Every year, about three per 1,000 Americans divorce from their spouse. Since about seven per 1,000 Americans marry every year, there is a chance that some divorcees will eventually tie the knot again with a new partner.
But before you remarry, you should evaluate your finances. Let’s review eight money moves that will set you both up for financial safety and success.
1. Make Amendments to Your Will (or Make One!)
The joy of finding love again can make you look at everything through a rosy filter. While no one likes thinking about their mortality, especially close to a big wedding day, the reality is that not updating your will could leave your new partner (and potential dependents) with a messy court battle for your estate. Review your current will and update it as necessary. For example, you may redistribute your estate to include your new dependents and choose a different executor — a person who will manage your estate and carry out the orders in your will.
If you don’t have a will, then setting one up should become the top priority of all money moves before you remarry. In the absence of a will, a judge will appoint an administrator who will execute your estate according to your state’s probate laws. What is legal may not be the ideal situation for your loved ones, so plan ahead. (See also: What You Need to Know About Writing a Will)
2. Update Beneficiaries Listed on Your Retirement Accounts
Even after setting up or updating your will, you still need to update the list of beneficiaries listed for your retirement accounts. This is particularly important for 401K plan holders. The Employee Retirement Security Act (ERISA) stipulates that a defined contribution plan, such as a 401K, must provide a death benefit to the spouse of the plan holder.
Your beneficiary form is so important that it can supersede your will under many circumstances. When updating your beneficiary form before you remarry, there are three best practices to follow:
- Get written consent from your previous spouse, if applicable, to make changes;
- Second, designate only children who are of legal age so they can actually carry out their wishes;
- Third, find out the tax implications for beneficiaries other than your spouse as a large windfall could unintentionally create a financial burden.
3. Consider Setting Up a Trust
Since we’re talking about potential financial burdens, many of them could come out of an estate with lots of valuable assets being divided among many beneficiaries, many of them very young.
When you have accumulated a lot of wealth over the years, you could be better served by a trust than by a will for several reasons, including keeping your estate out of a court-supervised probate, maintaining the privacy of your records, and allowing you to customize estate distribution. While the cost of setting up a trust can be up to three times that of…