Have the ‘money talk’ before you tie the knot
Young couples getting ready to tie the knot this spring and summer typically have a lot to talk about – guest lists, invitations, venues, honeymoon, and all the details that go into planning a wedding. Money often isn’t part of the conversation. But it should be. After you’re married, you take up life as an economic unit, and a number of important things will change. Here’s a list of the basics to discuss, if only to ensure you’re both on the same page financially before you exchange vows.
1. Talk about goals
It’s important to talk about your longer-term goals. For example, if you intend to have children, discuss a timeframe. Then at least discuss some of the basic childcare options: Who stays home, who goes to work, will there be live-in help, and so on? Talk about where you will live – will you be renting at first, shopping for a condo, or buying a house? How will your income and spending patterns be affected? Will you save one salary and live off of the other?
2. Talk about assets
Once you have a broad idea of goals and planning, you’ll want to lay out what each of you is bringing to the marriage. You might know in a general way what you each own and what you owe, but when it comes to assets and liabilities, it’s crucial to be specific. Once you’re married, those assets and liabilities are shared. So have that talk now to avoid surprises after you’ve tied the knot.
3. Talk about investment styles
You may both be active investors with aggressive styles. More likely, though, one of you will be more conservative with a lower risk-tolerance level, while the other might have a higher risk-tolerance level.
You will have to work with your financial planner to come up with a plan that encompasses all your combined assets, which for higher net worth couples can be substantial. You have to look at your combined assets as a total portfolio, and apply the principles of prudent asset diversification to your entire net worth. This is not to say that you have to give up any pre-nuptial agreements involving independent ownership of assets – only that you treat your combined asset base as a single unit for portfolio planning purposes.
Very often, one partner in a marriage will have more skills – or desire – with financial management than the other. Sort out who likes to do what before walking down the aisle.
4. Talk about insurance
Newlyweds without life insurance should consider some form of term life insurance, because it’s the most economical. Ten-year term life insurance is the most common, and may be purchased individually or as a joint first-to-die policy, which is even cheaper per couple. The joint policy insures both spouses and pays out to the surviving spouse. However, the insurance coverage continues in force as long as premiums are paid, even if the marriage breaks down.
If you each already have insurance coverage, you’ll probably want to change the beneficiary of your respective life insurance policies 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 having children. The same applies to 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.
5. Talk to a financial planner
A good financial planner can help couples identify and deal with many financial matters before marriage, so they don’t become problematic afterwards. They’ll work closely with you to set up a plan and build an investment portfolio to meet both your short-term and longer-term financial goals.
© 2016 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.