On the Road to Financial Bliss
Updated May 19, 2010
- Practical financial advice for married couples or those about to get married.
- Ten steps that cover budgeting, managing debt, taxes, insurance, retirement and estate planning.
- Helpful information for couples seeking a successful financial future together.
Goin' to the chapel and gonna get married? Congratulations! As you embark on this exciting new phase of your life, be sure to discuss how you plan to budget, pay bills and get rid of any debt. Keep in mind that money problems lie at the heart of many unhappy marriages and these kinds of discussions will help you lay the foundation not only for a happy life together, but for a successful financial partnership as well. Here's our checklist of items to consider:
Tying the financial knot
1. Plan for your future. From the beginning, it's a good idea to establish your financial goals together. Total all of your assets (what you own) and liabilities (what you owe) in one joint family net worth statement. Next, make a list of all sources of income and expenses so you can see what your joint monthly cash flow looks like. With a good idea of where you stand today, you're ready to discuss important goals for the future, such as buying a home, putting children through school and retiring comfortably (some helpful tools for clients include Schwab's college savings calculator and retirement assessment tool). Develop a financial plan you can both live with and implement together, and then measure your progress jointly along the way. Don't hesitate to get help if you need it.
2. Pay off debts. If one or both spouses enter the marriage with nondeductible personal debt (e.g., credit cards and auto loans), get together at the outset and make paying it down a top priority. Work together toward eliminating all such premarital debt quickly, and be sure to consult each other before taking on new debt.
3. Address spending habits. If one spouse is more of a spender and the other more of a saver, develop a fair and equitable budget that can strike a balance and satisfy both partners' needs. Don't forsake retirement savings, even while you're saving for other goals such as a down payment on a home or college for the kids. Both spouses should take advantage of available retirement savings options such as qualified employer plans and IRAs.
4. Consider whether to mingle assets. Ideally, marital assets should be viewed as "ours," not "mine and yours." But if one spouse comes into the marriage with a significantly higher net worth, a prenuptial agreement might make sense.
5. Make your new name known. If you change your name, immediately notify your employer, creditors, the Social Security Administration, all of your account providers, insurance agents, and so on.
6. Review benefits. In most cases, it's possible to add a spouse to your benefits coverage as of the date of marriage. When both spouses work, coordinate health insurance benefits so you're not duplicating coverage. Also, if both are earning a similar salary, then a minimal amount of life insurance is probably appropriate. Of course, if you plan on having kids, you'll need to review your insurance needs then. Clients can calculate their life insurance needs here.
Preparing for the marriage tax penalty
7. Think about taxes. Even if you get married on the last day of the year, for income tax purposes, you're considered married for the whole year. In most cases, it's better to prepare your tax return as "married filing jointly," though in some instances it could make sense to elect "married filing separately" status. There are few general rules of thumb here, so you should just run the numbers different ways or check with your tax professional to see which filing status makes the most sense. To run the numbers, clients can use the Online Tax Projector available here.
Thinking ahead to the golden years
8. Plan for retirement. At retirement time, don't consider only your own life expectancy—take into account the life expectancy of the spouse most likely to survive longest when deciding on such things as when to start Social Security payments, or when electing pension and annuity payout options. Generally, it makes sense to postpone Social Security as long as possible if you expect to beat the average life expectancy (i.e., break-even point at which waiting for larger payments wins out over electing an earlier, smaller benefit). But, if your lower-earning spouse is expected to live longer than you, also consider his or her life expectancy when calculating your break-even point. For pensions and annuities, consider taking a lower payment, initially, in exchange for at least a 50% (or even 100%) survivor benefit.
9. Update beneficiaries. Don't forget to update the beneficiary designations on your retirement plans and insurance. If you decide to name someone other than your spouse as beneficiary on your qualified retirement plan at work, the law requires your spouse to acknowledge your decision in writing. Nonretirement bank accounts, brokerage accounts, and real or personal property titled in both your names as joint tenants with right of survivorship will pass to the surviving spouse outside of the probate (review community-property laws if they apply in your state, and be sure to incorporate all titling decisions into your overall estate plan). Finally, if you keep separately titled accounts and want to avoid probate, consider a POD (payable on death—typically available for bank accounts) or TOD (transfer on death—typically available for brokerage accounts) designation naming your spouse as the beneficiary.
10. Create or update your estate plan, including wills and trusts. Talk to your attorney or CPA about the best way to title your accounts and recorded property (e.g., motor vehicles, real estate) based on your preferences and goals, taking into account your state's laws (i.e., common law versus community property). Also consider durable powers of attorney and health care so each of you can make financial and medical decisions for the other in the case of an incapacitating injury or illness.
Living happily ever after
As you enter into this new stage of life, remember to regularly review your finances together. Some spouses choose to keep their finances separate, but if it's because they can't agree on how to jointly manage them, it might be a sign of more serious problems to come. Ideally, married couples should view their finances with a single mind and not as separate individuals. In any event, don't assume money matters will fall into place without any planning. With a little work, you'll be on your way to building a prosperous marriage in more ways than one.
This report is for informational purposes only and is not an offer, solicitation or recommendation that any particular investor should purchase or sell any particular security or pursue a particular investment strategy. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.
The Schwab Center for Investment Research is a division of Charles Schwab & Co., Inc.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.