Ask The CFP® Practitioner
Marriage is not simply a romantic union between two people; it’s also a political and economic contract of the highest order. Elizabeth Gilbert, American Novelist, Author “Eat, Pray, Love”
Question: I’m a widow in my late 60s contemplating marriage. What financial issues should I consider?
Answer: Congratulations! Although monetary matters are one of the largest causes of divorce, addressing these concerns before saying “I do” will likely increase the success of your relationship and provide peace of mind.
To have and to hold
Start with the basics by deciding where you’ll live and how expenses will be shared. When working with “mature” couples, we encourage them determine if expenditures will be divided equally or proportionately according to income or total net worth. You may want to revisit this arrangement periodically. We’ve found that this aids in preventing future resentments or misunderstandings. What is acceptable in the starry-eyed romance phase of a relationship may need to change down the road.
Next, take stock of assets, liabilities and cash flow. Clarify if you will treat assets and liabilities differently depending if they were acquired before or after the marriage. If there is a mortgage on existing property, will it become a joint debt, or remain as an obligation for only one spouse?
Sharing debt for only the jointly-acquired property may protect both spouses’ separate property from creditors of the other spouse. In general, debts incurred prior to marriage are separate, as compared to marital debt. Typically, you aren’t responsible to pay for separate debt that your spouse contracted in his name before marriage. You also may want to separate certain assets now in order to provide for the future.
Although not terribly romantic, you’ll need to know if your husband-to-be has any agreements with an ex-wife, children or business partners that may impact your wedded bliss. Having these discussions before marriage will prevent unpleasant surprises.
A prenuptial agreement identifies assets and liabilities that each partner brings into the marriage and spells out how these would be divided in the event of a divorce. Before legally tying the knot, my husband and I consulted our respective attorney’s outlining how we’d unwind our partnership just in case we didn’t live happily ever after. Beyond our own assets and liabilities, we considered the potential needs of aging parents, children and even the dog. This exercise was the basis for our prenuptial agreement. Time limits and certain conditions can be included in the prenuptial agreement. Over the 18 years we’ve been married, much has changed. Today, it is our estate planning documents that address financial planning issues for children, grandchildren, future generations and ourselves. Marriage is the foundation for many legal decisions so it is important to revisit your will, trust documents, beneficiary designations and health care power of attorney to reflect the changes in your lives.
If you’re receiving spousal benefits based on your former spouse’s work record, those benefits remain intact unless you opt to receive spousal benefits through your new spouse (at age 62 or older) if those benefits are higher. If your second marriage ends because of death, divorce or annulment in less than 10 years, you will again be eligible to collect benefits on your first spouse’s records. If you are receiving benefits based on your own work record, your benefits will continue.
Because the rules are complicated, it’s best to contact the Social Security Administration at 800-772-1213 for more information.
Tax filing status
Marital status is determined on the last day of the year. Would delaying a marriage save taxes? It might. The marriage penalty depends on many factors, which is why consulting with a qualified tax professional is advised. If you file a joint return, each spouse is generally liable for 100 percent of the taxes due on the return (including any penalties and interest).
Finally, it’s also helpful to discuss investment styles and risk tolerance levels. If your fiancé is speculative and you’re conservative, it may be wise to talk about your feelings as well as the realities of portfolio gains or losses. Depending on how decide to title investments, even if they’re separate, you may want to coordinate asset allocations to ensure that you’re not duplicating efforts or cancelling each other out with your holdings.
The decision on whether or not to marry at any stage of life is quite personal. As we mature and acquire assets and liabilities and must consider the needs of others, the proposition of marriage becomes much more complex. Be sure to consult with your team of trusted financial advisors when making such an important decision. Stay focused and invest accordingly.
This article provided by Darcie Guerin, CFP®, Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041,[email protected] or www.raymondjames.com/Darcie. Please contact Darcie with any questions you would like to have answered in this column.