Financial Planning, Insight

The Newlywed Handbook: Financial Planning for Couples Before the “I Do”

Married couple holding hands with rings

It’s Wedding Season!

In many parts of the country, we are approaching peak wedding season. In preparation for their wedding, most couples are busy carefully selecting color palettes and crafting seating charts. It’s easy to put something as unromantic as financial planning on the back burner. Nevertheless, one of the most important things that a couple can do to start the marriage off on the right foot is align their financial future.

This guide is not your standard newlywed handbook filled with sentimental pieces of advice such as “don’t go to bed angry.” This handbook summarizes a few of the many financial planning items that couples should discuss and consider before tying the knot.

Before the “I Do”

Financial Disclosure Meeting

Before the wedding, a couple should sit down together for a formal “financial disclosure” meeting. In this meeting, the couple should fully disclose income, assets, liabilities, credit score, and most importantly, their vision for their wealth. This meeting is an opportunity for the couple to set their expectations and boundaries around money and align their vision. Discuss each individual’s feelings around operating on a budget, savings and investment goals, and comfort level holding debt.

Debt can impact your financial status as an individual and a couple. If one individual holds significant debt, address a payment plan. The couple needs to decide if they will manage this debt as a unit or if it’s the sole responsibility of the incurring party. Like many things in life, there is no right or wrong answer – the choice is dependent on the couple’s wants and needs.

To the extent that there is significant family wealth, expected inheritance, an interest in a trust, or a family business, address these items with family and advisors first. There may be current or future assets off-limits to a future spouse, and a prenuptial agreement will come into play.

Asset Titling

Next, the couple should agree on how they wish to title their property. Should they maintain individual accounts, commingle their assets into one joint account, or hold a mixture of both? It depends on each couple’s unique circumstances, but there are pros and cons to each option.

Titling assets in joint name allows both parties free access and visibility to the accounts and promotes communication and trust (the foundation of any good relationship!). Shared accounts also simplify the budgeting process and ensure accessibility to money if one spouse becomes incapacitated. Despite the benefits, it also carries the risk that one party frivolously spends or even drains the shared account, leaving the other spouse penniless.

Alternatively, separate accounts foster autonomy, freedom, and financial independence for both parties. Another benefit – if one spouse carries debt, any assets held in the sole name of the debt-free spouse are out of the reach of creditors, while money from a joint account is up for grabs. Lastly, maintaining separate accounts can protect individual assets from division incident to a divorce.

Prenuptial Agreements

Speaking of divorce, no newlywed handbook would be complete without mention of the prenuptial agreement. The word “prenup” often carries a negative connotation – after all, it implies one is thinking about the end of the marriage before it’s even begun. On the contrary, these agreements are an important risk mitigation tool that can save a lot of time, heartache, and money in the event of death or divorce.

Absent a prenup, each state determines how assets and liabilities acquired before and during the marriage will be shared and divided. Couples should determine if they live in a community property state or an equitable distribution state and understand the implications of this status on property division. If the laws around property division are inappropriate for the couple’s circumstance, they should consider drafting a prenup agreement.

Many couples mistakenly believe prenups are only necessary for individuals with substantial assets, mismatched earnings, or children from a prior marriage. While those situations certainly merit a prenup, anyone that wishes to protect their assets or control the disposition should have a prenup.

A quality prenup protects income and assets earned during the marriage and unearned income from a future bequest or trust distribution. Many prenups specify a future alimony amount or eliminate it altogether. Prenups can even assert desires for who retains custody of the family pet.

A word of caution – not all prenups are created equal! Timeline, representation, and transparency play a huge factor in the agreement’s legitimacy in court. The strongest prenups are written at least six months before the wedding, with both parties maintaining separate, competent legal representation and fully understanding the terms of the agreement.

After the Honeymoon

The need for financial planning doesn’t end when a couple walks down the aisle! Look out for Part II of our Newlywed Handbook for financial planning items that couples should discuss and consider after the honeymoon.

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About the Author

Samantha Spitzer, CFP® specializes in financial analysis, estate planning, tax planning, and divorce planning. She enjoys building long-term relationships with clients through wealth planning.

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