” Perry said. Separate property means property that is not subject to division in a divorce and often includes, for instance, property that the person acquired before the marriage.

Before entering a second marriage, couples should begin their planning discussions by creating a comprehensive financial inventory that includes all their assets and how they are titled. This list should cover savings and investment accounts, real estate, vehicles, and life insurance policies, as well as any health directives, wills, and trusts.

“The inventory helps us identify what may be identified as separate property under state law versus marital property once they get married,” Perry added.

“Clients need to know where all the documents are and make sure none are hidden, and they may want to get legal advice to make sure they have everything covered that they will need,” Wilson said.

After inventorying, the couple likely will need to make changes to existing arrangements. Beneficiaries and executors will need to be updated. Trusts may need to be reevaluated to ensure the following:

• They are still consistent with the parties’ wishes;
• The trustees are still the right ones; and
• Changes are made as needed to trust assets because of the changed financial situation of the new couple.

“If assets from the former marriage are titled jointly, they will likely need to be updated, or it will impact any transfers when a spouse dies,” Perry said. “Unless there is an obligation to the former spouse, it is very unlikely that a current spouse will want to leave them money.” She notes that no one wants their estate to end up in litigation after they die.

Having updated beneficiaries for any 401(k) plan or individual retirement accounts (IRAs) that reflect the wishes of the new couple is very important if the assets are intended to go to the new spouse or children. “The estate plan will not cover those assets, which are considered separate contracts with the plan administrator,” Perry said. She noted that under the federal Employee Retirement Income Security Act (ERISA), the 401(k) beneficiary must be the current spouse, although most states do not have this requirement for IRAs. “Regardless of what the will or trust says, distributions of retirement accounts and life insurance are governed by the beneficiary designation with the institution, and that’s where those assets will go.”

Another important planning item that is often overlooked is making sure all existing documents are updated, including powers of attorney for financial and health care matters, and transfer-on-death and pay-on-death beneficiary designations on investment and bank accounts that will determine where assets go upon death regardless of what the will or trust says.

Blended families often must consider who gets what and when, to balance the needs of current and former spouses and children. “This is an important discussion to have upfront, and it is not always comfortable because it is emotional,” Wilson said.

Assets, saving, and spending

Coming into a second marriage, each person likely has separate assets and prior obligations, and there should be discussions about what is joint or separate. “If the couple move into a house that was owned by one of them and the roof needs to be fixed, is it community debt because it’s their house now?” Wilson asked. “And whose money is used to pay household expenses versus individual expenses?”

There also needs to be a plan for how the combined household will save money for use by the spouses and the children. “I prefer joint savings accounts that both spouses can make planned deposits into, and household and other joint bills can be paid from, to avoid inequalities,” Wilson said. “And I suggest they can also try to have separate individual savings and spending.”

Housing is an important consideration in a second marriage. Wilson shared these important questions to ask:

• “Do the new couple intend to buy a new home together, or do they already have one or more homes?”
• If one of the spouses has a home that the couple will live in, “Does the new spouse get the home upon the other spouse’s death, or do children from the first marriage get it, and then where will the new spouse live?”
• “If there are one or more former residences, will the former spouse and children continue to live there, and can the former spouse afford to do that? Will that house be given or sold to them, or will the house be sold to a third party?” If the latter, “Who gets the proceeds, and does that sale adversely affect the remaining assets in the estate plan? What happens to the house upon the owner’s death?”

Prenuptial agreements can help in this area.

Prenuptial agreements

“These have a bad reputation, but I like them because they can be powerful and save some of the financial and emotional toll from a divorce,” Wilson said. “It’s an organized dissolution, avoids a fire sale, and helps to contain irrational thinking at a time of high emotion for both spouses.” It is important for financial planners to explain to and educate clients on how to use prenuptial agreements.

“For clients, we suggest a prenup, although some clients may not want to incur the expense,” Perry said. “If they come to us with one, I tell them that it is important to coordinate the estate plan with that agreement so there are no inconsistencies with their will or trust; otherwise, there might need to be a lawsuit to enforce the terms of the prenuptial agreement.” (See, generally, “Prenuptial Agreements: What Financial Advisers Need to Know,” JofA, Feb. 18, 2025.)

Children and parents

Caring for family members, both young and old, can be a big expense in the life of the new couple after a second marriage. With proper planning, it is possible to do some forecasting and budgeting for these expenditures, but the conversation needs to happen early.

When there are minor children involved from the first marriage, there are concerns about having money to care for them and who should handle that money. There can be geographical challenges, depending on where everyone lives.

Children from a previous marriage may be beneficiaries or be designated to receive trust distributions. The new couple need to reconsider these decisions and make sure they are still consistent with their current plans and wishes.

College savings is a significant planning area for children of both the former and current marriage. This can be one of the most significant expenses for a family, and decisions need to be made early about whether the former or current spouses are responsible for funding college or other education. “The last thing you want is to have a successful blended family situation that ends when the kids are in high school because no one planned for their college education,” Perry said. Part of the planning process should include calculating the potential obligation and estimating the sources of funding.

Clients with elderly parents may need to plan for their care. Issues such as where they live, whether they can live independently or need assistance, who will pay for it, and what their wills and trusts say are all significant matters. “For Gen X and Y clients, as parents age, there need to be good conversations and a plan,” Wilson said. “Do both people in the new couple have the same values about the parents’ care, i.e., do they think the parents should go to assisted living versus living at home or with their families? If they are not on the same page, this can turn into a reason for divorce.”

“These are all tough conversations to have, especially when there are children involved,” Wilson said. “It’s hard to get it right and not have former spouses or children feel they were attacked if they are not receiving the new couple’s assets or estate. But successful planning in this area can help clients prepare and avoid emotional trauma.”

For additional information on planning for a second marriage, listen to the AICPA Personal Financial Planning Section podcast episode “Money Dates.” PFP Section members can also download the client brochure “Tax and Financial Planning Tips: Marriage and Divorce.”

— Maria L. Murphy, CPA, is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.