Summertime, especially June, often brings weddings. In addition to the wedding plans and pre-marital counseling, engaged couples need to address financial issues. Often, these items are not even close to the top of the priority list and may not even be on the list. However, the issues will still need to be dealt with.
As with most issues, it is best to be proactive and think through the implications before making the decision. Following is a list of financial issues engaged couples should discuss:
- Titles on accounts. Make a list of all of your financial accounts and decide if the accounts should be changed to joint accounts. If not, decide who should be the beneficiary of the account.
- Disclosure. Your future spouse needs to know where all your accounts are, both banking and investment accounts. He/she also needs to know how to access them, especially if those accounts are paperless.
- Estate plans and documents. Young couples have an especially difficult time thinking about estate documents. Yet, it is vitally important that a minimum of three documents be prepared: last will and testament, durable power of attorney, and medical power of attorney. A revocable living trust may also be desired if the couple would like to avoid probate. If there are children from a prior relationship and the parent of those children desires to have certain assets set aside for them, a prenuptial agreement or a trust to hold those assets may need to be considered.
- Insurance policies. Review all insurance policies and make changes if necessary – health, disability, property casualty, and life insurance. This is particularly important with life insurance — is the current level of protection adequate and does the beneficiary need to be changed?
- Review assets and liabilities. Now is the time to disclose all debts and everything you own. Now is the time to discuss the cost of the wedding and honeymoon and how you will pay for it. After this discussion, you may decide to avoid the temptation to over-spend on your wedding and your honeymoon.
- Create a budget. This is the logical step after reviewing your assets and liabilities. Think to the future and decide together what you want to do with your combined income. You will never regret discussing and agreeing now about spending, saving for desired purchases, and investing for the future.
- Tax withholding. Make adjustments to your withholding or estimated tax payments so that you don’t have a big surprise on April 15. You don’t want to end up with a large tax bill, nor do you want to find out you are getting a big refund. That refund means you have made an interest-free loan to the IRS.
- Retirement savings. Take full advantage, if possible, of 401(k) matching contributions. Those matches are a guaranteed 100% return on your investment. Be careful with IRA contributions, especially if one spouse earns more than the phase-out limit. Review the beneficiaries on the accounts and make any necessary changes. This is particularly important if one or both spouses have been in a prior relationship.
While the discussion of these issues will be difficult, the long term benefits will be well worth the effort.
Resource for this article: HD Vest Financial ServicesJudith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.