FINANCIAL PROBLEM SOLVED!

"Do we need separate checkbooks?"

Problem

I recently remarried. My wife is a corporate executive, and we have very different attitudes about spending money, paying bills, and managing finances. We think maintaining separate checking accounts would make things easier. Would this have any negative financial consequences? Any advice on other second-marriage financial decisions?

Solution

Second marriages create unique circumstances. In first marriages, most people start out with little or nothing and develop their assets and spending patterns together. They make joint decisions and usually don't think in terms of "yours vs mine." But in second marriages, spouses often have assets from prior marriages, inherited assets, children who require different financial assistance, and possibly lifelong spending habits and values about money. Trying to adopt the "everything in one pool" approach that's typical of first-time newlyweds may cause unnecessary problems.

Maintaining separate checking accounts is perfectly acceptable. That way, if one of you is thrifty and the other spends more freely, you can minimize friction over purchases and expenditures. It can also prove especially helpful when it comes to paying such expenses as alimony and child support. Asking your current spouse to pay your ex-spouse's alimony check might naturally breed resentment.

But with separate accounts, communicating openly about money becomes especially vital. Decide in advance who will pay which bills. Or you might maintain a third, family household account from which you'll pay common expenses such as mortgage, utilities, and food. Each spouse would contribute an agreed-upon amount to the household account. Or if one spouse is the designated bill-payer, the other would contribute a set monthly amount toward those bills.

Other second-marriage financial considerations include investment decisions and retirement and estate planning.

If you have separate retirement plans, it's still wise for each of you to contribute as many pre-tax dollars as possible to your plans. You might also want to consider setting up a joint investment account. Each of you could contribute money to it, and you could discuss your investment choices and decisions. Since this money would go toward your future life together, it's a good way to make sure your goals are in concert.

As far as other individual assets go, it's also fine to keep those separate. In many second marriages, this is mandated by a pre-nuptial agreement.

It's appropriate to do some detailed estate planning as well. Do you want to leave stepchildren and children born of the current marriage equal shares of your estates? It's even more difficult to decide how much to divide things between your second spouse and your children from your first marriage. One possible arrangement is to put funds in a trust that provides a lifetime income for your spouse, with the remaining amount going to your children.

You should also keep in mind that transfers between or inheritances from spouses escape the estate tax. For example, if you leave your IRA to your spouse, he or she will pay no income or estate taxes on the money in it when you die, although subsequent withdrawals by your spouse will be taxable. However, if your children inherit your IRA, they may have to pay both income tax and estate tax, depending upon the size of your estate. Discuss this with your spouse and financial adviser to come up with the proper tax planning.

This issue's problem solver is Marc Singer (msinger@singerxenos.com), CFP, a financial adviser with Singer Xenos Wealth Management in Coral Gables, FL. Financial Problem Solved! is edited by Senior Editor Leslie Kane.

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Leslie Kane. Financial Problem Solved: "Do we need separate checkbooks? Medical Economics Nov. 21, 2003;80:38.