The two words your children fear the most: “I do.”

The first session went well enough. My clients we’ll call them Richard and Ann Jone had been married for about a year and were in my office for the second time.

Richard is the chairman of a Washington-based executive placement firm. Ann had her own public relations company, but had sold it when they married; she was now unemployed. This was the second marriage for Richard, a widower; it was Ann’s first. He was 52, had a daughter a year younger than his bride, and two sons in their mid-20s. She was 29, and seven months pregnant.

Their annual income from salary and investments was about $227,000, and the couple felt this was adequate for their needs. They were concerned about maintaining their lifestyle after Richard retired, which he planned to do in about 10 years. They also wanted to look at what they had to gain or lose if Ann did not go back to work after she had the baby.

We had completed these preliminaries and were beginning to define their financial goals, investment philosophies, priorities, etc., when half the planning team walked out.

The trouble started when I asked how they were handling their checking and savings accounts. Judging by how rapidly the discussion became heated, the issue had been simmering for some time. It seems that Dick had kept separate accounts for himself and his wife, a fact that Ann resented very much.

“Dick says he doesn’t trust me to balance the check book,” she tried to joke, then added, “but in truth, I don’t think he wants me to know how he spends his money. I show him my check register, but he hides his.”

Embarrassed and flustered, Dick made a fatal mistake: he tried to humor an angry woman. “Honey, I don’t want you to worry about anything, especially now that the baby’s so close.”

Her head came up and there was fire in her eyes, even though she was close to tears. “Worry about money? May I remind you that I ran my own firm for five years before I met you,” she screeched, then stomped out.



When people ask me what it takes to be a good financial planner, I tell them in all seriousness that a basic understanding of human psychology is essential. This couldn’t be more valid than when dealing with second-marriage clients. It didn’t take long after Ann left to get to the root of Richard’s secrecy.

Richard confided that shortly before he remarried, his children had come to him for a pow-wow. They wished him well in his new marriage, but they were concerned. Their mother had left about $500,000 in bonds to Dick at her death 10 years earlier. He had used the income from these bonds-about $45,000 annually-to put the three kids through college, and had recently set up savings accounts for two grandchildren. Until he met his second wife, his children had always understood that they would inherit this money. They asked him for a new promise and he agreed. But he couldn’t bring himself to talk to Ann about this promise. In fact, when he learned that she was pregnant, he almost panicked. Instead of the career woman he had married, he now had a non-working mother. While he loved his new wife very much and was quite happy about the baby, he was torn between loyalty to his children and his new wife. He didn’t know how far he wanted to go toward sharing his assets.

Dick’s reaction is fairly typical. The cure for this couple’s problem, barring any real, deep-seated animosity, is for both spouses to communicate their fears and wishes. I

arranged a couple of one-on-one sessions with each of them where we determined their individual and mutual goals. Then I brought them back together.

Fortunately, all they needed was a little help communicating and they were able to work out their problems. But not without a lot of give-and-take.

Dick had to re-evaluate his promise to his older children in light of his own needs, now and after he retires, and those of his new wife and child. He also came to terms with his wife’s considerable business acumen, which he later admitted had unnerved him a little. His first wife had never worked and had left all of the management of the family finances up to him.

For her part, once Ann understood her husband’s fears, she was less apprehensive herself. Having been independent for so long, she was confident in her own abilities, but she was also feeling a new vulnerability. She was now dependent on someone else-her husband-for her livelihood. It would take some adjusting!



The planning process I used for the Jones is one that is tailored for second-marriage couples. Basically, it looks at the couple, their financial goals and their assets in three ways: his, hers and theirs. That is, his goals, her goals, their goals: his assets, her assets, and their assets; his children, her children, their children, etc. And while the process I’m about to outline will work for most second marriage situations, I’d like to stress that many of the problems planners deal with in second marriages can be avoided, or at least become manageable, if they are anticipated in a prenuptial agreement. If nothing else, considering a prenuptial agreement gets the partners talking about sensitive financial arrangements and perhaps will set some guidelines for circumstances that may arise.

