Getting serious? Get serious about money too
Couples getting seriously romantic on Valentine’s Day often take that first step to tying the knot. Congratulations! But before things get too far advanced, it might be an idea to have another kind of heart to heart – your financial future. But wait until after Valentine’s Day! When I meet with young (or older) couples getting ready to tie the knot, I offer these key financial planning principles to help them get off on the right foot financially.
Goals and expectations
As much as many of might like to think so, budgets don’t “balance themselves.” You do need to have that heart to heart with your soulmate about goals and objectives to ensure there’s a meeting of minds. Do you want to start a family? If so, when? Who will look after the children? Will either of you stay home for a few years? Will you hire a nanny? Daycare? How will this affect your financial situation? Do you plan to move out of that condo and buy a house? Again, if so, when? If you and your fiancé are both working now, who saves how much towards that down payment?
Who owns what?
Time to look at what each of you brings to the marriage. What does each of you own and owe? Are there assets with specified individual ownership and beneficiaries, such as RRSPs or trusts? You might be surprised just how much there is. Once you’re married, though, assets and liabilities are shared. Make sure everything is on the table now. Meet with your respective financial and legal advisors to sort out the details of beneficiaries to Tax-Free Savings Accounts, for example, and update wills.
Remarried couples frequently keep separate bank and credit accounts but have a joint bank account for household payments. If you or your spouse-to-be have pre-existing credit problems, it’s better to keep those segregated and get them cleaned up separately first, before dumping it all into a joint credit or bank account.
Remember, too, that any investments, real property, or business interests that you hold jointly become the property of both parties equally in a marriage. This is an important consideration if your spouse-to-be has undisclosed creditors or if the marriage breaks up.
What kind of insurance coverage does each of you already have? If you have life insurance policies already in place, for example, you’ll probably want to change the beneficiary of your respective policies, to each other. It doesn’t happen automatically – you have to specifically direct the insurance company to do it. Or you may want to think about raising coverage, especially if you’re planning on children. Same with things like extended health insurance, disability, and critical care. Often, one spouse can be claimed on another’s policy through a group plan at work. And that could add up to big savings on premiums.
Wills and estate planning is another area that’s often overlooked, but it’s actually critically important, especially if you intend to raise a family. If you each have wills, consult your lawyer to change the beneficiary to each other…if that’s your plan. If for some reason it’s not, make sure you both agree it’s not, and spell it out in advance. If there are trusts involved, you’ll need to consult a lawyer to determine the impact, if any, of your marriage on the trust.
Do you need a pre-nup?
If each partner brings considerable assets (or liabilities) to the union, typically in the case of second marriages, it may be worth considering a prenuptial agreement to get everything in writing. This type of legal documentation specifies everything you wish to do financially, and protects your legal interests should your marriage dissolve or should claims later be made against assets you’ve brought into the marriage. You’ll need a lawyer to draw up these types of agreements or other forms of documents specifying your respective interest in various types of assets.
Discuss investment personalities
You may both already be active investors. Very likely, though, one will be more conservative with a lower risk-tolerance level than the other. You will have to work with your financial planner to come up with a plan that encompasses all your combined assets as a total portfolio, and apply the principles of prudent asset diversification to your combined entire net worth. This is not to say that you have to give up any pre-nuptial agreements affecting asset ownership. But it is prudent to treat your combined new asset base as a whole for portfolio planning purposes, even if some assets are owned separately.
Get some (financial) counselling!
A good financial planner will help couples identify and deal with these and many other financial matters before marriage, so they don’t become problematic afterwards. They’ll help you set up a plan, build an investment portfolio, guide you with insurance policies, tax matters, and estate planing to meet both your short-term and longer-term financial goals.