Engagement can be a busy time. It involves a lot of planning, and it’s not just the wedding; it’s also planning a financial life together. Do not underestimate the need for a joint financial plan. According to a recent study cited in The New York Times, of all common marital conflicts, financial disagreements were the strongest predictor of divorce among couples interviewed. The surest way to avoid such conflicts is to put a plan in place before the wedding. Use this article as a general marriage planning guide. For specific information on how to plan for your marriage in Iowa, consult the experienced specialists in our Des Moines office for professional prenuptial financial planning advice.
Review the Past
Each of you should thoroughly assess your financial history to determine both what assets and what burdens you bring to the economic partnership. The best way to do this is to get your current credit report. You are entitled to one free report per year from each of the three major credit bureaus. Find more information at www.annualcreditreport.com. Your report will allow you to see clearly how your financial past is influencing your current picture and give you the opportunity to plan to resolve issues that might impede progress toward your financial goals. Although you will not be responsible for your future spouse’s past credit and debt issues, they will influence your ability to access joint credit. You should also take stock of the assets and liabilities you have accumulated to date.
Evaluate the Present
Look at your current income and expenses and how you both manage them. Do you follow a budget, or do you spend what you want without giving it much thought? How much of your income do you spend on necessities, and how much is discretionary? How do you track what you spend? Do you and your potential spouse handle money differently? How do you organize your documents? What types of bank accounts do you have, and what fees are associated with them? You will want to reach agreements about how to budget, track finances, and organize your accounts.
What types of insurance and employee benefits do you have? Compare health insurance plans and assess the costs and benefits of each. Do you have retirement plans? Understand the specific characteristics of each, including matching contributions, investment options, and loan provisions.
Plan the Future
After you understand your past and current financial picture, you can effectively plan for the future. Here are some concrete ways you can do that:
- Consider a prenuptial agreement. This document typically clarifies a few key questions:
- What assets and liabilities each partner brings to the marriage,
- The contributions of each spouse and whether particular consideration will be given to special contributions given by one (for example, limiting career to care for children),
- Division of assets in case of divorce, including any alimony or lump sum payment and how to distribute joint purchases, and
- Estate planning
- Decide on short and long-term goals. Will you start by paying off debt? Building credit? Do you plan to buy a home, have children, have one partner spend time as a stay-at-home parent? Developing a clear picture of your goals will help you understand your financial needs.
- Agree on a budget, how to track it, and how to modify it. Will one of you primarily be in charge of finances? If not, how will you share the responsibility? How will you organize your important financial documents so that both partners have access to them? How will you make future budgeting decisions as your needs and incomes shift?
- Consider how you will apply for credit. Does one spouse have a much stronger credit rating than the other? If so, terms will be more favorable toward the spouse with the better rating applying alone for credit accounts than toward a joint application. Also keep in mind that both spouses become 100% liable for all debt incurred jointly.
- Decide how to use which bank accounts. Will you combine your money or keep it separate? If you keep separate accounts, will you also have a joint account for paying household expenses? Which bank or banks will you use? Consider carefully the fees and benefits associated with each account.
- Assess your changing insurance coverage needs. As a single person, you may not have seen a need for disability or life insurance, but as you begin to depend on each other financially, you will want to ensure that your spouse’s needs will be met even if your income is lost due to death or disability. You will also want to make sure your possessions are protected by homeowners or renters insurance.
- Consider combining insurance. If you both have health plans, assess which plan has more favorable terms and determine whether you are better off purchasing a family plan than maintaining separate individual plans. You may also save money by pooling your auto insurance, as companies often give discounts for additional vehicles.
- Consider how to allocate retirement funds. After gaining a thorough understanding of any retirement accounts available to you, decide on the best way for you to save together. You may decide to put a greater share of your savings into one account than the other. If possible, you should each participate to the maximum in your own retirement plan.
Get on track to realizing your shared dreams by contacting our Des Moines office to discuss prenuptial financial planning with one of our experts.
Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.