4 financial planning principles for the soon-to-be-married
Many newlywed couples I talk to in my financial planning practice are of the high net worth variety. They are often professionals or executives and each brings to the marriage a fairly robust net worth and often substantial assets, including houses, cars and investment portfolios. Sometimes it’s a second marriage. But surprisingly, a large percentage of these couples have never discussed their financial past, present, or future with their partner. And that can be a source of friction in a new marriage. Here’s how to make sure financial surprises don’t cut the honeymoon short.
1. Set goals
Financial matters never “look after themselves.” Talk about goals before you get married to ensure there’s some meeting of minds. If you intend to have children, discuss a timeframe. Then at least discuss childcare options (who stays home, who goes to work, will there be live-in help?). Where will you live? How will your income and spending patterns be affected?
2. Discuss investment styles
The time to discuss your investment styles is before you tie the knot. You may both be active investors with aggressive styles. Or, more likely, one will be more conservative with a lower risk-tolerance level, and the other might be a shoot-the-lights-out investor with a proclivity for speculative, small-cap, junior mines. I’ll tell you right now this isn’t going to work in a marriage.
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 affecting asset splitting or investments – only that you treat your new asset base as a whole for portfolio planning purposes, even if some assets are owned separately.
Very often, one partner in a marriage will have more skills – or desire – with the nuts and bolts of financial management than the other. Sort out who likes to do what before walking down the aisle.
3. Protect each other
Newlyweds, especially those under 30, 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.
4. Talk to a (financial) counselor now
A good financial planner can counsel couples on those sticky financial matters before marriage, so they don’t become problematic afterwards. Get the “money talk” out of the way now, and make sure the honeymoon isn’t over before it even starts.
© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.