Marriage, divorce and a pending second marriage can cause family finances to get more convoluted than usual. Blended families and merged finances can work really well, as long as you take some time to get organised before you remarry.
What are the key financial issues to consider when you're getting married again?
If you're getting married again and want to get your nuptials off to a great start, it's sensible to ensure your finances are in order so you can concentrate on enjoying your life together. This includes the basic stuff – such as whether you should set up a joint bank account to cover bills and shopping – to more complex issues. These include the legal implications of marriage for you, your spouse and any children from previous relationships.
For example, a new marriage can invalidate a will that was made before that marriage. And, if you die without a valid will, the current intestacy rules mean that the first £250,000 of your estate, plus your personal possessions and any assets you own jointly, will automatically pass to your surviving spouse. This means your children from a previous relationship could miss out on their inheritance – which is probably the last thing you'd expect (or want) to happen.
There are several things you'll both need to focus your attention on to ensure a successful financial union as well as a personal one.
Should we merge our finances when we marry?
Sharing an account is a big step, let alone merging your finances and sharing everything. And while It's up to you and your partner how you manage your money, it's important to agree on what's acceptable to both of you.
In general, the options are to:
- Keep separate accounts – Any bills you share, such as the mortgage, utilities, and insurance, will need to be split, so you'll need to decide whether that's 50/50 or via an alternative arrangement. You'll need to communicate regularly, so you both know what's coming in and what's going out.
- Share some responsibilities but keep some things separate – A compromise could be the answer. Open a joint account to take care of the bills, but keep your own accounts to pay for the things you individually want.
- Share and manage everything as a couple – Combining all your income into a single pot can make budgeting easier, and you'll both have control and be able to see what the other is spending. This can work well as long as you have similar spending patterns, habits and behaviours.
Certain legal rights change with your marital status. Generally, when you're married, you have more rights. These can affect everything from access to joint bank accounts (if you're married, a joint account immediately becomes the property of the other if one partner dies, but that's not necessarily the case if you're cohabitees) to inheritance and pensions (if you're not married, you may need to complete an 'expression of wishes' form, which states who you want benefits to be paid to when you die). Other important legal details to note include:
- Cohabitees have no legal duty to support each other financially, whereas each married partner has a legal duty to support the other
- If either married partner dies without making a will, the other will inherit all or some of the estate, depending on its worth. With cohabiting couples, if one partner dies without leaving a will, the surviving partner will not automatically inherit anything unless the couple owned property jointly
Coping with different spending habits in a marriage
If you're hoping for marital bliss rather than a bad romance, it's important to know exactly what's happening with your money as a couple, particularly if you have differing attitudes. So can a spendthrift and a penny pincher make an ideal pair? Yes, if you set some ground rules:
- Discuss your finances with your partner regularly and openly, and be clear about what you expect from each other.
- Be upfront about how much independence you'll both have so you each know where you stand and you can avoid disagreements.
- Set a spending limit so you both know what you can and can't afford, and anything above that amount will need a joint decision before it can be purchased.
- If problems arise – for example, if your spouse is spending more money than you can afford – talk about it. Ignoring the problem won't make it go away.
- Avoid a situation where only one of you understands your finances. No matter how uninterested one of you might be in sorting out the money stuff, allowing one partner to control everything is a bad idea. And if something happens to one of you, it's not fair for the other to be left to cope with financial matters they know nothing about.
What if my new spouse has pre-existing debts?
Being married to someone with existing debts or a bad credit score won't automatically affect yours. However, as soon as you open a joint bank account or take out a mortgage together, your credit rating could be affected as you will be 'co-scored'.
Also, be mindful that when you open a joint bank account, you'll both be responsible for any debt or overdrafts, so you'll need to trust that your spouse won't spend more than they can afford.
If you have any joint debts, both of you are liable for repaying them in full. Even if your partner doesn't pay their share, you'll still be liable.
Be wary of taking on someone else's debt into a marriage, avoid taking on any new joint debts and never agree to debts secured on your home. If you're concerned about the impact your partner's existing debts could have on you, speak to a financial adviser.
Can I get a pre-nuptial agreement in the UK?
A pre-nuptial agreement is a contract entered into by you and your partner before you get married to outline ownership of your respective assets and details 'who gets what' in the event of marital breakdown and divorce.
Prenuptial agreements are not legally enforceable in UK courts. However, judges will usually seek to uphold them – providing the agreement was written up correctly and fairly. Prenups should be voluntary and include full disclosure of assets, liabilities and debts.
If you want to set up a prenup agreement, consider:
- The family home: How it will be divided in the event of a divorce.
- Finances: Any money held by one or both parties, in joint accounts or separate, including savings and investments.
- Debts: If one spouse builds up debts, a pre-nuptial agreement can be used to limit the debt liability of the other spouse if you divorce.
- Children: This can include offspring from a previous marriage and whether they have a right to any property or assets following a divorce.
- Property: This covers property that either spouse owned independently, prior to the marriage.
- Inheritance/trust: This covers property that is given to one of the parties or inherited during the marriage, as well as any assets gained from a trust.
To be considered valid and binding, both parties must seek independent legal advice, and two individuals must witness the signing of the agreement.
I already have children. Will my remarriage affect their inheritance?
Inheritance can be a complicated matter at the best of times, and entering into a second marriage only ups the ante.
When you remarry, your children (and grandchildren) will not automatically receive any of your assets. If you die, these will automatically pass to your surviving spouse – and, by default, on to their children. To ensure your children from a previous relationship receive their share of your inheritance, you need to write a new will.
In addition, if you and your new spouse own a property together, it may be more appropriate for this to be owned as 'tenants in common' rather than as joint tenants. This way, each of you can deal with your respective share of the property in your wills. And if you leave your assets to a trust, then when one of you dies the surviving spouse will be able to use the joint assets until their death. After which children of previous relationships from either side can then receive their respective parent's assets.
The financial advantages of remarrying
Spouses have some distinct advantages when arranging savings, investments and pensions – and, if you both own properties, you'll be boosting your shared assets, which can help you secure the best rates and deals on a range of financial products. You could also rent one property out to earn an income from it while retaining it as a valuable asset. And that's not all – other benefits of tying the knot include:
- The marriage allowance: If one spouse has earnings below the basic rate income tax band, they can transfer £1,150 of their personal allowance to their higher-earning spouse or civil partner, trimming their overall tax bill by up to £230 in that tax year.
- Investing: If you've used up your personal ISA allowance for the year, your spouse has an allowance that you could use.
- Income tax: If one spouse is a higher-rate taxpayer and the other is basic-rate, you may be able to make good use of this. For example, if you have a buy-to-let property, transferring sole ownership into the name of the basic-rate taxpayer could potentially save a lot of money.
- Pensions: If one spouse is a higher-rate taxpayer and the other a basic-rate taxpayer, then it could make financial sense for the lower-rated partner to pay into a pension in their spouse's name. This doubles the tax relief, resulting in a much larger final pension pot.
Remarrying – how can financial advice help us?
Independent financial advice can help to prevent disagreements over money by recommending an approach that suits you both. When you see a financial adviser, go together and discuss your priorities as a couple to ensure your finances are fully aligned.
If you found this article useful you might also find our article on estate planning and wills for blended families informative, too.