Like the Jones’, most second-marriage couples need to look at their cash flow, determine who’s contributing what, and whether or not there will be separate accounts. This is a good time to decide who’ll be paying for what as well. For instance, if Ann and Dick keep separate accounts and Ann goes back to work after the baby arrives, who pays for the daycare? Ann? Dick? Or both?

Living arrangements can be another touchy subject. When they got married, Ann rented her condominium and moved into Dick’s home, where he has lived for 20 years. Now the couple is thinking of purchasing a new home. Again, who contributes what toward the purchase? How will it be owned? If the couple decides to keep all or part of their finances separate, these issues have to be settled.

Another important consideration for the pay their taxes. If Dick were three years older-age 55 -he could qualify for the one-time exclusion of $125,000 on the capital gains on the sale of his home, which would save the couple a good deal in taxes. Dick paid $50,000 for the house in 1968 and recently had it appraised at $185,000. Should Dick and Ann consider living in Dick’s house until they can take advantage of this exclusion? Will they save more by filing separately or together? What would be the tax consequences should Ann go back to work? A good financial planner would lay all these alternatives out and show you how they would affect your tax bill.

A lot of people entering a second marriage are concerned with protecting assets for their heirs, and Dick was no exception. His estate-which consisted of the bonds left by his first wife, life insurance, a pension, his home and about $150,000 in other investments-totaled about $1.4 million. And he had virtually no debt. Ann’s estate was much smaller, around $285,000, and included her condo, some insurance and a modest investment portfolio. Her liabilities-the balance on the condo mortgage and a car loan brought her net worth down to around $55,000.

Again, the partners have to decide how they want to treat their assets and liabilities. How will they hold title? If jointly, in what proportions? I’ve structured some assets in second marriages by the percentage of the total assets each spouse contributes. This lets both partners own each of their assets jointly but weighs that ownership so as to keep the individual proportions of their total assets roughly the same as when they entered the marriage. This also simplifies the accounting for assets that appreciate, such as a house.

While these assets are merged according to the couple’s wishes, and a diversified portfolio appropriate for their lifestyle and risk tolerance is being devised, they should consider estate planning issues. In this case, they had to decide whether Richard’s elder children would inherit the $500,000 exclusively, or if they would share this inheritance with Ann and the children of this second marriage.

Important factors to consider are how bequests made at the death of the first spouse will affect the lifestyle of the second. Does the couple need additional life and/or disability insurance to cover the loss of income or unforeseen expenses from the injury or premature death of either partner? This is particularly important in planning for couples like Dick and Ann, where there is a big age difference and a very young child to be raised and educated. And, if saving estate taxes is important to the couple, how these assets will be passed on to the heirs must be carefully structured. Your planner should work with a good estate attorney.

Of course, all this becomes even more complicated if there is an ex-husband or ex-wife, or both, figuring in the equations. For instance, what if Ann had been divorced and she had only a 50 percent interest in the condo? What if Dick had been divorced and his ex-wife was getting alimony, and was to receive part of his pension, a not-too-uncommon result in divorce settlements these days?

If both partners have children from previous marriages, this further complicates the formula. How does the couple segregate the day-to-day expenses, child support payments, health insurance and education costs? Custody and guardianships need to be established and/or defined, as well as what to do if an ex-spouse reneges on support payments or educational spending. Along these same lines, how will the couple handle the needs of aging parents, should one become dependent on them for income or support?

The problems are not insurmountable, as long as the spouses are willing to discuss their alternatives in frank and realistic terms-and the earlier, the better. If you are about to enter a second marriage, consider a prenuptial agreement. Establish some guidelines and make the hard decisions up front, so that both you and your new spouse know where you stand. The sooner you tackle your planning problems, the easier the process will be for both of you.

Typically, the solutions are compromises that fall short of fully satisfying either partner. But when measured against the consequences of failing to address these issues, not to mention the worries and aggravation that can diminish the marriage’s chances of survival in the first place, the trade-offs don’t look that bad.

B. Frank Doe is a Certified Financial Planner, and a member of the Registry of Financial Planning Practitioners-a highly accredited nationwide planning group.

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