Remarrying and Blending Families

Merging families and finances

Getting married is exciting, but it can bring challenges as well. One such challenge that you and your spouse will have to face is how to merge your finances.

In a remarriage, one or both spouses may have significant assets, business interests, and children to consider. This makes careful planning and clear communication extremely important, because the financial decisions that you make now can have a lasting impact on you and your family’s future.

Planning for marriage to someone with children

Marrying someone with children means you will face the usual financial issues of couples getting married plus some issues uniquely related to rearing someone else's children. Here are some points to consider:

If your future spouse is paying child support

  • Payments usually continue for a specified period.
  • Payments could increase in the future.
  • Your future spouse's ex-spouse can request that the court increase support payments as a result of your contribution to the household income.

If your future spouse is receiving child support

  • Payments usually continue for a specified period.
  • There is no guarantee that the amount of the payments will remain the same.
  • An ex-spouse can petition the court to reduce payments under certain circumstances.

If your future spouse is receiving alimony from a prior marriage

  • Consult the divorce decree for the terms.
  • Alimony payments may be reduced or stopped upon remarriage.

Remarriage and prenuptial agreements

Even if you have never thought about a prenuptial agreement, it is wise to consider it now because it:

  • Details the assets and liabilities each partner brings into the marriage
  • Spells out a couple's agreement on the division of assets in the event of divorce

These issues can become especially complicated when there are significant assets, businesses, and children involved. The best prenuptial agreements will protect the interests of both spouses without causing any mistrust.

Providing for children from a previous marriage

There are numerous ways you can provide for your children or your spouse when you remarry:

  • Use life insurance or an irrevocable life insurance trust (ILIT)
  • Name children as beneficiaries of your retirement plan
  • Leave your surviving spouse a lump sum, and give the remainder of your assets to the children
  • Give your spouse the use of assets for life, with the remainder going to your children upon your spouse’s death

Tax planning when you remarry with children

Marrying someone with children from a prior relationship can create a variety of income tax questions. Here are some points to consider:

Alimony payments:

  • Must typically be included in the gross income of the recipient
  • Can be deducted by the payer (if all requirements are met)
  • May be designated by the divorce agreement as nontaxable and nondeductible

Child support payments:

  • Ordinarily considered nontaxable income of the recipient
  • Are not deductible by the payer

Dependency exemptions:

  • The custodial parent is ordinarily entitled to claim the exemption, regardless of who pays child support
  • The noncustodial parent can claim the exemption if the custodial parent agrees in writing or it is part of the divorce agreement
  • IRS Form 8332 should be used by separated or divorced parents and attached to the noncustodial parent's tax return

Child (and additional child) tax credit:

  • If qualified, can claim for a child that is your dependent
  • Custody of the child is not required

Sharing assets and debts

Finally, there are many factors you will want to consider when you are deciding how to share the assets and debts that both you and your spouse bring to the marriage.

For example, if you incurred debts before marriage, they should be kept separate to protect your spouse’s property from creditors. Likewise, if you owned property before your marriage, that should be kept separate to protect you from the possibility of losing it to your spouse’s creditors.

Working with a Financial Professional

There are numerous questions you may still have. You may want to consider working with a Financial Advisor to help answer your questions and create a financial plan that makes sense.

Next, you can read about another concern you may have, parenting your parents.

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