Cents and sensibility
Valentine’s Day can be gushingly romantic, stressful, and exciting all at the same time. For many couples, it can often lead to proposals of marriage or other forms of co-habitation. If you find yourself in that happy situation, congratulations! But before things get too far advanced, it might be an idea to sit down with your significant other and talk about your financial future, too. When I meet with young (or older) couples getting ready to tie the knot, I offer these key financial planning principles to help them get off on the right foot financially.
Goals and expectations
Couples caught up in the rosy glow of romance often believe that financially, “things will look after themselves.” But they don’t. Now’s the time to talk about goals and objectives to ensure there’s some meeting of minds. Do you want to start a family? If so, when? Who will look after the children? Will either of you stay home for a few years? Will you hire a nanny? Daycare? How will this affect your financial situation? Do you plan to move out of that condo and buy a house? Again, if so, when? If you and your husband-to-be are both working now, who saves how much towards that down payment?
All that talk of goals and planning requires some means of achieving them. That’s when it’s time to talk about what each of you is bringing to the marriage. Now’s the time to lay it all on the table Tell each other completely and honestly what you own and what you owe.
An RRSP, for example, is pretty simple to deal with. But real property, like real estate holdings, and income from salary, investments, business, or professional practice can get more complicated. How much will be joint, how much will each of you keep separate? The same goes for your individual debts, including everything from consumer loans to mortgages to business loans and tax liabilities. From now on, it’s shared…unless you agree right now that some of it won’t be and spell out exactly what. You don’t want those kinds of surprises after you’ve tied the knot.
Let’s get legal!
Talk seriously about insurance coverage. What do each of you already have? You’ll probably want to change the beneficiary of your respective life insurance policies, for example, to each other. It doesn’t happen automatically – you have to specifically direct the insurance company to do it. Or you may want to think about raising coverage, especially if you’re planning on children. Same with things like extended health insurance, disability, and critical care. Often, one spouse can be claimed on another’s policy through a group plan at work. And that could add up to big savings on premiums.
You’ll also want to discuss wills and estate planning, especially if you intend to raise a family. If you each have wills, consult your lawyer to change the beneficiary to each other…if that’s your plan. If for some reason it’s not, make sure you both agree it’s not, and spell it out in advance. If there are trusts involved, you’ll need to consult a lawyer to determine the impact, if any, of your marriage on the trust.
In some cases, couples may wish to discuss a pre-nuptial agreement, especially where there are significant pre-existing assets or other complex arrangements involved, such as trusts. This is a highly specialized area that should be discussed with both a lawyer and your financial planner.
Discuss investment styles
You may both already be active investors. Very likely, though, one will be more conservative with a lower risk-tolerance level than the other. You will have to work with your financial planner to come up with a plan that encompasses all your combined assets as a total portfolio, and apply the principles of prudent asset diversification to your combined entire net worth. This is not to say that you have to give up any pre-nuptial agreements affecting asset ownership. But it is prudent to treat your combined new asset base as a whole for portfolio planning purposes, even if some assets are owned separately.
Get some (financial) counselling now!
A good financial planner can counsel couples on those sticky financial matters before marriage, and help couples get the “money talk” out of the way now to make sure the honeymoon isn’t over before it even starts.