Welcome to EWA’s FinLyt podcast. EWA is a fee only RIA based at Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you.
And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time. Welcome everybody to this week on FinLit. We’re going to be discussing eight ways that finances can have a drastic effect on marriage.
And I think there is going to be several takeaways for our clients mostly within their marriage, making sure communication, different topics are being discussed. And then really for our clients, kids, they’re going to be married.
We’re going to go into detail about some considerations before you tie the knot. And then also, we’re going to just talk about the financial considerations as well about how a good marriage can really have a strong impact.
And now the most wealth is really created statistically in America for married couples. So look forward to getting into it. So Stephanie, why don’t you start us off with number one? Yeah, of course. So yeah, kind of going back to what you’re saying is that one of the number one stressors in a relationship can be finances.
And really kind of getting on solid footing from day one and continuing to have these meaningful conversations with your partner is absolutely essential to remove the stress and focus on the great things that you’re accomplishing together.
So one of the big topics is credit and debt. So I think starting out in a relationship, having an open dialogue around, do you have any type of debt? What does that look like? Is it revolving debt? Is it student loan debt?
Just making sure that your partner is aware of what you’re bringing into the relationship. And then also deciding how you’re going to tackle that as a team. Are you going to keep those things separate?
are you going to chip away at them together? That way there’s no surprises. Nobody wants to all of a sudden wake up and learn that their partner has $100 ,000 of credit card debt. That can be a really devastating thing on any relationship.
No question. Yeah, so credit, school loans, and then what’s the philosophy in place of how we’re going to attack these? Are we going to be on a forgiveness plan? Are we going to pay these off in 10 years?
What kind of sacrifices are we willing to make on lifestyle to get these paid off? All important transparent conversations that need to be have if you’re already in a relationship or before making it legally, before legally tying the knot, very important to get all the numbers on the table for sure.
Right, I think on the flip side of that too, is as you’re entering into that relationship or you’re already in this relationship, how do you deal with new debt when you buy a new home or you build a home, a line of credits for home improvements?
All of these things can be considerations. Do you open up joint credit cards to keep those things separately? While credit isn’t transferable, you know, when you get married, it can really impact your cash flow and that can have an impact on your, again, your lifestyle, your spending habits, and really how you’re feeling about, you know, the overall health of the financials of the relationship.
No question, no question. And there’s tips if one spouse has poor credit, a couple of tactics to improve that is the other spouse can simply add that spouse on as an authorized user on the credit card.
You don’t even need to give them the physical card, but then over time, that spouse starts getting credit for all the good history that the good spouse’s credit has and not the good spouse, but the good credit of the spouse has.
And so that’s just one easy, no cost way to help your spouse include, and, you know, really improve their credit over time. Yeah, that’s a great call, absolutely. I think to caveat on that is, you know, not only on the debt side, but what about the asset side?
And we always talk about to our clients about having a very significant cash reserve so that they’re not, you know, really dependent or watching the market go up and down. So let’s talk a little bit about like cash reserves and like emergency funds.
And, you know, when you merge finances or when you’re dealing with financials for two people or a family, the effects that that can have on the need for those cash reserves, typically that’s going to increase.
But sometimes someone come into the relationship with a very significant reserve. So perhaps the need for saving might decrease. Have you seen this in our practice? Yeah, no questions. A lot of times when we’re interviewing new clients, there’s just such drastically different beliefs around money and safety.
And obviously, you know, childhood and upbringing and parents and grandparents really shape who we are. So having a conversation and making sure that philosophically you’re on the same page with what’s our philosophy on carrying debt?
Like we said, number one, but then what’s our philosophy and how much cash we have as just a pure emergency fund? You know one spouse may think we don’t need anything we want everything to be invest in the other spouse may not sleep at night.
