We are currently in peak season for weddings. If one were allowed to give a financial toast to the newlyweds, here’s what I’d say.
Money is the root of all evil, but like any tree, a good root system is necessary for anything constructive to happen. Have a conversation about money to begin to understand each other’s money values. Do you value a toilet that doesn’t run, a screen door without holes, or a kitchen that meets your standards for a fun place to cook? If your spouse on the other hand, would rather a 60 inch state of the art TV and a sports car in the garage – this could be the tip of the iceberg of a future problem waiting to manifest.
Understand what each other’s financial situation is all about. You need to understand what kind of earnings, assets, living expenses and debts that your future partner has. The hidden surprises here often come in your partner’s cost of living or large education loans that are masked by small monthly payments against large outstanding balances. Learn how responsible your future spouse is regarding revolving debt like credit cards and overdraft privileges on checking accounts.
Create a savings plan. It would be ideal if the plan can be established to save more than what is going into your 401K or other deferred retirement savings. Someday, you may need to access those after tax savings for a home or some other large expenditures where tapping into your retirement accounts aren’t optimal.
Talk about the possible dark side of your life together. If one of you becomes very ill or permanently disabled, what are the results? It isn’t an everyday occurrence, but when one of a newlywed couple goes down for an extended period – things can deteriorate quickly. Make sure that you’ve got long term disability income insurance. Also understand the details of your group coverage and be 100% certain that those benefits are adequate to take you through any period of sickness.
For couples with assets that pre-date the wedding, talk about the ownership of these assets. If they are material, consider the reality that a pre-nuptial agreement or some alternate form of ownership may make sense. This would be critically important if these valuable assets are co-owned with a partner of another family member. This isn’t only going to save you if the marriage doesn’t work out – it could also save you if there is a lawsuit or some other action that causes your spouse to lose everything financially.
It seems as if money is frequently at center stage when marriages fall apart. Reach an agreement on spending authority. Set a level of spending by establishing a monthly budget or agreeing not to spend more than $X on any given purchase.
The last item is to keep the lines of communication wide open. Review your plans periodically to be sure that your plans are reasonable and that there isn’t any wide deviation from the plan.
This information is not intended to be a substitute for individualized legal advice.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.
