O'Connor: Talk money before the wedding bells ring

Unless you and your spouse-to-be have spent a significant amount of time discussing how you plan to handle finances after the honeymoon, you may be setting yourselves up for a rough go – at least in the beginning and maybe for your entire time together.

Studies have shown that money is a frequent topic of arguments in many marriages. One of the reasons may be that couples don’t spend enough time talking about money before the “big day.”

Marriage is a many-splendored thing, but when you begin to peel away the layers, one important thing you find is a business arrangement – that’s just one reason why it’s called a marriage “contract.” And as with any business arrangement, in a marriage you have money flowing in and money flowing out. As long as the inflow exceeds the outflow, the arrangement usually works. But a marriage isn’t a typical business – there’s an emotional aspect to everything, including the couple’s finances.

To help get the discussion started, here are some issues you should address together before you tie the knot.

Budgeting: Some say that the key to financial success is to spend what you have after saving, rather than saving what’s left after spending. Once you sit down and estimate your monthly income and expenses as a couple, it then becomes a matter of budgeting to control expenses and setting money aside to help achieve your goals.

Combining accounts: As engaged individuals, you probably already have your own savings, checking and brokerage accounts. But as a couple, do you want to combine everything into joint accounts or keep them separate? Having separate accounts lets each of you feel independent, knowing that you can tap your finances whenever the need arises. On the other hand, joining accounts can help unite your goals and create a more effective investment program.

Housing: If each of you already owns real estate, you will need to face issues with housing, including: Will you live in one spouse’s home, or sell both homes and purchase a new one together? What will be the likely tax consequences of selling – especially if the sale will result in substantial capital gains or losses?

Financial goals: In today’s economy it’s important to set aside money for emergency expenses in case of sickness or job loss – experts recommend saving three to six months’ living expenses. That’s why it’s important to establish financial goals and determine your priorities as a couple. Do you want to dine out often, or eat in and save? How much do you want to spend on traveling and entertainment? How about for buying and decorating a home, leasing a car, etc.?

Debt:  Some people are raised to never borrow money unless it’s absolutely necessary. Others are taught that it is acceptable to take out a loan – even for a luxury item. Differing attitudes toward debt accumulation is just one reason it’s important to know before the wedding what, if any, debts each of you is bringing to the marriage. If there is debt, decide whether to combine it or to keep separate credit histories and records. Many experts recommend that each individual retain his or her own credit cards and credit history. Doing so helps ensure financial independence and provides greater flexibility if either of you finds yourself alone at some point in the future. Also, if one of you has a poor credit history, it may be advisable not to commingle debt in order to retain the other’s better credit rating.

Estate planning: Addressing estate planning is vital, regardless of your age. When two people commit to legal responsibility for each other, it’s appropriate to talk about how they want to provide for an orderly transfer of assets. Included in the discussion should be considerations of the financial implications of life insurance and what would happen if a wage earner or work-at-home spouse were lost. Pay particular attention to beneficiary designations on life insurance policies, IRAs and 401(k) plans. These designations will supersede instructions for distributing assets included in a will or trust. Each provider – insurance company, financial institution or plan administrator – needs to be contacted to update the beneficiary designations on these valuable assets. (This step is particularly important in the case of a second marriage.)

When appropriate, include your financial adviser, tax adviser and attorney in financial discussions before you say, “I do.” Open and honest communication before your wedding day may help you avoid money arguments and financial problems in your marriage.

Timothy J. O’Connor is a certified financial planner and first vice president at Wells Fargo Advisors on Route 14 in Woodstock. He is a retirement income expert and can be reached at 815-337-9470 or timothy.oconnor@wellsfargoadvisors.com.

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