So this is really where a good financial advisor can come into play is not literally not coming in to put common sense on the table but really just being a mediator because these we’ve seen disagreements around very simple things of philosophy around that but also philosophy on just as simple as an emergency fund coming to play and just having an advisor understand the big picture long -term mid -term short -term goals and then just giving a recommendation that’s typically meeting in the middle between both spouses once it needs to just take the conversation off the table so instead of a cycle you know every night this being discussed at the dinner table which is something that can get discussed once a year with your advisor.
Right and I think that goes speaks really to the relationship and the trust factor of the advisor and the client is to really open up those conversations and allow both parties to speak and like you said to kind of I’d be the mediator and find that middle ground in a lot of these situations.
I figured, I think that’s really our role above and beyond like saying, you need six months of cash reserve. Let’s talk about what allows you to sleep at night and me to sleep at night so that we can get focus on the positives in that relationship.
No question. And that also goes for not only emergency fund, but for cash reserves as far as saving for purchases. I believe there’s enough information out there and people are smart enough, they could do it themselves.
But what happens is when you have two spouses and one is very into financial planning or very into numbers or investing and the other is not, the one that’s not is going to see you and your lifestyle and they’re going to compare it to all of your friends.
There’s a quote, I love a born and buffet, you become the average of the five people you’re surrounding yourself with. And so without the context of a financial plan or a mediator as a financial advisor, finances are almost guaranteed to be your number one stress in your marriage unless both spouses are always on the same page and highly educated finances.
Because one spouse is going to say, let’s stick to the plan, let’s do this. And the other spouses are going to come and say, well, Billy across the street is driving, they’re each driving a BMW, they have a similar income as us, they’re putting a pool in the backyard, you know, why can’t we all do this?
But most people don’t know that, you know, the median net worth at age 65 is like $300 ,000. So literally like the majority of the population is does not have a good financial plan, is not on track. And they’re going to lead to several disasters, you know, before they retire, when a recession hits.
So again, without education, without a mediator, and without really having proactive conversations and philosophically being on the same page, finances will recurringly be a huge stress in the relationship without these being practical we brought to the table.
Absolutely, I mean, I think it can breed really well. almost like a resentment attitude where if you have somebody who is very much ingrained in and in control of and watching the financials on a daily basis, if there isn’t good communication it comes across as you know person A just really wants to have control of the situation and person B you know is at the liberty of that person.
So those lines communication have to be open and that kind of segues into our third topic which is the need for like life insurance and estate planning. So you know unfortunately we all have a finite timeline in life we don’t really know when that’s gonna be.
So there are very differing attitudes as to you know how much life insurance that you need whether you need it or not. There’s some people believe that you don’t but what happens if one of your one of the partners passes away well before the you know anticipated lifespan and what effect does that have on the not only the short term but the very long -term goals that you hopefully set out together.
Yeah this may be the most uneducated part of financial plan that we see because you early on at my prior broker dealer, sat down with, I don’t know, thousands and thousands of different clients. And now we have a really strong niche of who we work with, but those were so important, a gaining perspective on just how people think and what people are informed of on, what people are misinformed.
So typically, most people won’t even consider risk management planning until a kid comes in the picture and then kind of a light bulb comes into play. So if you’re married and you don’t have kids, but you’re thinking about kids, this is all based upon age and health.
And generally we recommend a life acronym. So take care of liabilities, have income replacement for a certain amount of time. If you’re the breadwinner especially, have final expenses covered and then have educational costs covered for kids.
So if you’re a family of three kids, this is an easy formula to figure out how much life insurance do you need? You probably have some through work. Most people think that’s enough. Well, you’ll lose that if you, if you switch jobs.
So having life insurance outside of work and then having disability insurance, I mean, that’s your biggest asset is a huge thing as well. And then estate planning is huge as well because there’s, right now we’re gonna see the biggest generational wealth transfer ever in history in the US.
And a lot of that just can happen where some kids that don’t make anything literally are gonna have millions of dollars. They’re not gonna have enough to manage that. So we’re gonna see the big effect on that in years to come.
But having an estate plan, having trust, having accountability and having this conversation, it’s never too early to get those documents in place. I agree. But I highly recommend even before you have kids or after kids and have a conversation around, what do you want?
