Changes in marital status should trigger a review of your finances. Here’s what to consider next.
Many wedding vows include “’til death do us part,” but that isn’t always the case. Divorce rates in the U.S. have declined since the 1980s, but nearly 700,000 divorces were recorded in 2021. But there’s good news: It isn’t deterring people from trying again. In 2021, almost 2 million people tied the knot. Roughly 60% were first marriages, while 40% included a partner who is remarrying.1
These big life changes can have financial implications that can impact the long-term plans you’ve established. For example, what will happen to your children’s inheritance if their parents divorce? Deborah Lauer, senior wealth planner at Wells Fargo Wealth & Investment Management, worked with one couple who had told their children that they would inherit the family farm. But the parents divorced, and the parent who kept the farm remarried and titled the property jointly with the new spouse. That stepparent got the farm after the parent’s death, and the children were essentially — and unintentionally — disinherited.
“Whether it’s a new marriage or a remarriage or a divorce, financial awareness is important during these emotional times because they are major life changes,” Lauer says. “You want to know what your current financial position is, what your net worth is, and how these events are likely to impact your overall budget.”
Here, Lauer and Tracy Green, senior wealth planners at Wells Fargo Wealth & Investment Management, discuss important actions to consider no matter what stage of marriage you are in.
Getting married or remarried? Discuss money goals and strategies.
People often fail to talk about finances prior to marriage, says Green. “This can cause problems down the road since money tends to be a common dispute in marriage. So, we always suggest that people have this conversation prior to getting married.”
Couples don’t need to agree on everything, but it is helpful to know where the differences are. “If they have the discussion prior to marriage, it can help them develop a strategy that addresses both of their needs,” Green says. Maybe one partner likes to spend money and the other likes to save. If they can agree to either a spending or a savings amount ahead of their marriage, it may help them avoid future conflict. They should also discuss whether to combine accounts, keep separate accounts, or do both.
If the two individuals are uncomfortable having these conversations, they may want to jointly meet with their financial advisor, who can help facilitate the discussion.
Getting married or divorced? Think about asset titling.
If you are getting married and you have single assets, do you want to title them jointly with your new spouse? If you’re getting divorced, how will you decide who stays on the title? Generally, you don’t want to leave assets titled jointly after a divorce, she says.
These decisions have serious ramifications. “Let’s say there’s a family house that one spouse is bringing to the relationship, and they title it jointly with rights of survivorship with their new spouse,” Lauer says. “That means that if the spouse who’s bringing that home to the relationship is the first to die, the house automatically is owned by that surviving spouse, which will negate the transfer of that home to their children. This result may or may not be the intended goal.”
Parents may intend to leave assets to their respective children, and they set up estate planning documents, such as wills and revocable trusts, to help accomplish that. “But if you have assets titled jointly with your spouse, joint titling rules control the distribution of that asset and ignore the provisions in any estate planning document.”
Your new spouse might also bring children to the marriage, and you may want to provide for them in your estate plans.
Getting divorced? Review your estate planning documents.
Whenever you have a life-changing event like a marriage or divorce, you need to review your estate planning documents, especially beneficiary designations and any transfer on death (TOD) designations, Green says. “Too often, we see couples get divorced and they forget to change the beneficiary on their IRA, retirement accounts, or life insurance documents. It may create a situation where the funds end up in the hands of an ex-spouse. This could create a problem if the intended beneficiaries were the children or potentially a new spouse.”
There are also tax implications for divorcing parents, Green notes. “Depending on how old their children are, the parents will need to decide who’s going to take the potential tax credits or education credits or dependent care credits for their children.”
Living wills and health care directives may need to be updated as well. “If you are in the hospital, you likely don’t want an ex-spouse making your health care decisions,” Lauer says.
Some states are addressing these situations with laws that state an ex-spouse is considered predeceased for estate planning purposes — essentially, they’re written out of the estate plan, Lauer says. “If you divorce, even if your spouse is named in your estate planning documents, they will be unable to serve in those capacities. Work with your estate planning attorney, determine under your respective state law how a divorce impacts your documents and beneficiary designations, and update them accordingly.”
Married, divorced, or remarried: Be financially proactive
Often, one spouse takes on more responsibility for the household’s finances and the couple’s estate planning (looking at investments, dealing with taxes, making the decisions for beneficiary designations) and one spouse doesn’t get involved. Lauer has seen the problems this can cause, especially if there is a divorce — and, often, especially for women.
“I think it’s very important that both spouses are at the table, both spouses are meeting with their financial advisors, both spouses are involved in the estate planning decisions,” Lauer says. “Then, regardless of what life events occur, either spouse is well-informed on the financial and estate planning actions that may need to be taken. A lot of women are at a deficit because they allow their spouse to make these types of decisions and they don’t take a proactive stance to really learn along with their partner.” When a divorce occurs, they may lack the information they need to make the right financial decisions for themselves. “It can be a lot to handle at a very emotional time,” Lauer says.
Being financially proactive can help you be prepared for big life moments and help you make the smart decisions that are right for you.
1. “Marriage and Divorce,” National Center for Health Statistics, Centers for Disease Control and Prevention, https://www.cdc.gov/nchs/fastats/marriage-divorce.htm
Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed. Please consult your tax and legal advisors to determine how this information may apply to your own situation.
Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.
