By Helen Baker
Congratulations on finding love a second time round!
Now focus on getting your money matters right to help ensure you and your family get your happily ever after.
ABS figures show the divorce rate is highest for people in their 40s. And with life expectancy in Australia in our 80s, odds are that most of these people will settle down with a new partner, and even remarry. While it may be a win for love, merging finances a second time round can be complex. Hence, it pays to be diligent to avoid a mountain of headaches later on.
Cut the chord
The first step is to ensure you have fully cut the chord with your former partner.
Close joint bank accounts. Ensure utilities, subscriptions and mobile phone plans are no longer in joint names. Pay off and cancel joint credit cards, store cards and other debts.
Update your will, as most likely you won’t want your ex to benefit should something happen to you. Get your financial adviser and estate planning team together on how best to structure your will and superannuation beneficiaries to ensure it fully reflects your wishes.
Your superannuation and any trusts or other structures you have are treated separately from your will, and therefore don’t automatically change with it.
Somewhere to call home
Where you call home is a more complex decision with any subsequent partner. Initially, you may not be able to afford to buy, especially if one or both of you are still in limbo with ongoing divorce proceedings.
Once you can purchase a home together, weigh up whether to do so as joint tenants or tenants in common. This is crucial because, should one of you die, it can determine whether the surviving partner automatically inherits the property and can keep living there.
Joint tenants have automatic right of survivorship. Tenants in common, however, means your partner could leave their share of the property to their children or someone else instead of to you. In this instance, you could be left homeless if the beneficiaries force a sale. If you have to sell and only walk away with your share (a lesser value than the current property), you may have to compromise where or what you buy next.
Take Fred and Wilma (names changed for privacy) for example. They both have adult children from previous marriages and wanted their wealth to go to their children if they passed away. They have decided to move out of their townhouses worth $900,000 and $800,000 and buy a bigger home together, near the beach worth $2.3million. Both will have to take on a mortgage to cover the gap. So, if Fred passes away, and he has left his share of the house to his children, then Wilma is left sharing the house with his children, or having his children as landlords, or forced to sell and buy something much smaller because Wilma doesn’t have enough to buy them out and have enough for retirement.
Protect the kids
Second marriages or relationships often mean children are involved, from one or both partners.
Building good relationships between children and step-parents not only makes everyday life easier for everyone; it also minimises the chances of disputes between them over your assets once you are gone.
Children should be supported financially and, if they are under 18, custodially should you suffer serious illness, injury or premature death.
Where will they live – with your current partner, their other parent/your ex, their grandparents, or someone else?
How will they be provided for and what assets can you leave to them that aren’t tied up with your new partner? Is that enough? This is where superannuation, for example, can be beneficial – you can nominate your kids as sole beneficiaries, while the family home remains with your partner. But who is managing that inheritance?
If you have children from both relationships, they may need to be treated differently in your estate planning to ensure they are all looked after.
Safeguard your new partner/spouse
Of course, the other person to consider in is your new partner.
Be clear about what you will merge and what stays separate. A prenuptial agreement may be needed for things you bring into the relationship.
Draw up a household savings and investments plan – who pays for what, from what account/credit card, where do your incomes go, what is owned jointly?
Consider retaining personal bank accounts and transfer money into a joint account to pay for joint bills.
Consider the future – do you get life insurance? What if one of you needs aged care? Will you both work or will one of you stay home to care for both partner’s children?
Look after yourself
You may have already been burnt in your past relationship. Self-care is really important.
Allow yourself time to grieve that loss and the loss of your past life.
Take care of your health – physical and mental – which has a direct influence on your new relationship and your ability to make wise decisions.
Ensure everything you do, including about money, is in your own best interests too, not just everyone else’s.
I also recommend keeping a personal emergency fund – money that only you can access – should the relationship break down or other crisis arise.
A happy future together means not just getting the everyday finances in check, but peace of mind for the future too!
Helen Baker is a licensed Australian financial adviser and author of the new book, On Your Own Two Feet: The Essential Guide to Financial Independence for all Women (Ventura Press, $32.99). Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children.
Find out more at www.onyourowntwofeet.com.au