MERGING MONEY
PLANNING YOUR POST-WEDDING FINANCES
Marriage is a many-splendored concept, but when you begin to peel away the layers, one important thing you find is a business arrangement—that’s just one reason why it’s called a marriage “contract.” And, as with any business arrangement, in a marriage you have money flowing in and money flowing out. As long as the inflow exceeds the outflow, the arrangement usually works. But a marriage isn’t a typical business—there’s an emotional aspect to everything, including a couple’s finances. To help get the discussion started, here are some topics you should address together before you tie the knot.
Budgeting
Many financial experts say that a key to financial success is to spend what you have after saving, rather than saving what is left after spending. To heed this advice, estimate your combined monthly income and expenses, and establish spending controls and saving habits that will help you achieve your ultimate financial goals.
Combining Accounts
As engaged individuals, you probably already have your own savings, checking, and brokerage accounts. But as a couple, do you want to combine everything into joint accounts or keep them separate? Having separate accounts lets each of you feel independent, knowing that you can tap your finances whenever the need arises. On the other hand, joining accounts can help unite your goals and create a more effective investment program. Take the time to discuss your account options—completely merge, combine some but not all, or completely separate—and decide what works best for both of you.
Housing
If each of you already owns real estate, you will need to have discussions regarding housing, including: Will you live in one spouse’s home, or sell both houses and purchase a new home together? What will be the likely tax consequences of selling—especially if the sale will result in substantial capital gains or losses?
Financial Goals
In today’s economy, it’s important to set aside money for emergency expenses in case of sickness or job loss—experts recommend saving three to six months’ living expenses. That’s why it’s important to establish financial goals and determine your priorities as a couple. Do you want to dine out often, or eat in and save? How much do you want to spend on traveling and entertainment? How about for buying and decorating a home, leasing a car, etc.?
Debt
Some people are raised to believe in never borrowing money unless it’s absolutely necessary. Others are taught that it is acceptable to take out a loan—even for a luxury item. Differing attitudes towards debt accumulation is just one reason it’s important to know before the wedding what, if any, debts each of you is bringing to the marriage. If there is debt, decide whether to combine it or to keep separate credit histories and records. Many experts recommend that each individual retain his or her own credit cards and credit history. Doing so helps ensure financial independence and provides greater flexibility if either of you finds yourself alone at some point in the future. Also, if one of you has a poor credit history, it may be advisable not to commingle debt in order to retain the other’s better credit rating.
Estate Planning
Addressing estate planning is vital, regardless of your age. When two people commit to legal responsibility for each other, it’s appropriate to talk about how they want to provide for an orderly transfer of assets. Included in the discussion should be considerations of the financial implications of life insurance and what would happen if a spouse were lost. Pay particular attention to beneficiary designations on life insurance policies, IRAs, and 401(k) plans. These designations will supersede instructions for distributing assets included in a will or trust. Each provider—insurance company, financial institution, or plan administrator—needs to be contacted to update the beneficiary designations on these valuable assets. (This step is particularly important in the case of a second marriage.)
When appropriate, include your financial advisor, tax advisor, and attorney in financial discussions before you say, “I do.” Open and honest communication before your wedding day may help you avoid money arguments and financial problems later in your marriage.
This article was written by Wells Fargo Advisors and provided courtesy of Lori Rhyner CFP®, Financial Advisor in Jackson. You can reach Lori at 307-739-3855.
Wells Fargo Advisors does not render legal or tax advice. While this information is not intended to replace discussions with your tax advisor, it may help you to comprehend the tax implications of your investments and plan tax-efficiently going forward.
Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.
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