If you are like many of the couples in America getting ready for your big day this wedding season, you’ll be faced with making many decisions – both big and small. Whether this is a first marriage or subsequent one, don’t overlook the important decisions, such as finances, that will last you a lifetime.
Review Your Financial Goals
If you’re not sure how to start a conversation about finances with your partner, start by simply asking your soon-to-be spouse what their financial goals are. A proactive conversation about both yours and your partner’s financial goals for the future is crucial. Financial incompatibility continues to be one of the top three reasons for divorce.
This type of conversation may bring to light key points of contention that you and your future spouse may need some time to work through. A problem may arise, for instance, if your partner’s financial goal in five years is to finance a boat but your goal in five years is to buy a house. While that may not be a make-it-or-break-it scenario for you, you should still take the time to work through any differences to ensure unity in your goals. Continue to communicate on your financial goals as situations change such as career promotions, the addition of children and other life changes.
Furthermore, take time before your wedding to discuss goals for paying off any debt, saving for retirement and long-term investments.
To Merge or Not to Merge?
There is no right or wrong answer when it comes to combining finances; it solely depends on each couple’s situation and preference.
One benefit of merging some finances once you are married is to automatically be “in the know” about your financial relationship. By doing so, both partners will constantly be aware of what is coming in and what is going out of each account. Opening a joint account allows both spouses to follow the money trail and hold each other accountable for purchasing decisions.
Whether you open a joint account or not, it is important to review your statements together every few months to ensure you are communicating suitably on your finances. If you choose to keep separate accounts, make sure you decide upfront what percentage each of you will be contributing to savings, retirement, children’s college accounts and so on.
If a child support agreement is in place from a prior relationship, you and your new spouse may be legally required to have separate accounts to support your child and save for their college funds. If this is the case, one method to consider is opening a 529 plan. It is a tax-advantaged way to invest money for your child’s education for the long-term.
Till Debt Do Us Part
If either or both of you are bringing debt to the marriage, you may consider consolidating your loans into one. Another alternative is to pay down high-interest debt first before tackling smaller loans.
There is not a one-size-fits-all approach when it comes to paying down debt or saving for the future. Working together with a financial advisor will provide you and your spouse-to-be with the best solutions.
While you are putting together the final pieces for your special day, do yourself a favor and proactively discuss a plan and set goals for your finances with your soon-to-be husband or wife. That is one piece of the puzzle that you don’t want to overlook.
I value the role I play in my clients’ lives to help them maintain goals-based wealth management that prepares them for all the different stages of life, including marriage. Proactive financial planning is crucial to building and maintaining lifelong financial stability.
Claudia Mollerup-Madsen is a Vice President and Financial Advisor Morgan Stanley Wealth Management.