What if something happens and what do we wanna make sure covered? Because stuff does happen and when it does happen, it’s too late unless you have a plan in place before. And going back to hard conversations, this is probably the hardest conversation.
to have because nobody, it’s not a topic you relish. You don’t want to have a conversation with anybody about potentially something so negative happening in your life. So as an advisor, I think helping to mitigate that conversation is essential too.
Nobody wants to just wake up on a Saturday morning and start talking about this over coffee. So it just has to happen. And actually we have coming up on this podcast in a couple of weeks is our estate planning partner Dave Delphi Andrews.
I’m going to talk a lot about how estate planning and having will is for everybody. It’s not just for the ultra wealthy or someone with a million dollars a net worth. Everybody needs a basic will and everybody has the state needs.
So definitely stay tuned for that in a couple of weeks. But you talked about kids a couple of minutes ago, Matt. So I mean, this is by far the most life changing experience that you could have in a relationship outside of the marriage or partnership itself.
So let’s just dig right into this one because this is this is for all of us with things to talk about. So number one, kids are expensive. Right. We have increased costs with children. Increased stressors.
So what should couples really be talking about financially speaking before their first child’s born? So who’s going to take care of the kid? It honestly can be a full -time job. So just real quick, nerding out on some numbers.
Let’s say you have two spouses, both let’s just say, they’re family medicine doctors, and they’re each making like 250 gross income per year. No kids, single. So generally speaking, they’re probably each taking about 12 ,500 a month after it’s maxed out before it can’t after taxes.
So together, this couple is 25 ,000 a month. We’ll put two kids in the picture. And if they hire a full -time nanny, probably 4 ,000 a month is now out the door. Another 1 ,000 a month per kid and just random clothes, activities, stuff.
So 6 ,000 a month. So literally, we’re talking 20% of take -home income is now gone. And not even including if you choose a private school as well. So a lot of individuals who are of high earning potential, they offer a private education.
So we’re talking not only college planning, but we’re talking about primary school with secondary school planning too. So huge. No question. And then the other way is, oh, you could say one spouse cuts down the amount of work they do.
Well, now maybe you’re losing half of your income or if that spouse was a lower income earning spouse, that it’s going to be more expensive to hire a nanny or that spouse wants to spend more time with the kids.
Again, there’s going to be a drastic income reduction if you don’t plan or talk about this in advance. Or start saving really heavily before. So more important than saving a lot of money before your kids is just controlling your money temperature.
So 5 ,000 a month is going to be out the door with two kids. Start testing to see if that works. If you have the discipline to start saving that 5 ,000 a month, even if it’s just in savings, to make sure that you actually have a calibrated budget that can make that work.
Because when it comes time, if you have a kid that you’re not financially ready to, you know, there’s gonna be stress, and then there’s gonna be stress that then goes on to the kid, because they’re growing up in a household that is living paycheck to paycheck.
So there’s just effects, generally, that occur, unless a good financial plan and really proactive discussions have been had. Not only before, but after, and then really on an ongoing basis to make sure that alignment is there between spouses.
Right, and I think one of the big topics that people, they don’t talk about ahead of time, and they don’t really think through this because there’s a lot of emotion around, you know, I wanna take care of my child, I don’t wanna put my child in daycare, I wanna be present for all the first moments and so forth.
So, you know, waxing very emotional for a moment, there’s a tendency for one of the parents sometimes to want to stay home for a while. And that’s fantastic if you can make it work financially great.
But then there’s even an overarching thing that can happen, which is if you take five or six years off of work and you take that big gap in your career, does that have a really long -term effect on your earning potential?
Do you essentially have to start over when you decide to go back into the workforce? You lost six years of 401k contributions, most likely, and that compounding effective market growth over those six years.
So there’s a lot of long -term effects. You know, it’s a lifestyle decision. That itself is not the financial piece. It’s a lifestyle decision. Am I willing to save more later on, work a little harder, work maybe a few more years?
