Getting married is the start of something exciting and should be a joyful time. You’ve found the love of your life and it’s safe to assume that thinking through the financial risks of merging assets is an uncomfortable subject between you and your spouse.
At the same time, there are practical matters that you should discuss during your engagement period to prepare for the unexpected. Communication is key to setting yourselves up financially and legally for whatever life sends your way.
Day to day items are a smart place to start your premarital discussions. For example, you should decide whether or not you will co-mingle your assets. This is an important decision that will impact the titling of your accounts and the way you communicate and interact with each other in regard to money. Alternatively, you may choose to partially combine assets. For example, you might decide to share a joint checking account and credit card but have separate investment accounts. Know that there isn’t a “correct” answer and the key is to clearly communicate your preferences and fears and be willing to compromise.
Another important subject that warrants attention is debt. Make sure to clearly share details of any debt in your name. This may include student loans, credit cards, and mortgages. We also recommend that you both openly check each other’s credit report to avoid any post-marital surprises.
Prior to tying the knot, you should also agree on day-to-day financial responsibilities. Who will pay the bills? Who will handle tax preparation? How will you communicate about your investments and make decisions? Will you hire a financial professional to guide you, or will one or both of you make these decisions independently? At the same time, we recommend talking about your savings plan. You will be happier in the long-run if you are on the same page in regard to spending and saving.
Lastly, it is a good idea to discuss how you will handle any future assets and responsibilities. Will one or both of you inherit wealth in the future? How will you title those assets? Do either of you have family members who will need your financial help in the future? It is healthy to have a plan for these future expenses, at least at a high level, to avoid resentment.
Once you feel good about your plan for the ongoing management of your finances, you should create a will. If you are just getting started in life, this may be as simple as naming your beneficiaries and an executor for your estate. If you are married later in life, or this is a second marriage, this is your opportunity to name custodians for your children and identify the guardians who will care for them.
Depending on your stage in life and type of assets you own, your new marriage may also benefit from estate planning. Regardless of your net worth, you should create an advance directive, name powers of attorney, and review your beneficiaries for your retirement accounts. You may consider creating a trust if your assets total $1 million or more.
A potentially controversial premarital conversation is that of the prenuptial agreement. People are getting married later in life and have assets that need to be protected in case things don’t work out as expected. If either or both of you have children or significant assets that precede the marriage, you should consider creating one. A prenuptial agreement will inform how you title your assets in order to ensure that each party keeps what is theirs in the event of divorce.
These valuable conversations are far from romantic, but they can create a stronger bond of understanding going into a new marriage. More importantly, being proactive in this way will lessen the likelihood of financial disagreements down the road and, more importantly, unpleasant surprises.
