So you’re thinking about getting married. Congratulations! But before the big day arrives, make sure you and your partner sit down for a serious financial discussion. It’s an important step for any couple, but one many people avoid because it’s too hard or causes tension in the relationship.
Unfortunately, not having the talk can cause more problems down the road due to differences in personal money management habits as well as financial implications related to taxes, inheritance, retirement benefits and more.
In fact, a recent study showed 73 percent of affluent, unmarried same-sex couples agreed getting married isn’t just a question of love and commitment—it’s a big financial decision.1 More than half of these couples cited financial security and benefits as an important reason to get married.1 Yet only 35 percent fully understand what the financial benefits actually are—or the potential drawbacks.1
By discussing finances upfront, you both enter marriage with your eyes wide open and a plan in place for financial issues. To help you get started, we’ve outlined seven key areas to address with your partner before the wedding bells ring.
Cover the basics
Why it’s important. Understanding your combined finances, as well as each other’s money management habits, can alert you to areas of potential conflict and also sets the context for discussions on bigger picture topics.
What to discuss. Each of you should share information on the following:
Income Regular expenses Existing debt, what you consider an acceptable level of debt, and under what circumstances you feel it’s okay to borrow Saving strategy and saving priorities Short- and long-term goals Approach to investing and tolerance for investment risk Your preferred standard of living At what dollar threshold you need to check in with your partner before making a purchase Whether to have joint bank and investment accounts, keep them separate, or take a mixed approach As you develop your goals, also create a budget to help you reach them. This may involve compromise as you negotiate priorities and determine where you might need to cut back on spending to boost your savings.
Why it’s important. Same-sex married couples can file joint returns at both the federal and state levels. This means marriage could have a more significant impact— for better or worse— on your tax picture.
What to discuss. Your tax advisor can help you determine how your combined incomes will affect your tax bracket. Specifically, whether marriage might trigger a “marriage penalty” (potentially increasing your tax burden) or a “bonus” that helps reduce your taxes. Your tax advisor can also help you evaluate “head of household” and “married filing separately” options.
Review retirement plans
Why it’s important. You and your partner need to understand each other’s vision of a good retirement and how you’ll achieve it.
What to discuss. Share information on current retirement investments. Discuss your end financial goal(s) and how much you’ll each need to save on a monthly or annual basis to get there.
Know that private, state, and local government employers are required to give same-sex and heterosexual married couples equal access to retirement plan benefits. Similarly, married same-sex couples are eligible for spousal Social Security benefits.
Also, review the beneficiary and surviving-spouse rights for any retirement or pension plans. You can also work with your financial advisor and tax advisor to develop a plan to help maximize retirement while positively impacting your tax picture.
Why it’s important. Put simply, children cost money. So if you have or plan to have children, you need to address the related financial needs.
What to discuss. If you or your partner already have children, discuss to what extent you’ll share financial responsibility if you marry. If you plan to have children after marriage, discuss how you’ll plan for day-to-day costs, as well as future expenses, such as college tuition. Realize that you may also qualify for tax deductions as parents.*
Discuss potential “what ifs,” too. Specifically, if one parent passes away, will the surviving partner be able to maintain your family’s standard of living? You may want to investigate life insurance options to prepare for this possibility.**
Couples also need to pay attention to legal aspects of parenting. That is, who qualifies as the birth parent or legal parent? A family attorney can help you work through these issues.
Investigate health insurance
Why it’s important. Same-sex married couples have the same health insurance coverage options as heterosexual married couples. If you decide not to get married, determine if your employers offer benefits to domestic partners, couples in civil unions, or other unmarried couples.
What to discuss. Compare insurance coverage options from each partner’s employer to determine the best combination of coverage and cost for your needs.
Establish an estate plan
Why it’s important. An estate plan helps ensure that your assets are managed as you wish, now and later.
What to discuss. A legal spouse often has specific inheritance rights under state law you may want to review with your estate planning attorney. It’s also wise to work with the attorney to complete at least the following four documents:
A durable power of attorney, which states who will be responsible for managing your finances and making financial decisions should you become incapable of doing so — for instance, due to injury or incapacity.
A will, which ensures that your individual assets that do not have designated beneficiaries are distributed according to your wishes after you’re gone.
A healthcare power of attorney, which authorizes someone to make medical decisions for you when you are unable to do so yourself.
A living will, which expresses your intentions regarding the use of life-sustaining measures in the event of terminal illness.
You and your partner should review your estate plan every few years or when you experience significant life events, such as marriage or children; as your estate value increases; or as your financial goals change.
Same-sex married couples also qualify for the unlimited marital deduction, which allows a surviving spouse to avoid potential estate taxes upon his or her spouse’s death.*
Discuss a prenuptial agreement
Why it’s important. This can be a difficult topic to address, since it implies the relationship may not last. But it’s an important way to help protect each person’s personal wealth.
What to discuss. Discuss what assets each partner will bring into the marriage and how those, as well as future earnings or assets, might be split in the event of a divorce. Your attorney can help you both determine if this document is appropriate for your situation.
Also, discussing a prenuptial agreement could help facilitate other conversations about finances and your relationship.
Planning can have its payoff
Discussing these financial topics before you decide to get married can help you walk down the aisle with a firm financial foundation underfoot and set the stage for financial harmony in your relationship.
We can provide guidance and information to help you with this important conversation.
Beneficiary designations still matter
Even if you and your partner decide to marry, it’s still important for you both to specifically designate beneficiaries for life insurance policies and retirement assets such as 401(k) plans, IRAs, and annuities. Designating beneficiaries for investment accounts may also be a consideration depending on the size and complexity of your estate and the estate planning documents executed.
Beneficiary designations will take precedence over any other instructions you’ve left (such as in a will). So it’s also critical that you review your designations every few years to see if any updates are necessary. Your estate planning attorney will help you review and coordinate your estate planning documents, asset titling, and your beneficiary designations to ensure your assets transfer as intended.
Our firm does not provide legal or tax advice. This information is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold, or sell securities.
This article was written by/for Wells Fargo Advisors and provided courtesy of Chad F. Manning, Branch Manager, First Vice President – Investments Sherman, TX (903) 893-6656. Investments in securities and insurance products are not FDIC-insured/not bank-guaranteed/may lose value.
* Always consult your tax advisor.
** Always consult a financial advisor.
1 “The Changing Landscape of Marriage and Money for Affluent LGBT Americans, 2015 National Survey,” June 2015, conducted by Wells Fargo.