If I was thinking about retiring at 60, maybe that’s 65 now to make up for the fact that I stayed home for a couple years. Do I have to take more risk on to kind of make up for that? So lots to talk about in this that an advisor can really walk you through.
Can we ask you for your personal experience? Because you were extremely successful in the financial industry, then took years off, and then re -enter the career. So how hard was the transition out? How hard was the transition back in?
Do you feel like you were overlooked because of that gap on the end? Please just be honest with the audience, because my guess is yes. Luckily, we did not, because now you’re the all -star of EWA. But tell us about your experience leading out of your then successful career, and then how it was getting back in.
Right. So yeah, absolutely. This is something that I’m actually I love to talk about, because it has led me exactly to where I’m sitting right now with the two great kids that I have at home. So when my daughter was born, this was in 2010, I was really in a place where I was fortunate enough that we didn’t need the actual income to make ends meet.
So we kind of did this analysis and said, can we make this work? What is the cost of child care? We lived in Arizona, so we were near none of our family. So we didn’t have any assistance. It really was going to be like a 40 to 50 hour week in child care.
So the lifestyle decision was made that I would skip. go back for a little while, at least for the first year or so. And then we would make do financially as we were. Then we had a second child, and that usually happens too.
Most people have more than one. So then that one year turns into four or five years. And five years was my experience. At that point, both of my kids were in full -time school. So from the hours of 9 o ‘clock to 3 o ‘clock, they didn’t need me as much.
But it was a little bit of a difficult decision because I loved what I did. I worked for, actually, I want to work Custodian Schwab out in Arizona. Absolutely loved my job. But I just had that pull to want to take care of the kids.
Now, on the flip side, getting back into the workforce, it was the perfect time. But I did find it was difficult because when you leave a high -paying job fully licensed, and after two years, those licenses expired to retake these exams, it like the right fit.
What’s the income threshold I need to make now to make it worth all of the maneuvering that I had to do? Luckily, I did fall into a position with Northwestern Mutual. Our previous broker dealer was going to let me here.
But it’s hard because now I know that I had five years where I didn’t max a 401k. There were times where things were tighter. You have an emergency happen and that emergency fund dwindles and you have to really work a little bit harder to replenish that.
So I would say that having that conversation up front was huge and enabled us to really not have a lot of financial stress during those five years. But the consideration of going back to work, it’s hard.
You’re five years older. You’re competing with individuals of a different demographic, perhaps a different degree, perhaps women or men for that matter that haven’t taken that time off. So yeah, there’s a little bit of a, I think not a discrimination factor, but all things considered, why did this person take this off?
That’s time off. And I think it’s important for you to, when you’re applying for a position, be really open about it and just say, that code I just did, which was this is a lifestyle decision. I was fortunate enough to be able to take this time.
And now I’m ready to hit the ground running and then do it. So you have to put the proof, you know, where, or your mouth is, you need to actually then perform the job to the level that you’re, you know, you’re saying that you will.
So when you left the career, you were here. Do you feel like you were having to enter your career here? Or do you feel like you had to go backwards or we have to go forward? It’s like, how would you gauge that?
Yeah, I think I would say I came back in, and it was a different position, but at the same, basically the same earnings, um, in a different aspect of the industry. So I did need to make a shift. I was working in a compliance type role, a leadership role, um, working for a very large company that custodied with Charles Schwab.
Um, and then I came back into the field working specifically in the portfolio and financial planning aspect. And I was the director of financial planning for, um, a Northwestern mutual practice, um, which actually ended up being more.
my wheelhouse. So I was able to really get back to I think the aspect of my job that I really loved and embraced and made me feel you know good about what I was doing every day and then just build upon that to get where I am today.
So switch gears, income levels stayed the same, but I feel like had I not taken that time off where would I have been? So that’s something to think about. Well statistically I mean hopefully for a lot of men, women, or whoever would be deciding to take a step back.
