"Some people are worth melting for." - Olaf, Frozen
So you’re in love. That’s enough, right? Well, it’s definitely the best foundation for a successful marriage. But money issues can quickly tear apart the strongest of relationships. Data from TD Ameritrade in 2018 showed that 41% of divorced Gen-Xers reported money disagreements as the top reason for their divorce. If you find someone worth melting for, being upfront and deliberate about financial decisions may literally save your marriage.
This post on marriage and finance is the third in a series about preparing financially for five BIG life events. Read post #1: Buying a House and post #2 Job Transition Checklist.
With love and life, it pays to plan ahead so you can move forward with less uncertainty. We help our clients plan and find that no one’s ever upset if they’re over-prepared financially. It’s definitely better than the alternative!
The Wedding
Once you commit to spending your life with someone, the big money decisions start right away with the engagement and wedding. Here you can spend $100 - $100,000, beginning with engagement rings and wedding bands, parties, photographers, cakes, gowns & tuxedos, rentals, catering, a honeymoon. I could go on and on . . .
This is the time to begin getting comfortable discussing money. As a couple, first talk about what you want your wedding to look like, and agree on a final vision for the day. Second, identify who is going to pay for each expense. Third, create a budget for each expense. Fourth, stick to it!
Money and Marriage Conversations
Having honest conversations about your financial position before and after marriage is crucial to understanding your partners’ approach to money. Talk about your individual relationship with money while you were growing up. What is it now? What are your financial dreams? What is your current position? Do you have debt, a significant amount of assets, cash flow issues? Putting these on the table with your beloved will help you both understand the other and help you sort out the best financial approach for your newly formalized partnership.
Marriage and Finance Decisions
There are a handful of decisions that are best made before or at least early in your marriage.
Prenuptial agreements
Sometimes a person has substantial assets or significant obligations (like children from a previous marriage) that require legal protection. The discussion can be uncomfortable, but it ensures that all financial information is shared and each person has legal representation. Most of all, the agreement can be FAIR to all parties.
Financial roles
Another honest discussion will be needed to decide who will take the lead in which financial areas. Who will pay the bills each month? How will large purchases be made? Who will manage the financial planning?
Budgets
Discuss your spending habits and agree on limits for each expense. Identify what constitutes a major purchase and how those should be made as a family. Prevent arguments by adhering to monthly spending limits and guidelines for large purchases.
To merge or not to merge
Financial roles and budgets may become apparent quickly depending on your decision to merge or keep your money separate, and vice-versa. There is no right or wrong answer here and every couple should do what works best for their situation. If each partner has different approaches to spending, then at least some separation of money may help keep the peace.
Existing debts and loans
Debt stays with the originator, but if it’s significant, it may affect the cash flow of funds once you’re married. In addition, if the debt has lowered the person’s credit score, it may affect future purchases or loans that a couple could get. Again, it’s best to share this information with your partner early and make a plan for paying it off.
Tax implications
Once April 15 comes around, you’ll have an important decision to make about filing separately or jointly. Typically filing jointly is better, but each can have tax benefits or disadvantages depending on the income levels and debt of each partner. It will be worth it to explore each option for your specific circumstance before making a decision.
Estate planning
Discuss your retirement goals with your spouse. Your new marriage may offer an easier way to save more money, now that you have an opportunity to maintain two retirement accounts and Roth IRAs. Look at ALL of your accounts and update your beneficiaries. Now that you have a new financial life with your partner, you may also want to consider life insurance. And, once couples are married, we always recommend a will.
Financial Advice
As newlyweds, you will receive ALL kinds of unsolicited advice on just about every topic! Merino Wealth is here to help you sort out your new financial life together. We excel at helping couples evaluate and manage the new options before them, including financial planning and asset management. Reach out today if you are ready to say I DO (want to take charge of my financial life).