Talk finances with your soon-to-be married boomers

Chocolate and flowers might be the typical Valentine’s Day presents, but why not tell your client to give the gift of a prenuptial agreement instead?

Protecting your clients’ finances might not seem romantic, but with more boomers marrying later in life, smart financial planning is as important as organizing a big wedding.

“It is an interesting challenge when baby boomers marry,” says Vera Adamovich, a CFP with the Independent Planning Group in Stittsville, Ont. “There are a lot of considerations that are different, especially than that of a first marriage.”

A big issue for remarrying boomers is how to support a spouse and keep children from a first marriage happy. Christine Van Cauwenberghe, director of tax and estate planning at Investors Group, says many clients forget that throwing all their assets into a joint account could have negative implications down the road.

“If your client puts everything into a joint account, when one person passes on everything goes to the new spouse and kids could be disinherited,” she says. “It may not be a good idea to co-mingle everything.”

Adamovich says couples don’t think about this because the usual way of doing things is to share accounts. “That’s the standard structure, but that might leave out the children of the partner who died first.”

This is especially important when it comes to boomers because often times one, or both, will have significant assets that they’ve built up over the years. While love might be in the air, it’s best not to let your client forget about their money. “Sometimes that conversation could be awkward though [between spouses], so if you have a third party advisor it could make it less confrontational,” she says. “The advisor is ‘the bad guy’ raising the issues, and then the couple can talk about things themselves.”

These discussions could lead to talk about a pre-nup, which doesn’t just outline where money should go in case of a divorce. It’s a domestic contract that details how assets will be shared. Combine that with a well-prepared will and children should be protected when a spouse dies.

In some situations spouses may choose not to mix assets. Many 50-somethings already have well-developed portfolios, so it might be easier to keep your client’s investments separate from their spouse’s.

“Anything that’s kept separate will be considered separate,” says Adamovich. “If you’re bringing a lot of assets in you have to think ‘do I want to leave this to my new partner or directly to my kids?’ A good financial planner should highlight all those options.”

While previous children are a big issue, there are several other things that boomers have to deal with if they get married later in life. Cauwenberghe says by the time people are in their 50s, their savings and spending habits are well established. That could cause problems if one client’s a spender and the other’s a saver.

“It’s hard to change those habits,” she says. “You don’t want to start off a relationship with different standards of living.”

Adamovich makes sure couples that have different ideas on saving and spending are aware of what each person in the relationship is doing. She usually shows the budget process visually so they can see exactly what’s happening. And that, she says, “brings them closer together.”

Retirement is another area where boomers and advisors need to have a lengthy chat. Adamovich says that in a normal situation, when a partner passes away, a portion of his or her pension will transfer to the spouse under survivorship benefits. If someone gets married after they’re already receiving a pension this might not be the case.

“A lot of people aren’t aware that a new spouse doesn’t qualify for survivorship benefits because in pension regulation often the definition of a spouse is the spouse at the time of retirement,” she explains.

Adamovich says her clients are “shocked” when they find out about this. Making matters more complicated, if someone remarries in retirement due to a divorce, rather than being widowed, the ex-wife will still receive the pension benefits.

In order for the new wife to receive benefits the spouse will have to be willing to take a lower pension.

These situations, which might not present themselves in a first and only marriage, is precisely the reason why advisors should contact their client when they find out that he or she is getting remarried. “Advisors need to be aware of these problems and make their clients aware of it so, together they can come up with solutions,” says Adamovich.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(02/14/08)

Bryan Borzykowski