Hopefully Stephanie’s story is helpful that you there’s probably a lot of head trash like oh my career is over. I’m never gonna it’s not. And so just having the right mindset and then you know statistically when you look at how much time you have with your kids like over your lifetime right 80 so they’ve done studies on this in America specifically 80% of the time you have with your kids is over by the time they reach AJT which makes sense because after 18 they’re in college then they go have a significant other maybe get married have there you’re not like you’re never gonna see them but it’s gonna be a lot less.
It’s less when they’re 12, I’ll tell you that much right now. Yeah, I think a good financial plan, like your money should be supporting your life by design. And I think there’s, it becomes so stressful where people get paralyzed where it’s like all these paradoxes come up and then they just don’t save anything.
But on the flip side, a lot of people don’t make those really hard decisions like dialing back to realize I want time with my kids. So to each their own, but hopefully that’s helpful information. I would highly encourage us to really make sure your financial plan is supporting your life by design.
And if your life by design is taking time off with your kids early on, then do it. Do it for sure. If your life by design is not and then working, don’t let anyone make you feel guilty or shameful about that.
Go and then spend time with your kids when they’re out of date, you’re out of school. Right, yeah, from an emotional perspective or psychology or whatnot, there’s no right or wrong to that. But I will say for a lot of our listeners or firm owners, they’re looking at resumes.
We talk a lot about the process of hiring and retaining employees. Kids are a great motivator. I am personally like my wife is like my husband and my kids. So I come to work every single day thinking like, what can I do today that’s gonna impact our firm, which is then going to correlate into me being able to give my family a better life.
So for if you’re a hiring person out there listening to this, don’t overlook that resume because that mom or that dad is gonna be really, really motivated to make things happen. Little food for thought.
I couldn’t say that more because the perspective is everything as well. And if you’ve been in and out of the workforce and you’re coming back in, it’s for a reason. So I would recommend any firm owners out there.
I know it’s not our onions, but go find your Stephanie. Okay, so for number five, so there’s legal considerations. If you’re in a current marriage or if you’re thinking about getting married or if you’re on your second marriage, life gets more complicated, I guess, as you progress through this situation.
So if you’re getting married, discussion around a prenuptial agreement. This is, we’ve seen this especially in the high net worth space, very, very important. If there’s one spouse that’s coming in with trust and lots of family money and then one spouse is coming in with a significant amount of less, this can put a lot of tension and we see a lot of times money can be used to control and no relationship’s ever gonna work out if there’s any feel of control, especially with money.
So just making sure you have those conversations upfront. I mean, statistically, like half of marriages do end. And so, not turning a blind eye and saying, oh, my family’s different, we never get divorced.
This does happen and when it happens, having the conversations and making sure assets are protected or making sure that you fully know what you’re going into without a prenup and if that happens, assets are gonna get split potentially 50 -50.
So our advice is, not to have one or not have one, just have proactive conversations around the legal ramifications of what a marriage means and then what potentially a marriage ending couldn’t tell from a financial perspective.
No, absolutely. Speak with, if you have a legal counsel that’s a trusted partner, that person’s a great resource for this to let you know what the potential ramifications could be should things go south.
We talked about having a will that’s really important again with estate planning. Also like how you’re titling of your accounts, people don’t think about that and making sure that your beneficiary arrangements are proper.
So that’s something that we can certainly help our clients with on that end, but working in conjunction with our attorney. Absolutely. Okay, and that also brings, if a marriage is ending, we’re gonna go through a podcast just on the effects of what a divorce would mean to your financial plan.
There is something called a post -nuptial agreement, not all states recognize this, but if you can have an amicable ending for the sake of benefiting your kids and have that agreement in place, we have seen that protect the financial plan which is ultimately protecting your kids.
Probably 10 to 100 times X over a very argumentative, competitive, contentious where two attorneys are the ones winning because they’re just billing each party’s time. So again, all of these are just really strong communication can get you through the worst of times.
And a good financial plan can also get you through a bad time, which a lot of these things are based upon relationship and I think the relationship can strengthen with good communication and they can also end properly with good communication as well.
