Plenty of books and articles offer financial planning tips for widows and widowers mourning the loss of their spouse--and often the loss of that spouse's income. But few address the financial issues that widows and widowers face as they move on and pursue new relationships.
For instance, widows who remarry before age 60 forfeit their late spouse's Social Security benefits, and both partners may have concerns about comingling money later in life when long-term care costs and estate planning are top of mind.
While some couples prefer remarriage for emotional or social reasons, this complicated web of financial concerns has caused a growing number of older couples to choose cohabitation instead. (Of course, if you live in a state that recognizes common law marriage, the state may still view you as married.)
According to Bowling Green State University demographer and sociology professor Susan L. Brown, 2.4 million Americans age 50 and older lived in "unmarried-partner households" in 2009, double the number from 2000. "Of all unmarrieds over age 50, I estimate 7 percent are currently cohabiting," she says. "Also, if we look at older adults in a repartnership, most are in a remarriage, but 9 percent are in a cohabitation."
Here's a look at the financial issues widows or widowers should consider as they recouple:
-- Children from a previous marriage: Consider how a remarriage might affect your existing family. For instance, if you have children who are attending college on financial aid, your new spouse's assets may be factored into the expected family contribution and change the student's financial aid eligibility. "When you comingle assets, there may be some difficulty with qualifying for aid because if you're filing jointly, you've got more income than you would have if you were filing as a single person," explains Kathleen Hasting, a certified financial planner and chartered adviser for senior living at FBB Capital Partners in Bethesda, Md.
Adult children may have concerns about how a remarriage will affect their inheritance or the family structure in general, so Hasting suggests discussing these concerns upfront. "I think that open communication and sharing the action you've taken to protect the children from the first marriage is probably one of the keys not only to help the children get through the process, but also to help the new marriage," she adds.
Estate lawyers often use a Qualified Terminable Interest Property (QTIP) trust with clients who have children from a prior marriage but want to provide for a surviving spouse. After the survivor passes, the money would go to the client's children.
-- Survivor benefits: If you rely on income from your late spouse's pension or Social Security or veterans' benefits, you'll want to find out if you're eligible to collect these benefits after a remarriage. With private pensions, the answer will vary. "Some traditional pensions will not continue to give survivor's benefits if you remarry," says Hasting. Accounts that are a hybrid between a traditional pension and a 401(k) may be more flexible, she adds.
In general, surviving spouses who remarry before age 57 cannot collect veterans' survivor benefits, but those who remarry after age 57 and were receiving monthly payments before remarriage may continue receiving those benefits.
For Social Security benefits, the cut-off age is 60. Not surprisingly, a 2001 study by the Social Security Administration Office of Research, Evaluation, and Statistics found that since the law changed in 1979, allowing widows or widowers to remarry after age 60 and continue collecting Social Security benefits, there was an increase in remarriages after age 60 and a decrease in remarriages under age 60.
-- Long-term care: Given the high cost of long-term care--a private room in a nursing home cost $87,235 per year in 2011, according to a MetLife Survey--having a partner who needs that level of care could strain both of your bank accounts. If you're married, you'd need to spend down both spouse's assets before your spouse would qualify for Medicaid, even if you have a prenuptial agreement stating that certain assets be kept separate.
Steve Kunkel, lead managing director at tax consulting firm CBIZ MHM in Los Angeles, suggests considering long-term care insurance before you need it. "If the new spouse doesn't have a lot of assets, maybe one of the things that the richer spouse can do is provide a policy that covers both of them," says Kunkel, "People live for a long time nowadays, and they may have delayed onset Alzheimer's or develop some chronic problem that's going to require a lot of care."
Either way, you should discuss your healthcare preferences with your partner in case something happens to you. Also consider signing a healthcare proxy form if you're not married and want your partner to be able to make medical decisions on your behalf should you become incapacitated.
-- Real estate: Before moving into a new partner's house or vice versa, discuss what happens to the house if the owner dies. Should the house go to that person's family or should the property be titled jointly? One option is to use a life estate, in which the other partner (called a life tenant) stays in the home for his or her lifespan, then the property passes to the owner's family after the life tenant's death.
As Jean Setzfand, vice president for financial security at AARP, points out, couples should also discuss how the property could be adapted as they age. "Is the house you're currently living in appropriate for you to live there the rest of your life?" she asks. Some homes may be unsuitable while others could be adapted with ramps to the entrance or grab bars in the shower.
Couples considering remarriage may also want a prenup (called an antenup in some states). "Life gets more complicated as you get older," says Setzfand. "That makes it harder when you comingle your life and financial situation. But the prenup is a discussion process, which helps you and your spouse figure things out. It also makes it official." Those who are already married could use a postnup instead.