Every couple decides for themselves whether to treat finances as “our money” or “my money.”
For some couples, they prefer to manage their money independently. Maybe they got married later in life. Maybe it’s a second marriage. Regardless of the reason, each partner prefers to manage their finances. If both are on board, that’s perfectly fine.
While managing individual budgets may seemingly make life feel easier, financial planning is a different conversation. Here are a few of the situations where we encourage clients to consider a combined picture when making big-picture decisions, including personal ones.
A Complete Retirement Plan
Retirement planning is the first major area in which we encourage a combined approach. I’ll use a familiar example. Couples may each make contributions to their mortgage while keeping their finances separate. They know what it costs, and they’ve agreed on how to make it happen.
Retirement planning is a much bigger conversation. Many couples who manage their money separately haven’t identified a shared retirement goal. As a result, they may be relying on their automatic contributions and delaying a more thorough conversation.
You don’t have to integrate your personal budgets or even accounts, but a conversation about goals, earning ability, and savings rate can be invaluable to a successful retirement plan.
Your Estate Plan
Estate planning is a priority when assets are held separately, and this is even more so for those who have remarried. We want to be attentive to how assets are held, titled, and designated so your wishes are carried out should you pass away.
For those who manage their finances separately, we encourage healthy conversations about what assets you’d like to leave with your spouse and what you’d like to ensure goes to your kids.
We’ve seen circumstances where widows or widowers were caught off guard by outdated estate plans or planning where they were not included. Being diligent to review your plan, discussing it with your family, and having it properly implemented create better outcomes and fewer surprises.
Joint Tax Advantages
In many cases, even though day to day finances are treated separately, their tax return is still most likely joint. There are potential tax savings that can be considered when you open planning discussions together that you might not see managing your money separately.
One example comes to mind for me. In a recent conversation with a couple that manages their money separately, the higher-income spouse had maxed out their tax-advantaged vehicles. Their spouse, however, had not maximized their contribution to their employer plan. We maxed out that spouse’s retirement plan contribution resulting in thousands in tax savings, but we wouldn’t have seen that without a complete picture.
Our Money? Settle For Our Plan
This is to say that you can still manage your day-to-day finances independently, but we highly encourage overlap when it comes to your financial plan. There are advantages available when we have the complete picture in front of us.
If you want to create a financial plan for your retirement years, we are here to help you open the conversation with your spouse. Let’s make a plan and a life you love.