A new marriage is a cause for celebration, but like any major life change, it can bring with it new questions about your wealth and your long-term financial plan. It is important to understand where you stand coming into the marriage and where you see the future taking you. We’ve put together some questions to consider on your way to say “I do.”
Know Where You’re Starting
Before you head into marriage and begin to combine assets and financial plans, take time to do an honest assessment of where you both stand. What are your current assets, including anything like trusts or equity compensation, to which you may not yet have full access? What are your liabilities, like remaining student loans? What is your current income level? Is that income predictable, or is some portion of it potentially highly variable, like commissions or bonuses? Knowing whether you’re starting from very different places can help you better decide how to come together financially, both in immediate practical ways like combining accounts and in longer-term financial planning.
It’s also worth remembering that domestic partnership and common law recognition of relationships can carry similar rights and requirements to marriage, and the same considerations as you plan for your future often still apply.
No matter your circumstances, one of the most important steps you can take is to be open and honest with each other about money. In a recent survey, 41% of divorced Gen Xers and 29% of divorced Boomers identified disagreements over money as the cause of their divorce.1 The good news is that many of the underlying causes of these disagreements – mismatched financial priorities, different spending habits, conflicting money personalities – can be resolved by frequent, open communication that can help you find solutions that work for both of you.
What Will Your Future Look Like?
Just as important as understanding where you stand now is understanding what your financial picture is likely to look like in the future. What is the future income potential of both partners? Even if you’re starting from similar places, different careers and professional aspirations can mean very different outcomes decades down the line. Are there future assets that you can be relatively certain of? This could include trusts or potential inheritances, though be careful to assume too much about inheritances. Are there future assets that are more difficult to predict, like stock options or family business transactions? Doing your best to account for these types of changes can make long-term financial and life planning easier and save you headaches in the future.
To Combine or Not to Combine?
When you’re thinking about how to combine your finances, start with an honest conversation about how you feel about money. Perhaps even more important than understanding your assets coming into a marriage is understanding how compatible your money personalities are. Are you more inclined to spend or save? Are experiences, like travel and leisure activities, a high priority for you or would you rather devote that money to your living space? What are your priorities around philanthropy? Understanding where you line up, or don’t, on these kinds of topics will help you navigate your combined financial future.
Some couples may choose to combine their finances thoroughly. This can provide a degree of convenience if both parties have equal access to the combined assets but requires a lot of communication and ongoing shared decision making. You’ll likely want to set ground rules about what kind of decisions need to be made together versus what one party or the other can handle without consulting the other.
Another option is a mine/yours/ours approach, in which each partner maintains some accounts completely individually while pooling some resources for shared use. This approach can make sense if you prefer more significant autonomy over some choices but still want to plan together and share responsibility for things like household expenditures.
In any case, you’ll want to consult your tax professional about the best options for you and whether to file taxes jointly or separately. Depending on the situation, there can be significant advantages to one or the other.
Legally, Who Owns What?
Regardless of what you’ve decided in terms of combining or not combining your assets, there are legal considerations as to who technically owns what and what that means now and in the future. For starters, some states consider property that you enter the marriage with as separate property, but not all do. As you acquire shared assets over the course of your marriage, you may also want to consider moving some of them into a trust for tax, estate planning and other legal reasons.
These legal ownership questions can potentially have a significant impact on your estate planning decisions and the outcome in the event the marriage ends. Work with a family law and estate planning professional to help you identify who owns what now and who you want to own what going forward.
No matter what you decide, it’s important to remember that the degree to which you meld your finances does not indicate how much you care about each other or the health of your relationship! What matters is what’s right for you, your partner and your lifestyle. Think about what will cause you both the least stress and help you achieve your individual and shared goals. If you have very different money personalities, you may prefer to keep some separation to avoid arguments over spending or investing priorities. Or, if you have very different income levels, you may want to combine more thoroughly to give both partners more equal access to assets. These choices are very personal and require thoughtful, honest conversations between you and your spouse and likely also the support of your advisors.
Thinking About Life Changes
Even after marriage, major life changes are inevitable. Some changes may be foreseeable, and those you can do your best to plan for ahead of time.
If you know you want to start your own business down the line, move internationally, or build your dream home, just as a few examples, you can plan for these early to ensure you can do them when and how you want. Having these conversations early allows you, your spouse and your advisor to build a plan that will fit your needs now and when those future changes occur.
Some life changes can be less predictable but require action once you know they’re coming. Marriages, career changes, divorces, births of children and deaths in the family, just as some examples, all trigger opportunities and things to consider. When you experience any of these types of life events, review your estate plan and update it as necessary. When welcoming a new child, you may want or need to set up new accounts, such as trusts or 529s. In the case of a death in the family that leads to an inheritance, you’ll likely need to consider tax implications and how to adjust your financial plan to account for the new assets. Even more substantial changes may be required depending on the situation, but you’ll likely need to update beneficiaries at a minimum.
These kinds of significant changes are also a good opportunity to evaluate your insurance needs and options. Change in dependents may mean it’s time to make changes to your life insurance coverage. Marriage, divorce, new children and job changes all trigger special election periods that allow you to change medical insurance outside of open enrollment. Remember to review the options available to you and be mindful of the deadlines for any changes you may wish to make during these special election periods.
Prenups May Not Be Fun to Talk About But Can Make All the Difference
As unpleasant as it can be, now is also a good time to consider how you would want to proceed if you divorce. No one wants to imagine that’s how your relationship may end, but it is an unfortunately common occurrence. Those conversations are better had now, when it’s easier to have a clear head, than when emotions may be running high and you’re working through the other challenges divorce can bring. Going through the process of constructing a prenup can also help you work through some of those questions we’ve already mentioned with the help of a neutral third party. A good family law attorney can also help you consider a range of possible situations to account for and start your marriage confident that you are prepared for what may come.
Embarking on a new life with your spouse is a big step and can mean major financial changes now and in the future. Carefully thinking through where you are financially and where you want to be down the line can help you start out on the right foot and put you in a position for your wealth to continue to support the life you and your partner want to lead. Your Wetherby team is here to help you and your spouse as you move into this new stage of your life.
1Market Watch. “This common behavior is the No. 1 predictor of whether you’ll get divorced.” January 10, 2018.