A Financial Planning Checklist for Couples in 5 Steps

Whether one partner has significantly more wealth than the other or it’s relatively comparable, I encourage all of my pre-marriage clients to put agreements in place with their partner as soon as possible. Communicating and planning now – before your union – can save significant time, money and distress down the line.

There are five steps I recommend couples take prior to marriage or registering a domestic partnership:

1. Catalog each person’s assets, liabilities and debts.

Take thorough inventory of what each partner will be bringing into an upcoming marriage – not just their assets, but also liabilities and debts. Common examples of each are listed below.

Assets:

• • Individual property, investments, and income 
  • An anticipated family trust or future inheritance
  • Expected equity awards for company stockholders if the company sells or goes public

Liabilities:

• • Spousal support owed to a former spouse
  • Child support for children from a previous relationship
  • Agreements or court-orders earmarking specific assets for said children
  • Required life insurance minimums

Debts:

• • Credit card debt
  • Student loan debt

2. Outline your priorities as a couple and as individuals.

Your major life goals will help guide your financial planning process and how each partner can best contribute, based on their assets, liabilities and debts. Below are some key categories to think through.

Big Purchases: Will you be paying for an upcoming wedding or purchasing a house together? You might set up a joint bank account you can each contribute to, in different or equal amounts.

Family Planning: Do you hope to start a family? You can set up an education savings plan now that allows for immediate contributions and growth, even prior to becoming parents.

Health Care: Do you both have jobs with benefits? Review each company’s insurance offerings to pick the most favorable plan. You might also consider preparing advance directives.¹

Career Risks: Are you or your partner planning to found a startup or go to grad school? Discuss how you can emotionally and financially support each other through a period of lowered income. 

3. Decide what to combine and keep separate.

Once you have taken inventory and reviewed your goals, you are in a strong position to determine which assets make sense to keep separate and which to combine (AKA commingle²). In nine U.S. states, including California, most assets acquired during a marriage are labeled as community property³ and divided equally upon divorce. I generally advise my clients to keep their pre-marital earnings separate to ensure a portion of their assets are secured just for them since marital earnings are by default shared. 

It’s harder to prepare for the unknown, but try to account for assets that may be received later on. Let’s say you have a strong investment portfolio, hold stock in your company, or founded a startup. There could be big returns ahead. What happens if you started your business before you were married and then it sells or IPOs during the marriage? Or you received an equity award before you were married and it vests during your marriage? It is common to draft an agreement that designates a business (or stock portfolio or equity award) as a non-marital property, to protect the business or other asset in the instance of divorce.

There are other measures you can take, too, to protect your ownership and reduce legal ambiguity. In the early stages of founding a company, draw a paycheck if possible. Not paying yourself can jeopardize your ownership claim and leave you vulnerable to an ex-spouse stating that community property was used to support the business. If your spouse works at the business, even in a minor capacity, pay them market rates; otherwise, they could argue for a percentage of the company’s value given their contribution.

4. Embrace the prenup

The word “prenup” tends to make people bristle, but it’s important to remember that prenuptial agreements are just that – agreements. They don’t go into effect without both parties agreeing to their terms. 

And prenups are not only about settling finances during divorce; they can also stipulate each person’s financial roles and responsibilities during the marriage. I have a client with a large inheritance marrying someone with a much smaller net worth. They drafted a prenup to delineate the breakdown of financial contributions to household expenses and other purchases based on a ratio they determined was commensurate with their respective net worths.

When spouses do divorce, it is emotionally difficult enough without also being embroiled in a long, convoluted and expensive legal battle. It is advisable to put in the work upfront to create a thoughtful prenup, designed with love and the intention of preserving each partner’s well-being and dignity. This will set you up for a much quicker and more civil divorce process, should that time come. This applies to other areas of adversity, too. You could find yourself in the position of making medical decisions on behalf of your spouse and guessing as to what they would want because it was never documented. Initiating these conversations with your significant other now is an indication that you care about your future and theirs. 

The bottom line is, when dealing with any tough life event, the last thing you want is an unnecessary pile-on of additional burdens, stresses and legal complications. Creating mutual agreements now means that whatever happens – divorce, a health crisis, unforeseen debt – the paperwork has already been taken care of and the process can unfold much more seamlessly.

5. Speak With an Experienced Financial Advisor

A successful financial plan that truly suits your unique partnership and family begins with strong communication. Speak with a financial advisor who can serve as neutral ground and help you and your partner navigate these sensitive conversations and the main considerations for your particular circumstances and priorities. Unfortunately, this is not a “set it and forget it” process. With state laws and taxes constantly changing, it’s that much more important to work with an expert who follows and understands the implications of those changes and can help your plan weather them effectively. 

Diving into these issues head on has actually had a really positive, empowering effect on many of my clients. It sometimes even appears to bring couples closer together. While you may feel inclined to push it off, remember that these conversations don’t have to be unpleasant, but avoiding them likely will be.

¹ Advance Directive: A legal document that explains how you want medical decisions about you to be made if you cannot make the decisions yourself. An advance directive lets your health care team and loved ones know what kind of health care you want, or who you want to make decisions for you when you can’t. An advance directive can help you think ahead of time about what kind of care you want.

² Commingling: When one spouse’s separate property is mixed with the couple’s community property during the marriage. This typically occurs when marital funds are used to improve, maintain, contribute, or pay off a separate property.

³ Community Property: California is one of nine community property states, meaning that a marriage or registration of domestic partnership makes two people one legal “community.” Any property or debt acquired by one person during the marriage or partnership is seen as belonging to the community, and not the individual that accrued it.

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