Handling the money in a second marriage takes planning and thought to avoid potential potholes on the road to marital bliss. The financial planning issues in second marriage can be broken into two parts: those required to conduct the everyday affairs of the marriage; and those relating to property ownership and estate planning.

In the case of the former, two separate and independent economic entities have to be merged to operate as one. Usually two incomes have to be combined to pay the bills — his, hers and theirs. Savings have to be allocated for two separate retirement plans. It is not uncommon for both to own their separate residences.

An easy way to deal with the bills and money is to set up one joint checking account, with each of the spouses keeping their separate checking account.

Common expenses and common savings can be paid from this account. Each is responsible for contributing a set amount into this account. What remains in each separate account is theirs to spend as they wish.

This arrangement is simple, easy to manage and facilitates record keeping for tax preparation. More important, it leaves each with an element of financial freedom to spend the leftover money in their separate account without having to account to the other spouse.

When both bring personal residences into a marriage, property ownership and management are an issue. Suppose they decide to live in one and rent the other. Suppose both contribute to the mortgage payments of the residence through the common checking account. The rental income goes into the joint account to help cover the costs of the household. Such an arrangement will quickly create a joint ownership situation for both properties where none existed before. Because of the co-mingling of income and expenses, before long both properties could be considered community property.

If the parties wish to continue owning their respective properties as their separate property, they will need a pre- or post-nuptial agreement to do so.

Separate property will not be subject to division in a divorce and it allows them to appoint the full value of their property as either gifts or inheritances to heirs. Community property, on the other hand, gives the other spouse the right to share in ownership in the case of a future divorce, and the right to bequeath the property interest at death.

If one spouse owns separate property and wishes to leave it to his heirs at death, but also wishes to allow the surviving spouse the rights to use the income from the property during his or her remaining life, a Qualified Terminal Interest Trust (QTIP) should be a part of their estate plan. This trust lets the surviving spouse use, or have an income interest from, the property during his or her lifetime. At death it passes to the heirs designated by the first-to-die spouse. This trust can contain the separate property of the first to die, plus that spouse’s half of the community property.

Finally, it is important that all retirement plans and life insurance contracts be reviewed to ensure that beneficiary designations are correct.

It is not uncommon among second marriages to find old IRA or life insurance policies, which name anyone other than the current spouse as a beneficiary, create a potential estate tax liability upon the death of the owner. This can be avoided by either removing the life insurance policy from the estate by gifting or change of ownership, or changing the beneficiary to the new spouse.

When both bring personal residences into a marriage, property ownership and management are an issue. Suppose they decide to live in one and rent the other. Suppose both contribute to the mortgage payments of the residence through the common checking account. The rental income goes into the joint account to help cover the costs of the household. Such an arrangement will quickly create a joint ownership situation for both properties where none existed before. Because of the co-mingling of income and expenses, before long both properties could be considered community property.

If the parties wish to continue owning their respective properties as their separate property, they will need a pre- or post-nuptial agreement to do so. Separate property will not be subject to division in a divorce and it allows them to appoint the full value of their property as either gifts or inheritances to heirs. Community property, on the other hand, gives the other spouse the right to share in ownership in the case of a future divorce, and the right to bequeath the property interest a death.

If one spouse owns separate property and wishes to leave it to his heirs at death, but also wishes to allow the surviving spouse the rights to use the income from the property during his or her remaining life, a Qualified Terminal Interest Trust (QTIP) should be a part of their estate plan. This trust lets the surviving spouse use, or have an income interest from, the property during his or her lifetime. At death it passes to the heirs designated by the first-to-die spouse. This trust can contain the separate property of the first to die, plus that spouse,s half of the community property.

Finally, it is important that all retirement plans and life insurance contracts be reviewed to ensure that beneficiary designations are correct.

It is not uncommon among second marriages to find old IRA or life insurance policies with the first spouse named as the beneficiary. Retirement plans, IRAs and life insurance policies, which name anyone other than the current spouse as a beneficiary, create a potential estate tax liability upon the death of the owner. This can be avoided by either removing the life insurance policy from the estate by gifting or change of ownership, or changing the beneficiary to the new spouse.