Agreed, absolutely. Well, this is probably the biggest one, Stephanie. So the number six consideration here is just differences in spending and just different approach to money. So start us off here, what are some considerations that couples should have when there’s just purely different pages that they’re on?
Yeah, so this is around the… the buzzword of psychology of money and spending. So I think number one thing that can affect a relationship. And this is probably something that becomes evident very early on, but perhaps you ignore it in the earlier courting days of the relationship, is if you have a different attitude around spending.
Basically, what’s extravagant? What’s a need versus a want? What’s the range that you’re willing to spend? So I mean, for example, someone might think a Mercedes Benz is like a very average car. And the other person might think, well, no, this Subaru is a very average car.
So just the idea of what is a large expense versus a smaller expense, which is something that’s extravagant versus something that’s very basic. And that, again, make be evident early on in your relationship, just from habits and possessions and your attitude around expenditures early on.
But that can really become an issue once you merge those finances. And one person’s outspending the other significantly. And this person might build up again that resentment to that person for spending 80% of the budgeted pieces.
We actually talk a lot about budget with our clients. And maybe you can touch on this. I know we have an entire video of sort on it, but reverse budgeting, creating a budget, and how important that is.
And honestly, though, one person might be full on on that. And the other person might not really want to follow that budget. I think we’ve encountered that before. Yeah, so here’s typically what happens.
So we work with a lot of doctors, and they’ll go from making $50 ,000 in residency, fellowship, and then suddenly making $1 .5 million, since they’re specialized. Sometimes even $1 million. The neurosurgeons are oncologists out there.
Or really productive surgeons as well. So when this happens, typically when you’re at a high -income running job, you or your spouse, you just kind of adjust into what’s called a money temperature. And before you know it, 3 ,000 a month of net take -home goes to 25 ,000 a month of net take -home.
Before you know it, all the money is still being spent. And we’ve seen this countless times. So my best analogy here is that money is like a… So let me just step back. I had a coach years ago, I was trying to get into a morning routine where I woke up at 5 .30 AM every single day.
And I just wasn’t doing it. I was hitting snooze. And so by the time it was like three snoozes in, 6 AM, I couldn’t work out, because at that time, I had to be in my office by like 7 .30. Couldn’t work out, didn’t eat breakfast, then do all these things I wanted to do.
And so what she told me to do is she said, Matt, program it then before curings were out, or before I could afford a curing. Take your coffee pot, program it for 5 .35 AM, five minutes after your first alarm.
Take the coffee pot the night before and take it off though. So if five minutes, your alarm clock goes off at 5 .30. If you don’t make it downstairs, then put the coffee pot back on, the coffee’s gonna start going, and it’s gonna spill everywhere.
So that was one decision. decision I had to make that calibrated my entire day, that eliminated thousands of decisions because everything then was in line and I was on time for everything. So treat money the same way, because if you don’t have that coffee pot, that accountability, your money will control you versus you controlling it.
And so how we set the coffee pot up from a financial perspective is having very proactive, one -time conversations around the budget and then doing what’s called reverse budgeting. So having everything that’s fixed, stuff that you have to spend, student loans, mortgages, car payments, all the money you wanna save for education cost for your kids or for retirement in the future, have those automated.
Because when everything comes to one account, you feel rich and you justify all the expenses, but if you separate it where you put all of your, what you have to spend and all of your savings on track automatically, that leaves you with what’s left.
And that we recommend to send into a separate account. Whereas for your Amazon purchases, you’re swiping, you’re dining out, you’re traveling, you’re vacations. And now instead of having a tracking spreadsheet, which is the biggest waste of time ever in financial planning history, and then you’re gonna argue, why did you spend that, why did you spend that?
It eliminates all of that. Now you have one account where you’re meant to be spent account. And you adjust into that temperature. And as a spouse, now you have the one conversation of how do we wanna spend that money because everything else is already accounted for.
