Financial Perspectives: Planning for newly married couples

Getting married can be the most exciting time in someone’s life.  Thinking about personal financial issues during this time is not often high on the list of priorities, but it should be at least on the totem pole.

The merging of two lives from a financial standpoint can be complex, and should be discussed before the couple gets married.  This is an even more complex discussion for couples getting married for the second time, especially if children are involved.

Some of the most basic decisions revolve around budgeting.  Who will be responsible for paying the household bills?  Will the couple have separate bank accounts or one joint account?  Does the couple have the same approach to money . . . is one person a saver and another a spender, and have they discussed how they will manage this once they are married? 

Hopefully, these issues will surface early in the relationship, but it is common for couples to have serious disagreements about these things shortly after getting married.

If the couple is buying a house, it will be imperative for the purchase of life insurance that would be sufficient to pay off the mortgage and replace lost income in the event of a premature death.  If the couple has children, additional consideration should be given for their future care and educational costs.

In terms of applying for a mortgage, I counsel folks to get pre-approved, if at all possible.  This will allow them to understand how much they will be able to afford, and may help them negotiate a better deal for their property since pre-approval can speed up the settlement process.

A young newly married couple who is buying a house should give consideration to the potential for children and whether or not one spouse will stay at home, or work part-time to help care for the children.  Many people make the mistake of buying a home based on their combined salaries, rather than a single salary or a single plus a part-time salary.  This mistake can lead to a potential foreclosure down the road — or at a minimum — does not allow the couple the opportunity to save money for their retirement or the children’s future college costs.

At the same time, couples should buy a home that they can grow into.  Some couples purchase condos or small townhouses that really cannot accommodate a growing family.

It used to be that couples could look to upgrade their home and make a profit from their original home after only a few years.  With the devastating impact that the housing sector has felt over the past two years, couples should not take this approach, as they could suffer a loss on the sale of the original home.  This may mean buying a home a little farther away from work, or in a second-choice area, to help ensure that the size is adequate.

Other planning opportunities revolve around estate planning, namely the appointment of beneficiaries on retirement accounts and life insurance policies.  Couples should make sure to update these immediately before or after the wedding.  For second marriages, this is of the utmost importance as their have been many documented cases of first spouses collecting on their ex-spouse’s death benefits even though the person had married someone else.

Second marriages involving children have another layer of complexity and could require the need for trusts or other instruments.  The other area of estate planning involves the completion of wills, powers of attorney and living wills.  A common misconception is that you need to be old to think about these things.  The probability of premature death may be low for a young married couple, but the probability of suffering a disability is higher and could require the need for someone to make financial and/or health care decisions for you, which is where the power of attorney comes into play.  Utilizing attorneys who specialize in estate planning is strongly encouraged even for situations that do not seem complex.

Establishing a relationship with a financial planner early in the process can assist married couples in navigating potential headaches (and arguments) they could face in doing their planning.  The financial planner can act as the quarterback of the team of professionals that could be utilized to help construct the plan.  Such an engagement should be looked upon as an investment rather than an expense.

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here. Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 jim@familywealthservices.net 215-332-4968