According to the Census Bureau, more than 50% of the divorced males in the U.S. over age 50 and more than 40% of the divorced females in the same age bracket end up remarrying. We know there’s more to creating a union late in life than just blending families. If you’re tying the knot and nearing retirement at the same time, we believe the following seven issues are important financial planning considerations to keep in mind. Regarding certain of these considerations, you may wish to seek the advice of a qualified attorney and/or accountant.
1. Social Security and pension benefits. If you’re divorced, getting remarried generally will suspend your right to receive Social Security benefits based on your ex-spouse’s earnings record. If you’re widowed and plan on collecting benefits based on your deceased spouse’s record, you may have to wait until age 60 to remarry. Also, make sure to contact the plan administrator if you’re entitled to a former spouse’s pension plan to determine the impact of remarriage on benefits.
2. Taxes. If you file a joint tax return, rather than continuing as single filers, you may encounter a greater tax liability. Some couples may be hit with a federal income tax “marriage penalty” if both have substantial incomes.
3. Estate planning. It’s crucial to have a valid will in place so that your heirs won’t have to depend on state law to dictate where assets will go. That becomes even more important if you’re remarrying. Revise your existing will if applicable and remember, even if your will says your home will go to children from a prior marriage; it will go to your new spouse if the two of you own it jointly with rights of survivorship.
4. College financial aid. Will a new marriage in your 50s affect your children’s college financial aid? To determine financial aid awards, the government looks at the income and assets of the “custodial parent”—the one with whom a child has lived for most of the preceding year. These calculations may also reflect the income and assets of a new spouse when the custodial parent remarries. Your fiancé’s wealth might reduce your child’s college aid. Some colleges also include the noncustodial parent’s assets in the equation.
5. Healthcare expenses. Your state may impose special rules relating to payments of medical expenses, particularly future nursing home care. Typically, if someone requires nursing home care, it may be possible to transfer some of that person’s assets in attempt to qualify for assistance under Medicaid (subject to certain imposing restrictions). However, in some states, you may still be responsible for the costs of a spouse, even if the spouse has transferred assets out of his or her name. Such rules could affect your financial arrangements with a new husband or wife.
6. Alimony. If you receive alimony from your ex-spouse, this will likely stop when you remarry. Discuss how this loss will affect your family’s lifestyle and whether you’ll have to scale back. Look at options for replacing the lost income.
7. Beneficiary designations. Do not forget to change the designated beneficiary (or beneficiaries) on insurance, retirement plan accounts (remember, these supersede your will) and annuity contracts. If you fail to do this, an ex-spouse might be entitled to most or all of such benefits.