By Meghan Railey
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% of affluent, unmarried same-sex couples agree getting married isn’t just a question of love and commitment—it’s a big financial decision. More than half of these couples cited financial security and benefits as an important reason to get married. Yet only 35% fully understand what the financial benefits actually are—or the potential drawbacks.
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.
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:
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: Since the Obergefell ruling in June 2015, same-sex married couples can file joint returns at both the federal and state levels. While that simplifies matters, it also means that marriage could have a more significant impact—for better or for worse—on your tax picture.
What to discuss: Your tax advisor can help you determine how your combined incomes will affect your tax bracket, and specifically, whether marriage might trigger a “marriage penalty”—potentially increasing your tax burden—or a “bonus” that helps to reduce your taxes.
Also: Your tax advisor can help you evaluate “head of household” and “married filing separately” options.
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 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 that can 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.
Also: Same-sex couples need to pay particular 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.
Why it’s important: The Obergefell ruling means same-sex married couples should have the same health insurance coverage options as heterosexual married couples. However, with this benefit in place, employers may not continue offering 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.
Why it’s important: An estate plan helps to 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 that 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:
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.
Also: Same-sex married couples qualify for the unlimited marital deduction, which allows a surviving spouse to avoid potential estate taxes upon his or her spouse’s death.
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.
Meghan Railey is a San Francisco based financial advisor with Wells Fargo Advisers (https://www.wellsfargoadvisors.com).
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.
Frederick Sullivan and Jaime Botello, who oversee the Weddings & Occasions page for the San Francisco Bay Times, are the talented wizards behind Sullivan-Botello Events (http://sullivanbotelloevents.
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