Congratulations on the nuptials! In the eyes of your family and friends (and the US Government) the two of you are officially a family! New doors have now opened and it’s important to take the time to ensure you’re headed in the right financial direction. Here are some key things to do in order to save money and create a sound financial foundation for your marriage.
- Medical Insurance – Who has the better plan?
Generally, you have 30 days to add your spouse to your employer’s health coverage. If you miss this window, then you will have to wait until the next Open Enrollment. Make sure you know the ins and outs of your policies so you understand which person has the better plan and/or the cheaper family plan. Remember that cheaper may not always be better.
- Other Employer Benefits – Can either of you be added for free or for cheap?
Find out whether your employer offers other benefits to your spouse, such as dental or vision insurance. Consider disability insurance, especially if your spouse depends on your income. You may also be able to sign up for a flexible-spending account or health savings account and use the money tax-free for either spouse’s medical expenses.
- Bank Accounts, Budgets & Debt – Understand where your stand and how you’ll work together.
This topic can get deep real quick, so we’ll stay high level. When you get married, it’s very important to have an open conversation about your combined assets, debts and how you’ll manage your household cash flow. You’re officially and legally on the same team now. Below are some important points to discuss:
• Consider opening a joint bank account to cover household expenses.
• Compare all assets and debts. Talk about what goals each of you have with your assets.
• Make a plan to pay off any debts (note: student loan interest deduction maxes out at $2,500yr and the income limit is $160k for married couples filing jointly).
• Do your separate incomes get combined, stay separate, or a bit of both?
• Contact your bank and credit card lenders to add your spouse as an authorized person to discuss the accounts. Otherwise, in the event of an emergency your spouse cannot access these.
• Check credit scores to ensure there are no surprises (use www.creditkarama.com for a quick free look).
- Update your Auto, Homeowners, or Renters Insurance – Combine and save!
Talk to your existing insurance providers about combining policies AND shop competitors for a better deal. Many providers offer discounts for multiple cars and multiple policies. Also make sure you’re both on the same page about coverage amounts. Remember that your household’s assets are now combined: cheap, low coverage + a major accident = the potential for your household to lose personal assets from a lawsuit.
- Tax Updates – Withholdings and tax breaks may change.
Now that you’re married, your combined adjusted gross income (AGI) may change your tax bracket and certain income-based benefits. Below are a few notable ones:
• Tax withholding on your paycheck may need to increase or decrease – Kiplinger’s website has a quick calculator for this, or use the IRS’s Tax Withholding tool.
• The ability to deduct your IRA contributions may change – phase-outs can start at $99k AGI.
• The ability to contribute to your Roth IRA – phase outs can start at $186k AGI.
- Change your Retirement Beneficiary Designations – These are legally binding!
Update your beneficiaries for IRAs, 401(k)s and other retirement plans. This is a must even if you have a Will giving everything to your spouse. If you named your parents or other relatives as your beneficiaries when you first signed up for your 401(k) at work, for example, they’ll get the money in your account after you die unless you change the beneficiary designation.
- Life Insurance – Update the beneficiaries and review your needs.
If you have existing policies, be sure to update your beneficiaries for this too. These documents are legal contracts and the proceeds will NOT automatically go to your new spouse.
If you don’t have any policies, it may be a good time to review whether you need one. The first question to ask is: “Will one of you be significantly impacted if something happens to your spouse?” I generally encourage people to think about life insurance coverage amounts in three levels: (1) Enough to cover your debts; (2) Enough to maintain your family’s lifestyle for a while, or at least until the kids are 18; (3) Get the kids through college and your spouse to retirement. For most circumstances, I generally encourage only using Term Insurance. Whole and Variable Life coverages can be beneficial in unique cases, but Term is generally the cheapest and simplest way to go
- Create an Emergency Reserve Account– Unexpected money hiccups happen, be prepared.
You may lose your job, you may get into an accident, you may have a leaky bathroom…If something like that happens, you don’t want to be forced to tap into your retirement savings or take on more debt. So create a Reserve Account to give yourself a buffer. The general rule of thumb is 3-6 months of living expenses.
- Review Your Investment Accounts– And Investment Goals!
Each of you may have 401(k)s, IRAs, brokerage accounts, or nothing at all. Make sure to discuss the following together:
- What do each of you currently have and what might be available to you by an employer?
- Do you both have the same savings and investment goals? Is one of you maxing out your 401(k) while the other is saving for a house?
- Are you optimizing the type of investment or savings account? If retirement is a goal (which it should be!), does one of your company’s plans provide a higher match or better investments? Should you be using a Roth or Pre-Tax retirement account?
- Just In Case Papers– If something tragic happens, your intentions are known.
If the unthinkable happens, some basic instructions can be extremely helpful for your loved ones. Below are some of the basic documents you should have.
- Medical Directives and Healthcare Power of Attorney– If you’re unconscious, who makes the decision and what should they do?
- Financial Power of Attorney – If you’re unconscious, who makes the financial decisions on your behalf and is given access to your accounts?
- Last Will and Testament– This outlines who gets what if you’re not around.
- Create a Family Trust– You can piece-meal everything listed above by going to an attorney or LegalZoom, but the best way to get it all done, and provide more protection, is to create a Revocable Family Trust. A well written Trust, by a qualified Attorney, will do all of the above, provide some additional creditor protection, and help keep your family out of Probate Court.
It’s an unfortunate reality that money and financial concerns are one of the top causes of divorce in this nation. Start your marriage with a solid foundation by addressing these items EARLY! For additional information and advice, talk to us! We’re happy to help or even start the conversation.