Guy Hockerman, CPA, CFP®, Financial Planning Manager, Commerce Trust Company
You have worked years to build your wealth – and now you are fortunate to have chosen someone you love to share your future. Whether your commitment to each other leads to marriage or not, most likely your loved one has not been a part of your wealth journey, and vice versa.
There’s a good chance you and your partner are entering this stage of your relationship with different financial circumstances and income resources. Now is an opportune time to sit down together and take a candid look at all aspects of your personal finances – from assets and liabilities, to your individual retirement, wealth, and estate plans.
While discussing money matters can place couples in a sensitive, uncomfortable situation right before embarking on an exciting new phase of their lives, it’s important to have these conversations and openly share answers to key financial questions. Hopefully your discussions not only will protect the wealth each of you has accumulated, but also will help avoid misunderstandings, hurt feelings, and unwelcome surprises down the road.
WHAT DOES YOUR FINANCIAL FUTURE LOOK LIKE?
Start your conversation with a key barometer of your financial life: your net worth. Having an accurate overview of your net worth is an important step in determining whether you’re headed in the right direction to meet your financial goals.
Talk through the list of assets each of you brings to the relationship: bank accounts, real estate holdings, business ownership, valuable collectibles, luxury vehicles, and investment portfolios. Next, record your combined liabilities: mortgages, car or boat loans, student loans, credit card balances, and any prior or pending legal claims against you. Run current credit reports to determine if there has been any suspicious activity or identity theft and to straighten out any problems on your credit histories prior to walking down the aisle or committing to a permanent relationship.
Before you can set goals and plan for your future as a couple, you need to share how much money you both earn. It’s important to talk through more than just paycheck amounts – for example, near-term adjustments for a large increase (or decrease) in one or both incomes based on your career trajectories and the current job market, or substantial growth potential (or possible downsizing or closing) of a business you own.
This also may be a good time to clear the air regarding any possible financial resentment that might arise if one of you makes significantly more money than the other as your relationship progresses. Based on your earnings situations, now is an opportune time to acknowledge both short-term and long-term goals for how you plan to spend and save your money as a couple rather than individually – or not. Which leads us into the next question.
HOW WILL YOU HANDLE SHARED EXPENSES?
Some who enter a committed relationship or marriage believe in keeping personal finances separate. Others think combining finances is the best way to manage their money going forward. These conversation starters may help you and your partner arrive at the best solution for your preferences and circumstances, including:
WHAT LEGAL DOCUMENTS NEED TO BE REVISED OR UPDATED?
Regardless of your age, there are certain legal documents that should be put in place, reviewed, and/or updated as soon as you marry or combine households. These include:
When it comes to discussing the details of these documents, it is in your best interest to include a team of professionals in the conversation: your financial advisors, tax advisors, and estate planning attorneys. If you or your partner are considering a prenuptial agreement, this also should be part of the conversation.
Finally, remember to review all beneficiary designations on insurance policies and pension, 401(k), and investment accounts to ensure they are current with your relationship status and wishes. Be clear with heirs about your intent.
WE CAN HELP
While these considerations may seem overwhelming at first glance, the issues surrounding them are well worth discussing to protect your wealth and avoid unwanted conflict in the future. Contact Commerce Trust today – our experienced and objective professionals can help you address these and other delicate matters so you can embark on a happy, fulfilling life together on the same financial page.
While discussing money matters can place couples in a sensitive, uncomfortable situation right before embarking on an exciting new phase of their lives, it’s important to have these conversations and openly share answers to key financial questions. Hopefully your discussions not only will protect the wealth each of you has accumulated, but also will help avoid misunderstandings, hurt feelings, and unwelcome surprises down the road.
WHAT DOES YOUR FINANCIAL FUTURE LOOK LIKE?
Start your conversation with a key barometer of your financial life: your net worth. Having an accurate overview of your net worth is an important step in determining whether you’re headed in the right direction to meet your financial goals.
Talk through the list of assets each of you brings to the relationship: bank accounts, real estate holdings, business ownership, valuable collectibles, luxury vehicles, and investment portfolios. Next, record your combined liabilities: mortgages, car or boat loans, student loans, credit card balances, and any prior or pending legal claims against you. Run current credit reports to determine if there has been any suspicious activity or identity theft and to straighten out any problems on your credit histories prior to walking down the aisle or committing to a permanent relationship.
Before you can set goals and plan for your future as a couple, you need to share how much money you both earn. It’s important to talk through more than just paycheck amounts – for example, near-term adjustments for a large increase (or decrease) in one or both incomes based on your career trajectories and the current job market, or substantial growth potential (or possible downsizing or closing) of a business you own.
This also may be a good time to clear the air regarding any possible financial resentment that might arise if one of you makes significantly more money than the other as your relationship progresses. Based on your earnings situations, now is an opportune time to acknowledge both short-term and long-term goals for how you plan to spend and save your money as a couple rather than individually – or not. Which leads us into the next question.
HOW WILL YOU HANDLE SHARED EXPENSES?
Some who enter a committed relationship or marriage believe in keeping personal finances separate. Others think combining finances is the best way to manage their money going forward. These conversation starters may help you and your partner arrive at the best solution for your preferences and circumstances, including:
- How to handle multiple residences or property; where to live
- How to set a monthly budget for household necessities, living expenses, dining out, and health care
- How to pay for luxury items, vacation travel, club memberships, and entertainment
- How much to allocate for investments
- How much to save toward retirement
WHAT LEGAL DOCUMENTS NEED TO BE REVISED OR UPDATED?
Regardless of your age, there are certain legal documents that should be put in place, reviewed, and/or updated as soon as you marry or combine households. These include:
- Wills
- Living wills
- Durable powers of attorney
- Health care powers of attorney
- Revocable living trusts
- Estate plans
When it comes to discussing the details of these documents, it is in your best interest to include a team of professionals in the conversation: your financial advisors, tax advisors, and estate planning attorneys. If you or your partner are considering a prenuptial agreement, this also should be part of the conversation.
Finally, remember to review all beneficiary designations on insurance policies and pension, 401(k), and investment accounts to ensure they are current with your relationship status and wishes. Be clear with heirs about your intent.
WE CAN HELP
While these considerations may seem overwhelming at first glance, the issues surrounding them are well worth discussing to protect your wealth and avoid unwanted conflict in the future. Contact Commerce Trust today – our experienced and objective professionals can help you address these and other delicate matters so you can embark on a happy, fulfilling life together on the same financial page.
¹ Source: Fidelity® Couples & Money Study, Press release, “’Til debt do us part: Nearly half of couples concerned about debt also name money as their biggest relationships challenge,” https://newsroom.fidelity.com/press-releases/news-details/2018/Til-debt-do-us-part-Nearly-half-of-couples-concerned-about-debt-alsoname-money-as-their-biggest-relationships-challenge, June 26, 2018.
The opinions and other information in the commentary are provided as of June 22, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience.
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
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