As a financial planner, a big part of my job involves planning for the major life events of my clients. Speaking from recent personal experience, there are few such events that impact you so greatly (and so early in life) as marriage does. Up until the engagement point, finances are typically a private matter for most people. Once engaged, you suddenly find that financial decisions are now intrinsically linked to someone else’s financial goals and wellbeing.
For these reasons, it’s not surprising that certain questions surrounding marriage and finances are very common. Ultimately, no two scenarios (or couples) are the same, and the solution is often found in communication and planning. This will be a recurring theme as we explore these common questions.
What does “putting a ring on it” actually take?
The old adage of spending two (or three!) months salary on an engagement ring is dead and gone in 2020. As incomes have risen and tastes have moderated, such guidelines are just no longer practical. Regardless, the engagement ring will be the largest expense many people make aside from a house or a car for quite some time.
According to The Knot, the average cost of an engagement ring was $5,680 in 2018. Communicating with your potential spouse is a critical element to getting the right amount of ring. If you’re spending too much or going into debt, it will now negatively affect your partner’s future as well.
After paying for it (and of course, proposing with it), one of the first things you should consider is insurance coverage for the ring. It is very likely that your basic homeowners’ or renters’ insurance policy does not include coverage for high-value items. Thankfully, it is a pretty painless process to add what’s called a rider. Here you would specify the value of the ring in case theft or other disasters. You can even consider adding insurance protection for if you should lose the ring. There will likely be a nominal increase in your premiums for this coverage, but it could be money very well spent.
Who is going to pay for the wedding?
This is everyone’s favorite question. Even with the generosity of parents or family members chipping in, it is becoming harder to keep up with the inflation of wedding costs. Naturally, many couples are faced with an early challenge: developing a wedding budget. They may not even have a joint budget for basic living expenses yet, but they are tasked with putting one together to fund one of the largest events of their lives. It’s easy to understand why many wedding budgets end up going off the rails.
According to Ramsey Solutions: “Forty-one percent (41%) of those married five years or less say they felt pressured to spend more than they could afford on their wedding. Over half (54%) of couples married five years or less say some of their wedding expenses were covered with a credit card—and 73% of those couples say they regret that decision.”
It is imperative to not start your future together under undue financial stress. Going back to the importance of communication, working together or with an advisor to set a budget on what you can afford will go a tremendous way towards keeping your wedding day one of the happiest of your lives. The Knot has a very handy wedding budget tool here: https://www.theknot.com/wedding-budget that you can use to get started.
Bonus Question: Do we need to get a joint bank account?
This is a surprisingly common question… after all, people ask, isn’t that the first thing you do to comingle your finances? Honestly, joint bank accounts were more a matter of convenience in prior years in order to handle joint expenses. Today, it boils down to a matter of personal preference and your views on money. There are so many technology solutions that facilitate the electronic exchange of money, a shared account is no longer a necessity. I can personally attest that the person I send electronic funds to the most is my own wife.
Do I need to think about a prenup?
Of course, it feels like a tremendously poor start to a marriage to begin with planning for a possible failure. However, prenuptial agreements can help to ensure fairness and to avoid potentially acrimonious or lengthy divorce proceedings. I once heard a colleague refer to a prenup as, “protecting yourselves from your future selves.” Even armed with that viewpoint, it can be an incredibly difficult subject to broach directly with your future spouse. This is a time when it’s great to have a trusted advisor who can kick off the discussion and later field any questions.
From a financial standpoint, prenuptial agreements are largely about the separation of existing and future assets. This is both relevant for what each partner is coming into the relationship with, but also what may be earned in the future. The downsides are that they can be costly, time-consuming and potentially contentious.
Bonus Question: What will happen to our credit scores?
Your credit scores remain your own and the same as they were before you were married. Only if you are applying for joint debt, such as a mortgage, do lenders check both your credit scores. Of course, joint debt affects both your credit scores. When you’re applying for individual debt, the lender will only check your partner’s credit if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).
How much insurance do we need?
Unfortunately, I’m probably no longer alone in thinking of insurance right away when marriage comes up. With today’s increasing health insurance costs, many couples are left searching for better solutions, and a new spouse with a different employer can add a host of new options.
Fortunately, even prior to marriage, more and more employers are allowing coverage for domestic partners for both same-sex and other couples. This is a worthwhile solution to explore if one partner does not have health insurance.
Beyond just obtaining coverage, it’s important to sit down and evaluate individual employee benefits you each may have. This is a great opportunity to consolidate and potentially save money. If one spouse is going to be the primary earner, then disability insurance becomes a major potential need, and can be purchased using after-tax funds.
This brings us the last extremely fun item to talk about, life insurance.
So now it really matters to somebody if I die?
It feels morbid to talk about, but death is the one thing certain to end all marriages. So, what better way to prepare for it than right from the start? You’re certainly not alone if you don’t want to contemplate your eventual demise, but now you presumably also care a great deal about what happens to someone else in your absence.
The first and easiest step to protect your loved ones in the event of your untimely death is to update your beneficiaries for any retirement accounts to reflect your new spouse, allowing the accounts to pass directly to them upon death. If you need to provide for a future expense for your spouse or children, life insurance is the most common tool. Instructions for your remaining assets should be accomplished through a will.
Estate planning might sound a task only for the wealthy, but it can provide tremendous peace of mind for you and your loved ones. A will directs more than just what happens to your assets, it also determines who will act as guardian of your children. It is also wise to establish a healthcare proxy and durable power of attorney, should you be medically incapacitated or unresuscitable. Comprehensive estate planning can ensure that your wishes are carried out and your loved ones are protected should the worst happen.
As you can see, there are a plethora of financial questions that jump to the forefront as soon as you kick off the wedding planning process, as if you didn’t have enough on your mind. It’s important to remember that communication with your future spouse is key to limiting the stress associated with these questions. There’s no one size fits all for everyone’s financial situation. If one or both of you isn’t already working with a financial planner, meeting with one together might be a helpful first step.