Friday, April 20, 2012
Here are some basic questions that should be answered before couples tie the knot:
- Is there debt? And if so, how much? The first money conversation should take place at a table with both sides showing their savings, investments and debt figures – all of it. Both should start the process of talking about how that debt should be paid off – by the person who accrued it, or by both potential spouses. Couples also need to decide how they will handle debt going forward – jointly or separately.
- Are there investments? If so, how will they be handled once the couple is married? Will they be held after the marriage in joint tenancy, and what will the process be to affect that? From a tax perspective, does it make sense to do anything specific with those assets before the wedding? And after the wedding — assuming debt is being dealt with – how will you maximize those investments?
- Where will we live? Many couples live together before marriage and stay right where they are. But the question of where you live shouldn't pertain only to right now – couples need to discuss where they want to live two to five years from now, particularly if they're going to have a family. And that means they'll have to understand how to afford it. Generally, total house payments, including taxes and insurance, shouldn't exceed 25 percent of any couple's take-home pay.
- How will we handle the money? Couples need to understand how they'll share accounts and pay bills. The most common option is to create one joint account. Others work with three accounts – one joint and then one for each individual.
- What about insurance? Life, health, home and disability – all insurance that couples have separately needs to be reviewed and consolidated to make sure they have enough coverage for their new life.
- What about estate issues? Marriages require wills and exact directives on who will get what – particularly when children from first marriages are involved. No matter how young the couple, there should be consideration of health directives as well.
- Is there a budget? Budgeting is a good exercise before the wedding because it sets specific goals for the big things – a house, kids, education and other big-ticket items. If the couple has to pay for their own wedding, a budget can determine whether a more modest ceremony might be appropriate.
- What about retirement? Retirement discussions go beyond money. Couples should decide how they want to live in retirement, whether they'll continue to work and what will happen if one or both get sick. This is where a financial planner can help the most – on such distant goals.
- What about tax status? It makes sense for couples to consider their tax status before they marry. A tax expert is the best adviser to tell you how to file after reviewing your finances.
- Does there need to be a prenuptial agreement? Some couples believe that a prenup indicates they don't have faith in their relationship. But if one spouse has more debt than the other or runs a business, such an agreement may make sense if only to limit the liability of the other spouse. These days, prenups aren't just for rich people. They can set the ground rules for a much healthier financial future.