If you and your partner are ambitious and successful—perhaps you run your own business or occupy a seat in the C-suite—you’re already aligned on career, but can you say the same for your finances? A marriage between two power players brings the potential for future bliss, but also the need to protect your assets while merging life goals.
“Whether this is a first marriage for both partners or a second marriage for one or both of them, if you’re an adult with accumulated assets, you need to approach the financial side of your marriage like a business decision,” said Sally Kirkpatrick, a senior vice president and financial advisor with RBC Wealth Management in Chevy Chase, Maryland.
“In the thick of the romantic decision to get married, no one wants to have these conversations about their money, healthcare and estate planning, but they are a necessary evil,” she said.
While planning your wedding, you and your partner should connect on serious topics and consult with professional advisors such as a marriage and an estate-planning attorney, Kirkpatrick said. Considerations include where to live (since many couples have their own homes), how to treat dependents and who gets what if the marriage ends.
Although the potential for divorce isn’t an easy subject to broach with your partner, it’s an important conversation. A prenuptial agreement has also become a standard document among people aiming to protect their wealth. A 2013 survey from the American Academy of Matrimonial Lawyers found that 63 percent of attorneys saw an increase in prenups over the previous three years.
Protection of separate property was the most common item covered by 80 percent of respondents, followed by alimony and spousal maintenance (77 percent) and division of property (72 percent). Nearly half of the respondents also noted an increase in women initiating prenups, the report showed.
Before “I do”
“Some people see a prenuptial agreement as an impediment to getting married,” said Kirkpatrick. “A prenup is almost like saying, ‘In case this marriage doesn’t work…’ No one wants to hear that, but it’s essential that they see it as protection for both partners.”
Stuart Bear, an attorney with Chestnut Cambronne in Minneapolis, suggests negotiating a prenuptial agreement six to eight weeks before the wedding to avoid potential future claims of being under pressure when signing the agreement.
Topics to address in a prenuptial agreement include what assets each partner owned before the marriage, such as real estate and investment accounts, and what should happen to them going forward. Children from previous relationships are also part of the equation.
“If either or both partners have children from a previous marriage, they need to address how they will be taken care of financially in addition to taking care of each other,” said Kirkpatrick. “A prenup goes hand in hand with a trust for the kids. A trust can always be altered in the future, but it’s important to get on paper how you want your money to be handled if you become incapacitated.”
If you’re providing support to a sibling or an aging parent or want to leave them with an inheritance, make sure to address it in your prenuptial agreement and estate plan, said Bear.
“You also need to provide a full and accurate disclosure of all your assets in a prenup,” Bear added. “You can’t hide any assets in a trust because that could be grounds for tossing out the entire agreement.”
Even though most states don’t require it, Bear recommends each person in the relationship have his or her own legal representation. “Keep in mind that a prenup can be amended in the future,” he said. “If circumstances change and you want to override it at some point, you can.”
Financial planning for partners
While a prenuptial agreement addresses the “what if” questions of the future, your day-to-day life as a married couple requires some answers about the assets you each have now, as well as those you’ll accumulate during your marriage.
Kirkpatrick suggests couples maintain a joint checking account for regular expenses and that they share costs. Each spouse should deposit money in that account based on his or her individual income, allowing the couple to split expenses on a proportional basis.
“I’m a big fan of maintaining separate stock and investment accounts,” said Kirkpatrick. “You can still use the money to benefit both of you for things like taking vacations or buying property, even if you have separate funds. But once you scramble eggs, they’re hard to unscramble—and so are investment funds.”
Kirkpatrick said men and women tend to have different investing styles, with women particularly concerned about maintaining their lifestyle in retirement. She says women are more cautious because they know they generally live longer and will need to take care of themselves. Men tend to be more optimistic about their ability to continue making money.
“Even if you have separate accounts and separate investing styles, it’s best to have annual financial reviews done by a shared financial advisor,” said Kirkpatrick. “Having someone look at all your accounts together is important.”
Bear recommends that each spouse sign a financial durable power of attorney document to allow access to retirement accounts or other accounts that are held only in one spouse’s name.
“If the account holder is incapacitated, a power of attorney can allow someone to handle the account,” said Bear. “Even in power couples, sometimes one spouse’s assets are illiquid, so it can be helpful to have access to that money.”
Couples should also talk about the financial and emotional decisions related to any future healthcare problems, particularly if they are getting married later in life. Kirkpatrick said couples in their 60s or older may have already discussed healthcare directives with their children or other relatives and will need to re-evaluate their choices in the context of their new marriage.
“They need to establish how decisions will be made about their care, particularly if they have adult kids who want to be involved in these decisions,” said Kirkpatrick. “You can even address things like whether you have long-term care insurance or plan to self-fund care issues in the prenuptial agreement. You need to make it clear where the money would come from to pay for long-term care, whether it’s each individual’s assets or joint accounts.”
Bear says a written healthcare directive is essential to establish who makes decisions in the event you become incapacitated. He also recommends signing a HIPAA (Health Insurance Portability and Accountability Act) release so that your health information can be shared.
One final topic for engaged couples to address is their beneficiaries. It’s wise to review those designees in the context of your new relationship. Some couples will want to name children or other relatives as the beneficiary of some of their accounts, while other couples will want to name each other as beneficiaries.
Each spouse in a couple comes into the marriage with a financial philosophy in place, said Kirkpatrick. “Some people want to take care of their kids, grandkids or other family members so they can give them advantages in life. Others would rather spend their money and leave their children with less so they have to work hard, too.”
Couples, even if they don’t merge all their money, need to mesh their financial plans to avoid future conflict with each other or among their heirs.
This article was originally published on Forbes WealthVoice.