Seven Must-Have Financial Conversations to Have Before Marriage

Seven Must-Have Financial Conversations Before Marriage

So you’re thinking about getting married. Congratulations! But before the big day arrives, make sure you sit down for a serious financial discussion. It’s an important step for any couple, but one many avoid because it can be hard as well as cause tension in a relationship.
Unfortunately, not talking 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.

By discussing finances upfront, you may enter marriage with your eyes wide open and a plan in place for financial issues. To help you get started, here are seven key areas to address before the wedding bells ring.

1. 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 set 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 strategies and priorities
  • Short- and long-term goals
  • Approach to investing and tolerance for risk 
  • Your preferred standard of living
  • At what dollar threshold you need to check in with each other 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, 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.

2. Tackle taxes

Why it’s important. Married couples can file joint returns at both the federal and state levels. This means marriage could have a significant impact — for better or for worse — on your tax picture.

What to discuss. Your tax advisor can help determine how your combined incomes would 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.

In addition, your tax advisor can help you evaluate “head of household” and “married filing separately” options.

3. Go over retirement plans  

Why it’s important. You 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 financial goals and how much you’ll each need to save monthly or annually 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 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 that can help maximize retirement while positively impacting your tax picture.

4. Consider children

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 either or both of you 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.” Specifically, if one parent passes away, will the surviving spouse be able to maintain your family’s standard of living? You may want to investigate life insurance options to prepare for this possibility.

5. Establish an estate plan    

Why it’s important. An estate plan helps ensure your assets are managed as you wish, now and later.

What to discuss. A 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 an 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 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 should review your estate plan every few years or when you experience significant life events, such as marriage or children; a significant change in your estate’s value; a relocation to a new state; a shift in your financial goals.

6. Address beneficiary designations

It’s important for you both to specifically designate primary and contingent 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). It’s critical that you review your designations every few years to see if any updates are necessary. Your attorney will help you review and coordinate your estate planning documents, asset titling, and beneficiary designations to ensure your assets transfer as intended.

7. Discuss a prenuptial agreement

Why it’s important. This can be a difficult topic 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. Talk about what assets each of you 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 determine if this document is appropriate for your situation.

This article was written by/for Wells Fargo Advisors and provided courtesy of Brian Konish, Managing Director-Investments in Boston at 617-289-9418.

Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.