While marriage can be an exciting time, the realities of integrating the financial goals of two different people can be challenging. Too often, couples find out later that financial incompatibilities could threaten to jeopardize the success of their marriage. From Money Magazine to The American Journal of Sociology, one study after another cites finances as a primary factor for couples choosing to divorce.
While these studies highlight the importance of discussing financial issues before tying the knot, it is never too late to address important money matters – even if you do so after the honeymoon. The fact is, taking a proactive approach to addressing money issues before they arise may help improve the stability of the marriage for years to come.
Understand your spouse
Having discussions with your spouse about the finances has the potential to provide insight into each other’s attitudes about money. Like other aspects of your personality, these attitudes shape how we approach life and it is helpful to understand each other’s philosophy on key financial issues. Often, our approach to money is shaped from our experiences from the time we are young and the more you understand each other – the better. How do your money personalities compare? How do each of you balance “living for today” versus “saving for tomorrow”? What are your attitudes toward debt and credit, financially supporting children and planning for the future? Open, ongoing communication may help reduce financial friction in the marriage. Like other aspects of the marriage, differences of opinions may exist and compromise may be necessary.
Deciding whether to merge the money
Like a corporate merger, deciding how to navigate combining finances can be challenging. Should accounts be individual accounts or joint accounts? Does it really make sense to merge the finances completely? The answer is – it depends. For couples with similar financial priorities and relationships where each individual has an equal voice in financial decisions, a merger of finances can be an effective way to maintain a transparent financial relationship. On the other hand, couples that have very different money personalities (saver versus spender) it may be more effective to maintain separate finances. For many, a gradual integration of finances may be helpful in adjusting to challenges that may come from a financial merger with your spouse.
It is also important to understand what each brings to the marriage in terms of debt, savings and assets. Having a plan to address hot button issues such as liabilities, student loans or credit card debt should also be discussed early on.
Develop goals for the future
From purchasing a new home and starting a family to careers and retirement, financial life planning can be one of the most powerful tools for pursuing future goals. Consider working with your spouse to identify and prioritize common goals while also developing a household budget that includes earmarking funds toward the goals identified. Also consider placing savings goals at the top of the list including building a solid cash reserve. Too often couples employ a “save whatever is left” approach that often leads to no savings being left at all. Monitoring your progress and course correcting where necessary can help ensure that you continue to pursue the goals that are most important to both of you - even as life evolves.
Review insurance needs and beneficiary designations
Marriage is a major life event that also requires an analysis and update of insurance needs. Life, Disability, Health, and even Auto insurance should be reviewed to make sure that coverages are in alignment with your new life together. Keep in mind, when someone else depends on you and your income to meet their needs, life and disability insurance become critical.
Determining how much insurance is needed can be difficult though. Start by asking yourself to what extent you would like your spouse and family to maintain their standard of living. Do you want them to remain in your home, pay off liabilities, have sufficient funds for future goals and also be able to retire one day? Additionally, consider comparing health insurance coverages to see which spouse has richer benefits for the costs charged. Since inadequate financial resources can lead to significant changes in lifestyle, consider working with a professional to sort out the most cost-effective approach to protecting you and your new spouse.
Updating beneficiary designations is another important, yet overlooked exercise after tying the knot. Who is the beneficiary on your company 401(k) plan and group life insurance plan? If you haven’t reviewed these accounts in a while, chances are it may be a parent or sibling. Reviewing beneficiary designations and even creating a simple will, power of attorney and living will can be another important way of protecting your new spouse.
Communication is key
Any successful financial partnership requires open, ongoing communication. While some relationships evolve into one spouse handling more of the finances, establishing weekly "money dates" to review expenses and progress toward financial goals can be a great way to keep the lines of communication open while also preventing one spouse from being out of the loop when it comes to money matters.
While identifying and addressing financial incompatibilities would ideally be discussed before tying the knot, marriage requires on-going communication. A proactive approach to discussing the finances throughout marriage may help couples get on the same page while potentially minimizing conflict. When necessary, speaking to a counselor may also help address money conflicts. Since everyone’s situation is unique, consider speaking to your legal and financial adviser to help develop a financial life plan that is appropriate for you.
Kurt J. Rossi, MBA, is a Certified Financial Planner Practitioner & Wealth Advisor. He can be reached for questions at (732) 280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.
Securities offered through LPL Financial. Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
