Second Marriage – Second Chances

A second marriage means a new financial plan. Read below to see how this couple navigates building one.

Second marriages can be challenging. Throw in a young second family, older kids from a previous first marriage, intense work schedules and personalities and you have a potentially combustible situation. Now consider the desire to do financial planning. When considering all these variables, we have an interesting case study. First, some background on our couple, Charlie and Rebecca.

Charlie is an attorney in his 40s building his practice. He owns the building where his practice is located. Charlie also does some speaking on behalf of the insurance industry to other attorneys that handle Medicare and worker’s compensation.

Charlie is a W-2 employee of his firm. We encouraged him to set up a SIMPLE IRA plan for himself and the staff. These are separate IRA accounts that don’t require plan oversight. He is required to provide a match of up to 3% of salary deferrals, which he can do for those that participate. The funds are completely vested at the time of investment. The contribution limit in 2022 is $14,000 and he will max out his contributions this year as he’s done previously.

He is the only employee of his consulting business so he can contribute to a SEP plan. Given that he’s in his mid–the 40s, we’ve designed an aggressive growth portfolio and he is comfortable with the risk that portfolio entails.

Rebecca, from her prior career, has retirement savings north of $700,000. She’s in her late 40s, doesn’t plan to touch those savings for at least 20 years, and is comfortable being aggressive for long–term growth. She also added a term life insurance policy five years ago in case something happens to her. She designated all four kids as beneficiaries of her policy. She’s got money for both sets of kids allocated. We also had her set up an estate plan given it’s her second marriage. The estate plan will allow her to specifically designate how her assets should be directed should something happen to her.

Charlie is committed to making sure that if something were to happen to him, Rebecca (his wife) and his young children will be taken care of. He has a multi-million insurance policy. This should serve his needs if something were to happen to him in the short term. He’s also covered for the long-term investment-wise with the cash value his policy provides. He has a buy-sell arrangement with two staff attorneys for them to buy his practice with the proceeds going to Rebecca.

He is concerned that Rebecca could utilize his assets to a greater extent than he’s comfortable with on the older kids from her first marriage. His feeling is they have a father to handle their financial support. The relationship with the ex is tense so there is a legitimate concern here regarding the support for the kids. I urged transparency. Charlie’s concerns need to be front and center and communicated in a non–confrontational manner. Ultimately, he did this. Rebecca was initially offended but after some thought and cooling off, she understood. He may also add an amendment to his trust to further spell out his wishes for how his funds are to be used in case something happens.

When going into a blended family, couples need to take proactive steps to spell out how issues should be dealt with. Charlie and Rebecca have both updated their estate plans. They discussed the power of attorney roles if either were to become incapacitated. They also discussed health care directives if they cannot make decisions about their health. This is essential because something could happen and if their wishes are not spelled out, their intentions might not be followed.

“Financial Infidelity” or not being truthful about debts or accounts is a real issue and can lead to mistrust at the start of a marriage. Full disclosure is essential. I would even recommend a review of each person’s balance sheet at the onset. Figuring out spending habits is also important. Charlie and Rebecca like nice things and traveling but they are aware of their budget and would never live beyond their means. I also recommended they discuss their individual accounts. Do they need separate accounts or are they comfortable consolidating? There is no right or wrong answer, only what works for them.

Charlie needs to confirm his financial commitment to Rebecca’s kids if any. Once again there is no right or wrong answer, only what is right for them. They need to plan for college. Since they are both successful professionals, I suggested they both budget for college savings for the second set of kids.

When we drilled down further, we discussed simple budgeting including who makes sure the bills are paid and from which accounts. We talked about spending goals and what happens if they get off track. They had no idea that planning could be so granular.

They are excited to take the time to establish the family plan and budget. In a family with this many moving parts it’s so important to communicate early, often, and very clear about how things should go if there is a death, incapacity, divorce, second marriage, or any of a host of other scenarios that can occur.

About the author: Mark Bordelove

Mark Bordelove became a licensed financial advisor in 2000, co-founded Bordelove Foster Wealth Management in 2009, and has been in the Financial Service Industry for 22 years. A devoted husband and father, Mark and his wife, Jenny, currently live in West Bloomfield, Michigan, and they have three children. Mark enjoys participating in triathlons and running events throughout the year and has also completed two Ironman competitions.

Mark Bordelove is a financial advisor with securities and advisory services offered through LPL Financial, a registered investment adviser, member of FINRA/SIPC. This is a hypothetical situation based on real-life examples. Names and circumstances have been changed.

This information was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this information.

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