And it’s not up for discussion because we’ve agreed, this is the house we live in, this is when we’re gonna retire, this is what we’re gonna do for education. And so having that coffee pot up will fix any, or it’ll be a sign of a rush, it’s not gonna work, but it should fix any relationships strain from a financial planning management if the two spouse are willing to have that one conversation and set boundaries in place and make sure that where there’s alignment and the philosophy of what’s important, which then backs into what’s meant to be spent.
Right, and it removes, I think, any guilt over spending. And that brings me to talking a little bit about spending versus saving is, there might be somebody in the relationship that feels guilty about spending, and then there’s someone that likes to spend.
So I think in my experience, a lot of that attitude comes from very far back in life, like from childhood and upbringing and the economic situations that you were brought up in. And so when having these conversations with clients, it’s important to try to understand where did they come from?
What was life like for them when they were eight years old, 10 years old, and when you become aware of money, which unfortunately is much earlier now than we think, eight -year -olds have allowances and so forth.
But really, I think in the teenage years, when you start starting to want to have spending money to go do things, was the attitude in your household, yes, here’s $50 or no, you gotta do chores and earn this, or was it just flat out, no, we don’t have it.
So those things can really color the long -term attitudes that people have about spending. about their current situation as earning adults and going into a relationship potentially with someone with a completely different upbringing than they had.
So again, I think this is where we bridge those discussions and talk about, okay, why do you feel this way about, why do you feel you need to have this much in the bank and why do you feel like this isn’t enough or this is enough, where did that come from?
Going way back to the first thought and starting to connect those things from early on. No question, couldn’t agree more. And the most I’ll point out, having the privilege of working with many, many clients, the best relationships that I’ve seen that I strive, they disagree, but they disagree very well.
They disagree respectfully, they listen to each other. And there’s not like there’s some, oh, I won, we’re doing it this way. Sometimes there is no solution, but they hear each other. And then we have a financial plan that kind of just, again, that one decision removes that discussion, that cycle that just keeps happening on the dinner table every night.
But a good couple, you should disagree because, you’re each human beings, but disagreeing well and having a financial plan that supports that can be of utmost importance. Love it, absolutely. All right, so let’s move on to everybody’s favorite topic, taxes, which we obviously all have to pay them.
But there are different ways of paying taxes when you’re in a marriage or partnership, whether you’re filing married jointly, filing married separately. So let’s talk a little bit about the differences.
And we do have some videos on this as well. Yeah, no for sure. Just by the way, like single people get penalized heavily for being single in America. So like just as an example, if you’re a neurosurgeon making a million bucks and you’re married, and let’s just say a stay at home spouse, versus if you’re just a neurosurgeon that’s not married, the neurosurgeon is not married.
I did the calculation and federal tax are gonna pay over $30 ,000 more in federal tax. The same income, it’s just one’s married and one’s not. So there is a big financial benefit to being married. That’s not why you should get married, but from a tax standpoint.
And statistically they’ve done studies that happy couples accumulate on average more net worth. Married, happily married couples have, I wanna say it’s like over two times the amount of wealth, each then a single person.
So there’s something to be said about a good marriage and a financial plan, there’s nothing better. Crazy statistic. So taxes. There’s the option if you’re married to marry jointly. This would be usually the most beneficial from just a purely tax perspective.
The other option would be to file separately, not as punitive as being a single person, two single people and then comparing that to a married couple, the same incomes. But the reason you’d file separately is because of a prenuptial agreement, say it states though, or if there’s not, if you don’t want.
If you want there to be privacy between incomes, that would be one reason to file separately. If you’re on your second marriage, this is quite common. And then the other reason would be around student loans.
So a lot of student loans, there’s forgiveness plans that are based on incomes. If you have one person with a lower income and a high school loan, and you have another spouse that doesn’t have school loans with a high income, you kind of want to keep that spouse away from your school loans.
And the way you do that, if you’re married, is you file taxes separately and then choose an income -based replan, such as pay as you earn or income -based repayment. That is just a sniper shot, just based upon your income.
