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Financial Matrimony for Newlyweds Thumbnail

Financial Matrimony for Newlyweds

By: Hayden Hill, CFP®

In November of 2018, I had the privilege of marrying my high school sweetheart. We had dated for ten years prior to getting married, so history was on our side!  Being a couple of kids in college was when we learned the most about each other, and what it takes to make a relationship work. It is true what they say…communication really is key. Going periods of time without effective communication can lead to potential problems down the road. 

Communication 

The best piece of advice I could provide to a young couple is to communicate prior to marriage, not just about finances, but about everything! Discuss where you see yourself in ten years, discuss your career goals, discuss your current goals, and discuss any expected or current challenges. If you feel like things are getting serious or an engagement party is coming soon then it is time to discuss the more personal details of your relationship, which could be family, religion, and last but certainly not least – finances. Over time it is important to address each of these topics to ensure you both are on the same page. 

When it comes to finances during marriage, full transparency and communication is very important. Make it clear to one another that you will be transparent and included in large decisions regarding finances.  Typically, with baby boomers or even Gen X, there is usually one spouse who takes point in handling finances for the entire family – this is what many of us grew up with and are accustomed to, but the millennial generation has gravitated more toward co-managing household finances. There is a statistic from Ramsey Solutions that shows money related fights are the second leading cause of divorce, behind infidelity. (Cruze, 2020) That is a staggering statistic, which highlights what I mentioned earlier – be transparent, work together, and communicate effectively. Financial topics should be discussed and mutually agreed upon between spouses. Keeping each other informed will help you build and maintain a solid financial foundation.

A good target is to discuss financial goals together at least on an annual basis. Just as you should discuss personal, health, and spiritual goals with your spouse, make sure finances are a part of this discussion as well. If a goal of both spouses is to buy a home within the next two years then both need to discuss how to make this happen. How much do you need to save each month to make this a reality? What neighborhood do you want to live in? What schools do you want your kids to go to? What kind of payment can you afford? etc. Make sure that your spouse always feels included – no matter the conversation. Mutually defined decisions are key factors in having a healthy relationship.  The keyword here is “decision” – it’s okay if one spouse is more financially knowledgeable than the other and handles bill paying, budgeting, or investing, but when it comes to decisions on any of those issues, both spouses should have equal say!

Financial Unity

Once you are married it is time to consider combining your finances. Typically, a commonly used option to increase transparency during marriage is to have jointly-owned accounts. You also have the option to keep accounts separate, which is fine, as long as you still communicate and are transparent. It’s important to note that money you have accumulated in a checking account, investment account, etc. prior to marriage is technically separate property. Therefore, if you are hesitant to combine these assets that may be understandable – especially if the separate property is an inheritance. Money accumulated during marriage is automatically considered joint property due to Texas being a community property state. Bottom line: it is important to be transparent with your spouse, and Sometimes transparency can be improved with joint accounts over the long-term rather than separate accounts. Both are feasible options to consider in a marriage as long as you are both in agreement on how you will manage joint finances.  As with anything else, be open to compromise.  You have both lived lives on your own and are now coming together as one, so it is imperative that you respect the past life experiences of your spouse and do your best to meet them in the middle.  When it comes to your marriage, a mediocre financial strategy that both spouses agree upon is better than the greatest financial strategy embraced by only one spouse.

Budgeting as a Couple

Budgeting, I hate this word! No one I know, even in the financial planning profession, gets excited about the word budgeting. It is a necessity, especially for newlywed couples, so try your best to make it fun! My wife and I like to blare music and drink wine while we review our budget. It’s silly but helps make a mundane task more enjoyable. Don’t feel like you need to throw on a green visor and act like an accountant - make it fun! 

Just for a quick example on how to budget: Let’s say you both have a goal to save for a down payment on a home. First, identify how much money you will need and how much time you will allot to achieve this goal.  From there, you will be able to break down how much you need to save each month. Next, develop a budget that will allow you to meet this monthly savings goal.  If needed, seek out resources that are available to help guide you through this process. If you are still having trouble, talk with a Certified Financial Planner™ practitioner who can help guide you through the necessary steps to take. Additionally, there are a multitude of online resources and apps that can help you tackle a budget.   Find what best suits your style and leverage the technology to make life easier and more organized.

Till Death Do Us Part

The vow “till death do us part” is much more than a somewhat morbid way of saying you are romantically committing to your spouse for your entire lifetime.  Most people have heard the saying about life’s only certainties being death and taxes.  So regardless of your relationship, you can enter your marriage knowing that you will pay taxes and eventually you will die.  It’s the latter part of that statement that may not have enough of your attention early on in your marriage.  You are going from one person – a single unit – to a family.  Two people that must die to self (figuratively) and operate as a unified couple.  

What that means for you is – you have someone else to look out for now.  You likely never cared much about what would happen to you or your belongings in the event of your untimely demise while you were single, but with marriage comes the responsibility of planning for someone else’s future.  A few things to consider in the first few months of marriage in addition to changing your maiden name on your bank accounts:

  • Beneficiaries: your retirement accounts and life insurance have beneficiaries.  It’s time to revisit those named beneficiaries to determine if you should update to your spouse.
  • Estate planning: what happens to your personal assets if you die?  What about your half of community property? What if you are incapacitated? Ideally you should visit with an attorney about at least having a basic estate plan drafted: wills, power of attorney, etc.
  • Untimely death or disability: in the event of your death or loss of income to disability, you don’t want to leave your spouse straddled with debt or without resources to move forward.  Now is a good time to do a review of your life insurance, disability insurance, and any other coverage or employee benefits you may have.
  • Looking to the future: one of the greatest gifts you could give one another in the initial stages of marriage is a written financial plan.  You can bring all the concepts and ideas from this article together with a clearly defined path to move forward.  Consult with a CFP® professional to make a plan!

Conclusion 

Overall, the couples we work with that have the most success are the couples that communicate. If it means sipping on wine and laughing, going on a weekend trip together, going on a date night, or just sitting in a car and talking, it needs to happen! Life will get busy, times will get challenging, kids/family/friends will occupy most of your time, but still finding the time to communicate will lead you to not only personal success but long-term financial success as well.

Cruze, R., 2020. Money Ruining Marriages In America: A Ramsey Solutions Study. [online] daveramsey.com. Available at: <https://www.daveramsey.com/pr/money-ruining-marriages-in -america#:~:text=According%20to%20a%20new%20survey,cause%20of%20divorce%2C%20behind%20infidelity.&text=Those%20who%20say%20they%20have,%E2%80%9D%20or%20%E2%80%9Cin%20crisis.%22> [Accessed 26 August 2020].