When you get married, you are legally merging your finances with another person (even if you keep separate bank accounts). So it’s important that you and your partner are on the same financial page before officially tying the knot. In today’s “Financially Savvy Female” column, we’re chatting with Cecilia T. Williams, CFP, director of investment operations/CCO at Halbert Hargrove, about the money topics you should be discussing with your fiancé(e) ahead of your big day.
What financial aspects change when a couple becomes legally married?
Taxes are definitely something that can work to your advantage — or sometimes not, depending [on your situation]. You need to talk to your CPA [about] the choice of filing jointly. In general, the consensus is that there is a possibility to save when you’re combining your income, but it really depends on both of your situations to determine if there’s a saving there.
One thing to note, too, when filing, it doesn’t matter when in the year you were married. If you got married on Dec. 31, you can start filing [jointly], so that’s something that you should take into consideration.
Another thing that changes in finances is sharing [responsibility]. In modern times, I know there are people who choose to keep bank accounts separate or funds separate. That’s great, I really don’t have an opinion either way. But something that you should still be aware of is that legally, you did intermingle, so if one spouse incurs debt in their name, that can become debt for yourself as well. Be aware that even if you choose, from an accounting side, to keep things separate, you are looked at as a unit and it is shared — your debt, your income, everything. So that’s something to keep in mind.
What financial topics should a couple discuss before becoming legally married?
The three D’s (which are really scary) — divorce, debt and death. You don’t want to think about all of those things at the onset, but it’s important to discuss all of them.
You have to plan, unfortunately, for a case when you do divorce. What does that look like? Normally, when you’re married, your spouse becomes the beneficiary of your assets. Before you get married, you should have a discussion about how you want your assets passed on.
Going into your marriage, you want to make sure that you outline what debt what you are working on to pay down. It could put a damper on your future living expenses, so you want to make sure that you’re both on the same page. I have a colleague who recently got engaged and had to have that fearless conversation with her fiancé about how much debt they have and how they’re working towards it. It’s a scary conversation to have and no one wants to have it, but you can imagine, if you have that conversation after you’re married, it’s very, very different and it’s a big hurdle to overcome. So talking about that is very important.
Unfortunately, death also [is something you should discuss]. Talking about what your plans are, what you see for your estate, how you want to pass on your assets. Your partner should know very well what your intentions are so that they can help to carry that out if something happens to one of you.
What are some financial goals a couple should ensure they are aligned on before tying the knot?
Just because it takes so much of your income, where you want to live. Do you want a big house with five bedrooms, a pool everything, or do you have a smaller, simpler lifestyle in mind where a small condo is OK? Since housing takes such a significant part of your income, you and your future spouse should be on the same page, and are hopefully saving for those same goals. That’s really important to talk about.
The second biggest expense is going to be future children that you may or may not have, so saving and what you want to contribute to your children. Do you want to contribute to their education? You’re taking care of them for 18 years, are you also paying for their schooling after that? If so, you’ll probably have to set aside a significant amount of money as a couple, so you have to decide what that looks like for both of you.
Then, you definitely have to talk about retirement and what your goals are there. We’ve seen couples who have very different ideas about what retirement means. Does it mean, let’s give up everything and travel Europe for the rest of our lives? For some, they may never ever intend to quit working. They just maybe want to go part-time. Understanding what those goals are and what [your partner’s] future aspirations are can help you as a couple to decide how much you have to save for it.