Once you have the wedding reception seating chart worked out, have successfully talked your bridesmaids into wearing the peuce gowns you’ve chosen, and decided that anyone doing the Macarena will be forcibly removed from the premises, it’s time for you and your fiancé to make the really important decisions. That is, it’s time to discuss how you’ll manage finances after you say “I do,” or more specifically, what you will do with your investment accounts.
Most people come into marriage with at least a little bit of money socked away in a retirement fund. You might even have some investments separate from your work’s retirement plan. Even if you have everything where you want it now, in terms of contributions, allocations, and risk tolerance, tying the knot can change everything — sometimes significantly.
So whether you plan to combine all of your resources and have joint accounts for everything, or keep everything totally separate, it’s still important to have an “investment state of the union” before you make your union official.
Share the Details
The first step to getting off on the right financial foot is to cover who has what, and where. Even if you aren’t combining accounts, it’s important for both of you to share information about what you have invested and where, so if something happens to one of you, the other can make the necessary arrangements. Sharing the details of your accounts also allows you to identify any areas that could be adjusted to help maximize investments.
This is also a good time for you to discuss your financial goals, and get on the same page. Think both short and long term: You may wish to pay off student loans or credit cards in the next few years, but also be able to retire comfortably a few decades from now. Looking at your overall financial picture and what you hope to accomplish can help you effectively manage your investments and pool your resources to reach your goals faster.
Should you decide to combine accounts, talk with your financial advisor to determine the best way to do so. You should always maintain separate contributions to your work retirement accounts, even if you are pooling your resources. At the very least, make sure that all of the beneficiary paperwork is in order, and make sure that everything is up-to-date in terms of your name, address, and other personal details.
Compare Risk Tolerances
Getting on the same page in terms of your goals is one thing, but determining the best way to reach them is something else entirely. One of the most common issues that newlyweds encounter is a mismatch of risk tolerance; in other words, one partner is more cautious than the other is. A qualified investment advisor can help you gauge your own risk tolerance, or you use any number of online tools to determine how much you’re willing to risk in the name of financial gain.
If you and your new spouse are on opposite ends of the spectrum when it comes to risk, maintaining separate accounts might be a healthier decision. If you share a similar risk tolerance, then pooling your resources into an investment account separate from your own retirement accounts could help you grow your nest egg more quickly.
Understanding each other’s risk tolerance is the first step toward making effective allocations as well. If you opt to combine your investment accounts, the larger balance and changes in contributions could mean that reallocating and rebalancing your account is in order, especially if you need to make adjustments to account for mismatched risk tolerance.
Even if you are on the same page risk-wise, periodically rebalancing your account to take advantage of current stock market trends, portfolio performance, and adjusted contributions is always a smart move.
Understand Community Property
If you live in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) you may have additional concerns regarding the pooling of assets and management of investments after marriage.
States laws vary, but in general, assets that are acquired prior to marriage are protected in the event of a divorce or separation. No one wants to think about the possibility of their marriage falling apart, but if you have significant assets to begin with, or you grow your accounts quite a bit while you are married, community property laws could play a role in your investment decisions. Again, it’s best to work with a qualified advisor and understand all of the potential outcomes before making any decisions.
Getting married involves many decisions, but none is as important as how you will manage your money. Have these conversations now, and you’ll be on track to the “richer” end of the “for richer or for poorer” part of your vows.