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Yours, Mine and Ours: How to Navigate Finances with your Partner

Brooke Boone, CFP®, Wealth Management Advisor | Kelli Ruby, CFP®, Wealth Management Advisor, Partner | September 19, 2019

According to a 2018 study conducted by Personal Capital, the top two stressors in relationships were: 1) Money at 54% and 2) Communication at 26%. Money was at the top of the list across Millennial, Gen Xers, and the Boomer generations. With these stats, we have created a “How to Navigate Finances as Yours, Mine, and Ours” guide when broaching the topic of finances in a relationship.

Monthly Nut

Our Monthly Nut Chart serves as a great conversation starter on the taboo topic of money for couples navigating joint finances for the first time. We suggest each partner complete their separate Monthly Nut to grasp where each other financially stands before tackling your joint financial picture. The “Yours and Mine Monthly Nut Charts” helps shed light on spending or savings habits, debt to asset ratios, and earnings potential of each party. You may find that one individual has more debt than the other. This scenario is not uncommon and may make combining finances even more challenging or in some cases, less appealing. We encourage couples to come up with a plan to pay down that debt by considering: Who is responsible for paying down the debt- the individual, jointly, a combination of both? The charts can also assist couples explore their tax filing options. Married couples may find their state taxes may be lowered by filing separately even if they file jointly at the Federal level. Weatherly is here to help navigate this conversation with your CPA as appropriate.

Once you have a better understanding of each other’s financial situation, you can better focus on building out your financial plan as a couple.

Prioritize for Progress

Create a list of items, big or small, you would like to accomplish with your finances in the short-term, mid-term, and long-term. Your list might include: pay the rent, travel once a year, pay off an auto loan or student debt, buy a home, save for a child’s college or your retirement, have $1mm to pass to the next generation. Once you have your list, sit with your partner and prioritize for progress. If you and your significant other do not see eye to eye on a specific goal or it is specific to you personally- come to an agreement that works for both parties. Maybe you have your own separate debit card/credit card, bank account or investment account to utilize for your specific goal and joint accounts to accomplish your goals as a couple. Please reference this Wall Street Journal article that addresses these topics in further detail.

Retirement Planning

Saving for retirement poses several challenges as some individuals tend to view this bucket of money as yours or mine strictly because of who earned it. To better accomplish your retirement goals as a couple, it is important to:1) understand each other’s views on retirement and 2) recognize that earnings potential may fluctuate as life changes. As highlighted in the “Yours and Mine Monthly Nut Charts”, one partner may be inclined to maximize retirement while the other prefers to spend. Alternatively, one individual’s earnings potential may change because they stay home with the kids, which decreases their ability to save for their own retirement. Viewing retirement savings as “Ours” versus “Yours” or “Mine”, couples typically avoid unnecessary conflict and can focus on saving for Their retirement.

Investments

It may take time to establish an investment philosophy as a couple and that is okay. The key is to build and evolve it into what works for you together. Some items to consider in formulating your investment approach:

  • Different Risk Tolerances: Consider separate accounts with each other named as the beneficiary for differences in risk tolerance.
  • Who will manage investments and bill pay: Designating one partner as the sole investment manager, can feel like a loss of control for the other. Consider separate individual accounts “Fun” accounts to accommodate.

Estate Planning and Community Property

You know the old joke for married couples – “what’s mine is mine and what’s yours is mine?”  While the intent is for this to be humorous, it can be true for assets and debt accumulated during marriage in states that adopt community property laws, like California.  It’s important to consider assets that each individual acquired prior to marriage, earnings and income potential and future inheritance; and if individual assets should be designated as Separate Property.  This is seen commonly with inherited assets, when a parent designates their individual child (not the couple) as a beneficiary.

There are complex situations that should be addressed prior to marriage – for example, if one spouse owns and runs a business and the other stays home to run the household.  While the contribution to the family is similar, the earnings potential varies greatly.

With an increased focus on the value of intangible assets – like intellectual property – new business ideas and student debt among the Millennial Generation, attorneys are seeing more young couples request a pre-nuptial agreement.  While it’s a tough discussion to have, the conversation prior to marriage could alleviate stress and attorney fees down the line if divorce occurs.  Recall in Community Property states, debt accumulated during marriage can be a 50/50 responsibility even if divorce occurs.

Beneficiary Updates and Wills/POAs

There are 3 basic estate documents that every adult, regardless of marital status, needs:

  • Will – designates who will get your assets upon your passing
  • Financial Power of Attorney – designates who can access your financial records and bill pay
  • Healthcare Power of Attorney and HIPAA Waiver – designates who can speak with your doctors and access your healthcare records

Newly married couples should review these documents – or work with an attorney if they haven’t already created them – to determine who should be named.

Beneficiary reviews are also important – you may have a sibling, family member or friend listed as the beneficiary of old workplace 401ks, current retirement plans or IRAs.  Any pension plans should also be reviewed; most offer survivorship benefits to spouses.

As your assets and estate grow, you may consider creating a Family Trust for Community Property assets and/or a Separate Property Trust for individual assets.

Families with young children should also have the discussion of who would take care of your children or act as custodian of your assets if something happens to you.  We touched on other considerations for young families in a previous blog post.

How Weatherly Can Help

Marriage is exciting and these areas of discussion shouldn’t feel daunting.  Talking through tax, estate and financial discussions and recommendations with your advisor can alleviate concern and “what if” scenarios so you and your spouse can focus on building your lives together.  We welcome a dialog on how we can provide guidance on a successful financial future for your family.

 

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.