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Financial Considerations for Newlyweds

Financial Considerations for Newlyweds

| July 22, 2019
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‘Tis the season for weddings (including mine)!  It’s about this time of year when many friends and clients ask what steps they should take when merging two lives together, financially.  While there is no “one size fits all” approach, there are certainly a few topics worth discussing and considering.

 

BANK ACCOUNTS

What is the “best” structural approach?! Individual, joint, both?

This is really where every couple is different. 

It wouldn’t be unusual for couples to have a joint bank account (JTWROS) where income flows into and the vast majority of life expenses go out of.  But sometimes, each individual may also still have their own side bank account for “fun” money (gifts, guilty pleasures etc.).   

Having joint accounts can provide benefits when it comes to simplification, collective budgeting, collective saving, transparency and in some cases building credit.

However, for some of us (myself included) perhaps because we are a 1099 employee tracking our business expenses, or because we had a prior marriage and pay support, we may choose to have a more intricate web of accounts. 

At the end of the day, there is no right or wrong solution, and it may take more than one attempt at getting the right system set up.  Don’t give up, and don’t forget to communicate!

 

ESTATE PLANNING

Do we need a will? Anything else?

For starters, most retirement assets (401k/403b/457/IRAs) will allow you to include a beneficiary designation (who receives the asset should something happen to you).  Login to your account or call your provider to check that the assigned beneficiary is who you intended and make any desired changes.

After that, most couples will want to consider meeting with an Estate Attorney to discuss at least the three basic pieces to an estate plan (typically the Attorney can provide a package deal). 

  1. Will – addresses what happens to your personal assets should something happen to one or both of you. Also, can addresses custody if you have kids in the picture.
  2. Health Care Proxy – assigns someone to make health care decisions on your behalf should you be incapable of doing so
  3. Power of Attorney – assigns someone to make financial decisions on your behalf should you be incapable of doing so

 

GOAL SETTING & IMPLEMENTATION

You now share a joint life - What are your goals and how do you plan on achieving them?

Saving for a down payment for a house? Paying off student loans? Saving for your kids’ education?  Take time to sit down together to list out what your short and long-term goals are (don’t forget about retirement!) and create a plan. 

It may be helpful to setup different accounts for different goals and identify how much money gets moved into each account on a monthly basis.  Consider automating as much as possible!

For example, you may identify your goals as saving for retirement, a down payment for a home, and paying down student loans.  A plan could look like this:

  • Retirement: $500/month for each of your IRAs with long term investment goals – automated to draw from the joint checking account on the 15th of the month
  • Down Payment: Funded with wedding gifts or gifts from family, and Spouse A’s Bonus money from work – invested in a Jointly owned, high yielding online savings account such as Marcus or Ally
  • Student Loans: Continue with regular payments as scheduled but also include additional payments funded with Spouse B’s overtime or commission income

INSURANCE

Do you have a financial plan if one of you becomes disabled or deceased?

Many couples may find this conversation daunting but discussing and planning for such a situation in advance can help alleviate financial stressors in the future.

An example from my own experience:

I own a small condo in Washington, D.C. and if something were to happen to me (deceased), I would love for my husband to have flexibility in choices.  If he chooses to keep the condo, I want him to feel financially enabled to do so.  To solve for this, I bought 30-year term life insurance!  Insurance is typically cheapest when you are young and healthy, and I was even able to receive accelerated underwriting, which removes the need for a full medical exam. 

Additionally, we both decided that having disability insurance was important for us.  We live in a frustratingly expensive city and if one of us were to become disabled and no longer work, we wanted to be able to stay in our condo and pay our bills without feeling too financially strapped.

If you have kids, or any sort of debt such as a mortgage, you may want to look more seriously into insurance solutions and potentially speak with an insurance professional.

 

PRENUP/POSTNUP

It’s not all about the money!

Most couples may think that discussing a prenup/postnup is the antithesis to romance, however more and more couples are now considering establishing one. 

Prenups are most often considered in the cases where there is unequal wealth being brought into the marriage (or unequal debts), or if one of the partners owns a business.  They can also however address matters like how holidays will be handled, decisions involving children from previous relationships, and in which religion younger children will be raised. Although these may not seem like significant matters at the outset of a marriage, they can become major points of contention later on.  Sometimes these topics are easier to discuss early on before the marriage!

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