Getting married is one of the biggest decisions most people make during their life. Often, the primary factor considered before taking that step is emotional and whether you feel strongly enough about someone that you want to spend the rest of your life with them. While this is obviously an extremely important component, it is also crucial to recognize the financial and legal aspects involved in this decision. Taking time to discuss these topics, do some financial planning, and possibly consult with a trusted financial advisor prior to walking down the aisle will help align values and reduce potential conflict in the future. In this blog, we’ll explain the questions to ask, conversations to have, and factors to consider when identifying shared goals, managing separate accounts, paying bills, budgeting dual or solo income, and more.
One of the first steps to begin this process is for each partner to share their financial information. This should include income, expenses (if maintaining an independent budget), bank accounts, retirement accounts, brokerage accounts, and other assets. Along those same lines, it is important to know each other’s outstanding liabilities. This includes auto loans, student loans, credit card debt, etc. Sharing credit reports is also useful information so each person is aware of the other’s “financial track record” prior to marriage. People don’t typically like to talk about their personal finances, so this can be an awkward and uncomfortable process, but it is very important to be open and honest with each other. Having a clear picture on these items will help guide any planning that needs to be done prior to marriage and build a framework going forward to ensure you’re both on the same page financially.
Understanding each other’s financial situation will help you determine if it makes sense to implement any particular strategies before marriage. One strategy to consider is a prenuptial agreement (prenup). There is often a negative connotation around prenups because they appear to plan for the worst and popular culture often depicts them as a divisive tool used by the rich to unfairly separate assets. However, that is not necessarily the case. A prenup is simply a contract between two people prior to marriage that outlines each person’s responsibilities and ownership of certain assets and liabilities. There are many reasons to have a prenup regardless of how much money you have. This can include protection from debt, separating illiquid assets like private company ownership, protecting financial interests of children from a previous marriage, etc. Prenups are unique to each couple.
It is also important to decide if you want to combine accounts or keep some or all of them separate. This is something that would also be included in a prenup. Before making this decision, you should know if you live in a community property state or not. These states mandate that a married couple equally owns and would split all assets acquired during their marriage in the event of a divorce. There are exceptions, including prenups, but that is the general idea. The nine states that have community property laws are:
- New Mexico
Throughout this process, it is essential to discuss your financial goals and how you will accomplish them through customized financial planning and strategic asset allocation. Shared goals could include plans to purchase a home or start a family, fund college education, when to retire, and budget for traveling, among many others. It is helpful to think about the timeline of these goals—will it be in the next one to three years, five to 10, or beyond? To accomplish these goals, you will need to determine a budget. Consider combined income, living expenses, and how much you need to save to achieve your goals. This will create a framework to start from and work together to accomplish. This is not an easy process and may require adjustments, such as rebalancing your portfolio as things change, but having something in place to build off of will be beneficial in the long run.
To conclude, regardless of the financial situation either person is in, whether just getting started in a career, already retired, or anything in between, there are many things to be aware of prior to marriage and planning that can be done early on.
At Columbia Pacific Wealth Management, we understand every individual’s financial situation is different. We encourage you to ask your financial advisor or contact a member of our wealth management team to discuss the topics you should be aware of and the planning you can do before getting married.
Important Disclosure Information:
Different types of investments involve varying degrees of risk, including the risk of loss of your entire investment. Past performance is not indicative of future results. All opinions expressed herein are current only as of the date hereof and CPWM and its employees can give no assurance that the performance of any specific investment recommendation or investment strategy discussed herein, whether directly or indirectly, will be profitable, or that it will be equal to any historical performance level discussed herein. The discussion or information contained herein is not intended to be, and should not be deemed as, personalized investment advice or as legal advice. The recommendations made may not be suitable for your specific individual situation and we encourage you to discuss with your financial professional before undertaking any investment strategy or recommendation contained herein. The discussions contained in this blog is current only as of the date hereof and may change due to a number of factors, including varying market conditions.