Pointers from a... Financial Adviser
Marriage is a many splendored thing, but it’s also a business arrangement that requires discussion and planning. Here, Steven Audino, a Financial Adviser at Wells Fargo Advisors in Central Florida, offers advice on topics couples should address before tying the knot.
MONEY TALKS, SO SHOULD YOU
Unless you and your spouse-to-be have spent a significant amount of time discussing how you plan to handle finances after the honeymoon, you may be setting yourselves up for a rough go—at least in the beginning and maybe for your entire time together. Studies have shown that money is a frequent topic of arguments in many marriages. One of the reasons may be that couples don’t spend enough time talking about money before the “big day.”
Some say that the key to financial success is to spend what you have after saving, rather than saving what’s left after spending. Once you sit down and estimate your monthly income and expenses as a couple, it then becomes a matter of budgeting to control expenses and setting money aside to help achieve your goals. I advise saving three to six months’ living expenses that could be tapped in case of an emergency like sickness or job loss. It’s also important to establish what you like to spend your money on, such as eating out, entertainment, transportation or travel. But be careful not to let short-term gratification derail long-term financial security.
COMBINING ACCOUNTS OR NOT
You probably already have your own savings, checking and brokerage accounts. But once you’re married, do you want to combine everything into joint accounts or keep them separate? Having separate accounts lets each of you feel independent, knowing that you can tap your finances whenever the need arises. On the other hand, joining accounts can help unite your goals and create a more effective investment program.
If each of you already owns real estate, you will need to face issues with housing, including: Will you live in one spouse’s home, or sell both homes and purchase a new one together? What will be the likely tax consequences of selling—especially if the sale will result in substantial capital gains or losses?
WHAT ARE YOUR DEBTS?
Differing attitudes toward debt accumulation is just one reason it’s important to know before the wedding what, if any, debts each of you is bringing to the marriage. If there is debt, decide whether to combine it or to keep separate credit histories and records. Many experts recommend that each person retains his or her own credit cards and credit history. Doing so helps ensure financial independence and provides greater flexibility if either of you finds yourself alone at some point in the future. Also, if one of you has a poor credit history, it’s advisable not to commingle debt in order to retain the other’s better credit rating.
Addressing estate planning is vital, regardless of your age. When two people commit to legal responsibility for each other, it’s appropriate to talk about how they want to provide for an orderly transfer of assets. Included in the discussion should be considerations of the financial implications of life insurance and what would happen if a wage earner or stay-at-home spouse were lost. Pay particular attention to beneficiary designations on life insurance policies, IRAs and 401(k) plans. These designations will supersede instructions for distributing assets included in a will or trust. Each provider—insurance company, financial institution or plan administrator—needs to be contacted to update the beneficiary designations on these valuable assets. (This step is particularly important in the case of a second marriage.)
Whether your dreams include children or you are bringing together children from previous marriages, consider their long-term education needs. It should not be a surprise that sending your children to college may be one of the biggest expenses you have to plan for. The good news, however, is you may have a long head-start. There are several planning tools to consider—College Savings Plans, Coverdell Education IRAs and prepaid tuition plans. The one constant is that the best way to pay for college for your children is to begin saving ASAP.
GET PROFESSIONAL HELP
When appropriate, include your financial adviser, tax adviser and attorney in financial discussions before you say, “I do.” Open and honest communication before your wedding day may help you avoid money arguments and financial problems in your marriage.
This article was written by Wells Fargo Advisors and provided courtesy of Steven Audino, MBA - Financial Advisor in Melbourne at 321-409-4425.
Wells Fargo Advisors does not render legal or tax advice. While this information is not intended to replace your discussions with your tax adviser, it may help you to comprehend the tax implications of your investments and plan tax-efficiently going forward.
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