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The Tale of Two Accounts, Til Death Do Us Part

Melissa Gerhardt, CFP®, CEPA®, ChFC® | December 11, 2020

More than ever couples are choosing to keep their finances separate.  There are many reasons people choose to do this and it is okay – IF communicating about finances is still a joint conversation.

So why do couples choose to keep money separate? Common reasons are:

  • Second marriages or getting married later in life
  • Dual income households
  • Debt, often student debt
  • Inheritances
  • Settlements
  • Businesses
  • Spender vs Saver mentality
  • Or simply, disagreements about money

One of the biggest objections I hear during the planning process is that couples do not want to merge accounts. While planning together does NOT mean merging accounts, talking about marital finances is pivotal to maximizing income and minimizing expenses that both parties share.

A few of the benefits to planning together include:

  • Maximizing employee benefits
  • Savings can grow exponentially
  • Minimizing debt and interest payments
  • Social security coordination
  • Pensions utilization

Depending on where the couple is in their professional careers greatly impacts the decisions that need to be considered. I break this down into three stages, so let’s review them.

EARLY CAREER

Many people coming out of college have student loan debt as well as credit card debt but also desire to purchase a home.  By communicating and planning together you can pay this debt off faster with less of your income going to interest payments.  If there is an imbalance in debt amounts, conversations should be had around expectations from both spouses. One strategy is refinancing a home or doing a HELOC to wrap high interest debt into the home with a lower interest rate.

A lesson learned…One of the biggest mistakes I have encountered was a couple in their 30’s who were getting ready to build a home who did not merge – nor talk about – their assets. They were married for 10 years and already had a home together. When the down payment was needed, they decided to split the amount and contribute equally. One spouse pulled it from savings, while the other pulled their half from retirement accounts, causing a ripple effect of taxes and penalties!  The irony in this? The first spouse had plenty of cash to cover the whole amount.  These significant financial implications could have been avoided. This was not a case of intentional hiding money, rather a lack of communication.

MID-CAREER

Strategies used for couples in their 40s to 60s are all about maximizing savings through employer or business owner plans. This can range from comparing health insurance options to jointly contributing to a Health Savings Account (HSA) if it’s a plan option.  

Better coverage secured + SAVINGS… I recently had a couple investigate this option. one spouse is self-employed and had a Healthshare account that did not cover pre-existing conditions. The other spouse had a part-time job WITH health benefits. The company offered an HSA plan with up to a $1300 annual match for employee + spouse coverage. They will save them nearly $600/month out of pocket AND bank $2600 into their HSA tax-free for future use.

Can you match that… Another one of my favorite strategies for this life stage is to see what options are available for company match with a Roth 401(k).  It is very powerful when a couple can fill up both the pre- and post-tax buckets for retirement savings. Coordinating retirement plans with the use of Pre-Tax 401(k), Roth 401(K) and with business owner SEP plans can result in enhanced savings and tax reductions.  

LATE CAREER / RETIREMENT

When to start social security and how to take a pension are ONCE-in-a-lifetime decisions. This can MAKE or BREAK a retirement – literally.  By discussing their picture of ideal retirement, spouses can appropriately plan the timing and maximize these benefits.

Social security… For instance, I often recommend the spouse with the lower social security payment start as soon as it makes sense, while having the higher-earning spouse delay taking their payment as long as possible. This allows them to leverage time and capture the greatest potential social security check payment.  This will allow the couple to enjoy the one income while the other income payment continues to grow. 

Company or Military Pensions… Pensions come with many options, too. Some plans may offer higher pension payments if no beneficiary is declared. On the surface this might seem like a smart money move. Unfortunately, what was not factored in was an unexpected death, which now means no pension payment to the surviving spouse at all.

NEXT STEPS

Beyond the couple’s career stages, thoughtful consideration also needs to be given to the overall health of both spouses, family longevity, other income sources and life insurance.  ALL of this requires OPEN communication.

Here are a few Ideas for healthy communication for couples who have separate finances:

  1. Have a plan together including goals, assets, liabilities income and expenses
  2. Revisit the plan a few times a year
  3. If needed, seek help from an outside party to open the lines of communication

Ready to merge? Try these baby step to begin blending finances:

  1. Joint account for household expenses where each spouse contributes to it
  2. Joint savings account to fund travel or a big purchase
  3. Place TOD designations on separate accounts. TOD means Transfer On Death; and no, a bank account in your spouse name does not automatically transfer to the spouse

Remember planning together does NOT have to mean merging accounts. It is okay for couples to keep money separate, IF there is open and continuous dialogue about money.

Don’t let “death do us part” devastate your loved one’s financial future. Love them enough to plan for it.

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Melissa is an Advisor with Legacy Planning Partners providing comprehensive financial planning and financial services to business owners and individuals. Alongside the team of advisors and staff in the Lehigh Valley, she is committed to providing her clients with professional service and assistance in securing their financial future. Melissa provides guidance in the areas of business family succession planning, financial strategies, retirement solutions, insurance solutions, investment management, estate planning, and education funding for children.

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