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| What to ask before you say "I do"
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| By Heather Walsh, Vice President,
Wealth Management Advisor, Merrill Lynch
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| Many engaged couples spend more
time discussing the wedding flowers and honeymoon than financial
issues and attitudes about money that can affect their entire
married lives. A reluctance to talk about money matters often
stems from disparities in values, how your parents managed
their wealth and fear that money may become a source of conflict
in your relationship.
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Photo by
A Dream Picture
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| Combining your finances and balance
sheets in a way that makes sense for both of you is achievable
and can prevent unnecessary stress down the road. Before you
say "I do," it’s a good idea to have a merging of the
minds about how to handle "the finances" and plan your financial
future. To start a financial plan that incorporates your combined
needs, interests and values about money, have some frank discussions
with your partner and consider seeking guidance from a qualified
financial advisor. |
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| Warm-up to
talking about your goals and ask questions |
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Discuss your dreams for the future and prioritize near-term
and longer-term goals that you share as a couple. Ask questions
across the financial spectrum so you won’t be blind-sided
by issues you’ve never discussed. What are your major
concerns regarding finances? What are your financial styles;
are you and your partner spenders, savers or one of each?
Do either of you have financial obligations to other people,
credit card debt or educational loans? Do you currently
save for retirement through your employer and/or other plans?
Have you developed a family budget with amounts allocated
for savings? When making investments, are you conservative,
moderate or aggressive?
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Develop a financial plan
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After you have discussed your individual financial situations,
consider working with a qualified financial advisor who
can evaluate your overall financial situation and provide
guidance that can maximize your portfolio and help minimize
"financial strain" on your relationship. A good advisor
will work with you to build a comprehensive financial plan
and analyze your risk tolerance, asset allocation, any concentration
issues (an inappropriate allocation of one security or industry),
fragmentation (many small positions that do not add value
to your portfolio) and much more.
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A financial advisor can also help with creative financial
strategies for obtaining that dream house or an additional
degree. For example, if you have parents or grandparents who
want to help you get started, there are ways to pledge their
assets and buy a home at low, interest-only rates.
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Update important documents
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A financial advisor can work with your attorney to provide
guidance on important changes to documents when getting
married including updating wills, living trusts and beneficiary
designations. It’s also a good idea to review your
insurance needs including disability insurance.
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Discuss how to handle philanthropic contributions
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If you both have charitable and philanthropic interests,
discuss your individual goals and their similarities and
differences. How can you allocate your contributions as
a couple to make the maximum impact? A coordinated program
of charitable giving can enhance your ability to help others
while also reducing taxes. Determining a philanthropic strategy
as a couple can also encourage the value of charitable giving
in the long term for your children and grandchildren
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| Talk
about joint and/or separate bank accounts |
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Discuss the nuts and bolts of maintaining or merging your
bank accounts, credit cards and investments. There’s
no single right way and different financial systems work
better for different personalities. Often, trial and error
is the only way to work out a good solution that works for
you.
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Discuss basic options for bill-paying/checking accounts
including joint or separate accounts - with or without a
combined "household" account. A household account allows
each party to contribute funds in an equitable way to cover
basic family expenses. Separate accounts can be kept for
individual bills including obligations to a former marriage.
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If you decide on one joint account, it’s a good
idea to set reasonable limits for "routine expenses" that
don’t need to be scrutinized by both parties. Set
a threshold amount for purchases that should be discussed
together but incorporate enough financial freedom for partners
to make purchases and buy gifts without having everything
monitored.
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| Designate
financial roles |
While one partner may operate as the chief financial officer
within the family, it’s important for both individuals
to participate and understand how the household finances
work so either one can take over financial responsibilities
in an emergency. Divide the tasks or take turns over a certain
time period.
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Consider a prenuptial agreement
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Pre-nups are becoming more common and are no longer reserved
for only the very wealthy or second or third marriages.
Due to the not very romantic statistic that nearly half
of all marriages end in divorce, the idea of a prenuptial
agreement - or certainly a discussion - to spell out how
financial issues would be decided if the marriage ends can
be a very smart, practical idea. A valid prenuptial agreement
can limit the court’s and state’s ability to
dictate property settlement terms if a marriage is ended.
These agreements typically enable individuals to keep premarital
assets separate, provide for children from previous marriages
and protect assets for other dependents or wishes.
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In order for a prenuptial agreement to hold up in court,
it cannot be signed with either party under duress, both
parties must have had separate legal counsel and all financial
assets and liabilities must have been fully disclosed. Pre-nups
can address a wide range of financial issues and asset categories
outside the scope of this article. Some of the major areas
include strategies for:
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Keeping premarital assets separate
- Dividing marital property
- Dealing with jointly purchased assets during your
marriage
- Calculating ongoing support payments
- Establishing retirement assets for a non-working spouse
- Addressing expected inheritances
- Considering the value of non-financial contributions
such as child-rearing
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| Prenuptials
typically provide terms and settlements linked to the length
of the marriage. If a marriage only lasts a short time, there
may be no support or far less support than if it lasts for
a number of years. A prenuptial also usually outlines certain
terms if either party dies that must be incorporated into
each spouse’s estate plan. |
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What is a post-marital agreement?
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If you failed to consider a prenuptial before the wedding,
there is also a "post-marital" agreement that allows married
couples to outline how they want their property divided
in the event of a divorce. These agreements can address
which spouse has rights to certain property or a vacation
home, an interest in a family business, etc.
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Since pre and post-marital agreements involve important
legal issues, it’s extremely important for both parties
to obtain counsel from separate lawyers.
As you get caught up in the planning and excitement leading
up to the big day, don’t shy away from dealing with
financial issues. If you can establish good communication
about "the money" and start a sound financial plan at the
outset of your partnership, you will add greatly to your
chances for both marital and financial success.
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Heather Walsh is a Vice President and
Wealth Management Advisor for Merrill Lynch in Burlington.
Heather assists clients in developing long-term financial
plans and helps them develop strategies to manage their
personal and business finances. She can be reached at hwalsh@pclient.ml.com
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