So your first marriage didn’t work out quite the way you had envisioned. You’ve finalized your divorce, and if you were to do it all again, you would do things much differently. Many say they would never consider getting married again. But alas, friends introduced you to this wonderful person who has been single for the past few years, you get to talking and realize that you have a tremendous amount in common. Despite the fact that your lives are infinitely more complicated than before you were married the first time, you are optimistic that this time will be different.
To ensure you don’t end up repeating history though, it’s important to consider how you will handle finances, and what steps you will take to protect yourself accordingly should things escalate to a point where you consider taking your relationship to that next level.
Like many divorced people, if you decide to move in with your new partner, or get married, you likely bring into the relationship some complexities that you probably didn’t have in your first union. Many second marriages include children from a previous relationship, diverse assets such as considerable real estate equity, retirement funds and/or business assets. Others may be carrying considerable debt or financial obligations such as spousal and child support. Therefore, the assets/debts that you are bringing into the new relationship should be discussed and disclosed upfront. It’s important that each of you has a clear picture of the other’s financial situation.
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We can’t and shouldn’t assume that you’re walking into this scenario on an even playing field. Imagine finding out after the fact that, due to your new union, you’ve also inherited $100,000 of credit card debt! For some, this could be a deal-breaker, and your relationship has barely made it out of the starting blocks.
What exactly are you walking into this union with? If your personal net worth is $500,000, or your business is worth $10 million, this needs to be established up front for both parties sake. If this second union doesn’t work out, you will be forced to figure out what you came into the relationship with, and which assets you’re leaving the relationship with. If you can establish this upfront, it can eliminate a lot of conflict and legal expenses; you won’t need a lawyer to help you work through the entire asset division process should the relationship end. Having a prenuptial agreement that states who brought what into the relationship, and how assets will be divided should things not work out, tends to establish objectivity upfront and take some of the emotion out of a separation should things turn sour.
It’s also important to establish a household budget and agreement outlining who pays what. How will each of you contribute to the household expenses when you live together? Do you have a shared bank account? Do you split the bills down the middle or share proportionately based upon income? Considering that financial stress is one of the single largest reasons for divorce or separation, don’t you want to establish this understanding upfront?
Finally, working with a trusted financial adviser can help to establish your relationship’s financial starting line, and what a good merged balance sheet looks like. A financial adviser can also help to make the goals that you and your new partner have a reality, and give you a plan that details how to achieve them.
Divorce is an emotional process, and no one wants to go through it twice. But, doing the legwork upfront can help to take some of the emotion out of a less-than-ideal situation should a new marriage not work out. Some couples prescribe to the theory that talking about financial situations early in the relationship can add unnecessary stress. But the truth is that being transparent from the beginning will help to start your relationship off on the right foot, and build bonds of trust between the two of you.
We all walk into a relationship with certain skeletons in our closet, but disclosing them early on will ensure that both of you have all the facts, and make it easier to determine if you want to forge a future together.