Mixing your finances with your romances can be tricky. It doesn’t feel romantic to talk about money when it’s so much more fun to dream about a beautiful future together. However, it’s important to remember that somehow you have to finance that future. Talking about money doesn’t kill dreams – it makes them come true.
Comprehensive financial discussions about marriage finances are especially important for newlyweds because studies show that money fights are the second leading cause of divorce. Couples financial planning can help ensure you and your spouse are on the same page about this vital issue.
Start by getting organized
Make a list of shared assets and liabilities. What do you own? For many young couples the answer might be, “not much.” Even if you don’t have a lot, you should decide how you will own your combined assets. Will you each keep assets in your own name or own them jointly? What are the laws in your state about community property? Wisconsin is a community property state, which means that assets acquired during the marriage are considered “community property.” It also means that debts acquired during the marriage are also community property. However, you should share information about the liabilities each person brings into the marriage. Make a list of all your credit cards and loans. Develop a strategy to pay down your collective debt together so that you can save for your future.
Update your paperwork. Most people remember to update their bank accounts, driver’s license, and social security cards. While you’re filling out all that paperwork, don’t forget to update the beneficiaries on your investments and insurance policies. The beneficiary designations on retirement accounts take precedence over instructions left in a will, it’s important that those designations are correct.
Set goals. Talk about what you want out of your life together, both in the near and distant future. This discussion does not need to be limited to finances. Understanding how your partner wants to live his or her life and their philosophy around financial matters will help you determine your approach to life as a couple.
First, discuss short-term goals.
- Do you want to take an annual vacation? What does “vacation” look like to each of you? Is it a camping trip or a luxury resort? Will you fly or drive?
- Are you saving for a house? What kind of a house do you imagine living in? Understanding your partners expectations for a home, which neighborhoods you’d like to live in, and the average cost of a home in your area, as well as the tax burden that comes with owning a home, will help you understand how much you’ll need to save.
- Do you have a health savings account and an emergency fund? How much money do you believe should be in each of these accounts?
Then, look at long-term goals.
- How do you feel about saving for retirement? Do you already have retirement savings? Whose employer offers a tax advantaged account? Hopefully you each have your own assets. When you consider those assets in total, how are they allocated? While you might not want to combine assets, it might be a good idea to reallocate some investments so your overall combined portfolio is not imbalanced.
Start a budget. List all your expenses and sources of income and agree on what a “normal” month will look like. Make agreements on how to handle day-to-day spending and big-ticket items. For example, how much can one partner spend without consulting another? Think about who will be the CFO in the relationship – the person who pays most of the bills. Do you want to divide duties equally or trust one person to manage one set of bills while the other person pays others? It doesn’t matter how you manage your day-to-day finances, as long as you are both comfortable with the arrangement.
Next, minimize taxes
After the wedding festivities conclude, be sure to fill our new Form W-4 – Employee’s Withholding Allowance Certificate to update your marital status and number of W-2 withholding allowances.
Next, look at the tax advantaged savings options available through your employers. Do one or both of you have a 401(k) for 403(b) plan? Are one or both of you saving into an IRA? Are you eligible for an HSA? Remember that contribution limits for these plans vary depending on your marital status so you will want to understand the income phase outs for the types of retirement plans available to you now that you’re married.
Finally, protect yourselves & your future
Review and update your insurance policies. Some insurance coverage might be provided by your employer, but you should consider the options available from both of your employers to ensure you are getting the most appropriate benefits for the money. For example, it might be less expensive for you to obtain health care coverage from one spouse’s employer rather than being covered by two different plans. If you have a homeowner’s or renter’s policy, be sure the coverage amount is high enough to cover your combined assets. Don’t forget about your auto insurance. You might be able to save money by insuring all your vehicles with a single provider.
Many employers offer disability insurance. For younger newlyweds, especially those still dealing with student loans, disability insurance might be a good idea. Research shows that approximately one-third of Americans will become disabled for at least 90 days at some point in their career. Disability insurance can cover at least part of that loss of income.
Write a will. Your will is the most important legal document in your estate. It details your wishes regarding the distribution of your estate and ensures your wishes are carried out after your death. Without a will, a court makes decisions about what to do with your estate. A will eliminates confusion and anxiety, ensuring your assets benefit the ones you love in the way you wish.
Bonus: Special considerations for second marriages
Second marriages are opportunities for second chances. However, couples in their second or subsequent marriages often have a more complex financial life, dependent children, or parents who need financial support. Plus, the financial state and outcome of an earlier marriage could influence your approach to your new marriage.
Start by discussing family obligations. If one or both of you still has minor children, how do you plan to fund their education? How old are your parents? What is their financial condition? Do you expect that you might have to support one or both sets of parents? Be sure your will takes your blended family into consideration.
Consider a prenuptial agreement. Although talking about the end of a marriage isn’t exactly romantic, especially when you’re about to get married, it’s practical. Whether you realize it or not, as soon as you’re married, you’ve basically entered into a prenup – one drafted by your state legislators. If you would like to control how your assets and debts are handled in the event of a divorce, a prenup will help you develop a strategy that is fair and equitable, before the emotions of a divorce get in the way. It doesn’t have to be a negative conversation. Think of it like buying insurance. You hope you’ll never need it, but in the event that you get in a car accident, it’s nice to know you’re covered.
No matter how you choose to handle these discussions, it’s very important that a couple is on the same page financially. Sometimes it helps to have a neutral third party guide you through these discussions. If you need help discussing your financial future, please let us know. We are here to help.