Which we’ve analyzed can sometimes be hundreds of thousands of dollars of savings of what gets forgiven in that student loan balance. So this is something you want to work with a good financial advisor that’s able to do those calculations for you on what the student loan payment would be versus the taxes saved and then figure out what’s best for your situation.
Right. Well, let’s talk about one more thing on taxes and it kind of goes back to the beginning, which is what. around life insurance and estate planning and getting a will. And what happens, unfortunately, if one spouse who dies much earlier than the other is people don’t think about that if you are married filing jointly, and your spouse passes away, what happens to you from a tax standpoint?
And it’s really impactful because you go from filing, married filing jointly, to going back to smiling singly. So that’s a huge hit in terms of income. So if you have $10 ,000 of income in retirement, and it’s being taxed, married filing jointly, and then all of a sudden that becomes taxed on a single bracket, that’s a big difference.
So you may not need as much to live off of, but you’re now paying more in taxes. So working through that and making sure that you have different tax buckets to pull from, I think, is part of the advisory process that we go through in setting people up with options.
No question. We call that the widow penalty because, again, that neurosurgeon example of the million and million, that’s a $30 ,000 plus hit. That can also happen more commonly for someone that’s happily married in retirement, once spouse passes.
So again, the importance of going back to our Roth episode, we talk about this in great detail, but the important of having money that’s tax -free in retirement is to avoid that tax bracket arbitrage that the government just takes over.
And what was getting taxed at $20 ,000 to $24 ,000, and now the government’s taxing at $32 ,000. Literally no difference in your net worth, no difference in income, it’s just you’re a single person. And nobody talks about that, so I’m glad we brought that up.
Brings us to our last topic, which is this, I think, ties really back to what we do as a firm, which is, when you’re early on, you’re setting goals for yourself. I want to pay off my student loans. I want to buy a house.
I want to go on a great trip. Then you get into a partnership or a marriage, and then you start setting goals jointly. So it’s a very big mindset shift of having that single mindset goal to talk to you about it as a spouse or as a family.
So what have you encountered in terms of the changes that happen in goal setting when someone goes from being a single person to being in that relationship or with having that family? Everything changes.
Yeah, everything changes. It becomes from me to we. And then when you have kids, it’s all about the kids, typically. And just realizing that identity shift. And that can be addressed just through having a really good question asker.
And hopefully your financial advisors are really good question asker because you don’t know if you don’t know. And it’s a huge life change getting married and having kids. And so your plan typically completely changes.
Right. And I mean, I think the biggest things, our retirement expenses, now we’re talking like times two. We have two people to consider. If we have kids, we’re talking about education, we’re talking about expenses now.
So funding goals now and later. Talking about major purchases. You have three kids, maybe need a new house because they don’t all fit anymore. It doesn’t make sense. Or you wanna put them in a better school district.
These are all like goals that come up. And then looking way down the line, let’s talk about like legs. How important is it to leave a legacy aside for your kids? So that might not have even been a consideration outside of setting up a beneficiary or saying, gosh, if something happened to me and my assets to go to my favorite charity, everything changes from start to finish.
So I think these are the things I feel like we’re the most grateful for is being able to be the trusted advisor where we have these conversations with our clients and help them navigate the switch and that they have the trust in us to guide them.
Absolutely. Well, thanks for tuning in. We’re going to be doing a follow up episode. The marriage can be one of the most impactful things ever in your life and making sure it’s a strong, happy marriage is important to raise strong kids.
And also there’s many financial benefits, but there’s also finances can take away and can potentially could end your marriage. So hopefully these are great tips and considerations to improve communication.
Make sure you’re working with a good advisor to keep your marriage strong or a marriage you’re entering in strong from the get go. And for those less fortunate that are going to be ending a marriage or in the process I already have, we’re going to do a follow up podcast on what are the ramifications of divorce, what to expect and how to best plan for it.
So look forward to catching you next week. Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible.
So hit the follow button, make sure to rate the podcast and please share with any friends or family members that would also find this beneficial. Thank you very much.