Congratulations on getting married! This is a huge milestone that signifies the beginning of a new phase in life. It also means the beginning of a new financial picture for you and your spouse. Certainly, many questions will arise during this process, such as: should we commingle our assets? If so, which ones? Will we need life insurance? How does my partner’s debt impact me/us? Are we a community property or a common law state? How should we prepare for providing for our kids? Obviously, these are just a few of the many questions that may arise as you start to have these discussions. To help you along in the process, here are 5 financial tips for newlyweds to getting your married life started off on the right footing.
This is rule number one in any healthy relationship – good communication. Without it, life can literally fall apart at the seams. When it comes to discussing your finances with your spouse, it is important to be open and honest not only about your current individual financial pictures, but also your expectations, management styles, and habits. When discussing past mistakes or current debt, don’t make it personal, just remain objective. You want to move forward in harmony and work towards mutual goals that will benefit not only each of you individually, but your marriage as well.
Here in Washington State, any assets or debts acquired during marriage by either spouse are considered community property. In other words, they belong to each spouse equally regardless of whose name is on it. Any assets or debts acquired BEFORE the marriage are considered separate. This is good to keep in mind if you live in a community property state like Washington when deciding if you’ll commingle your individual assets owned before marriage. As for bank accounts, we always recommend opening a joint checking account for joint expenses such as mortgage/rent, utilities, groceries, etc., and a joint savings account for an emergency fund or any joint savings goals you may have. For individual personal expenses such as shopping or entertainment, consider separate accounts. This eliminates the need for any unnecessary debates over how much was spent on a night out with friends or why the shoe collection continues to grow. Regardless of what arrangement you decide on with your spouse, just make sure it’s something you both can agree upon and feel comfortable with going forward.
As much as we hate to bring up the topic of death, it is a hard fact of life and one that must be addressed. Once you get married, and especially if you have kids, it becomes even more important to ensure that all the ducks are in a row to make sure your separately owned assets go where you intend when you die. Using “will-substitutes” allows you to avoid probate court and pass the asset directly to your spouse. While most courts would award your spouse the assets anyways, it can avoid the probate process altogether. Accounts you should address this with include:
- Personal and employer-sponsored retirement accounts (IRA’s, 401(k), 403(b), etc.)
- Your personal bank accounts that aren’t jointly owned (this called a payable-on-death or POD)
- Any brokerage accounts not jointly owned (called a transfer-on-death or TOD)
- Any life insurance policies
The purpose of most life insurance is to provide for your family in the event that you pass away. Unless you’re already very wealthy, you are generally going to want to have some form of life insurance as a married couple. You don’t necessarily need tons of coverage or a big expensive policy. Oftentimes, a simple no-frills term policy is all the protection you need. If you aren’t certain whether your current financial situation warrants a life insurance policy, here’s a list of common scenarios where any practical financial planner would strongly recommend having some type of policy in place:
- One spouse earns substantially more than the other and the loss of income from that spouse would dramatically alter the lifestyle of the surviving spouse.
- You still have a sizeable balance on your mortgage and monthly payments would be unaffordable if one spouse were to pass away.
- You have dependent children that would not be able to provide for themselves or be financially provided for by surviving spouse.
Comprehensive Financial Plan
Lastly, we want to emphasize the importance and benefits of building a comprehensive financial plan for you and your new spouse. Especially as a young couple new to much of this, it’s easy to overlook important aspects such as having proper life insurance or putting a viable debt paydown strategy in place. Not to mention all the stress and headaches that come along with doing so! The planning process itself can be eye-opening, confidence-boosting, and empowering not only from the obvious financial perspective but from the personal/relationship perspective with you and your spouse. It will help you define what goals are most important to you not only individually, but as a couple as well. It will help you lay out an actionable path for achieving those goals and then help you track your progress and adapt to any changes that will arise along the way. Just as you periodically go to the doctor to make sure your body is functioning and moving as it should, you should meet with your financial planner periodically to do the same for your finances.
Feel free to reach out to us with any questions regarding our financial tips for newlyweds or schedule a free consultation to dive even deeper.