The Real Talk You Need About Your Finances Before Getting Married
The new year is upon us, and like a lot of couples, you might have improving your finances on your list of 2016 resolutions. Maybe you’re mulling a decision on getting legally married, or it’s time to get spending under control.
To see what’s on the minds of his LGBT clients, The Advocate spoke with Michael Nutt, who is managing director of the private client group at Wells Fargo Advisors. He’s based in the Los Angeles area, with a Beverly Hills office, but maintains an office in New York as well. “Sort of like my life, my clients are very diverse,” Nutt says, noting that both his business partners are straight and married with children, and that they serve small-business owners, foundations, nonprofits, and even some Oscar winners. About a quarter of his clients are LGBT.
Nutt didn’t seek out LGBT clients, he says: “It’s a part of who I am.” And for some people, that’s important. “I’d say the bulk of my LGBT clients prefer having someone that’s LGBT managing their relationships, because I think they feel a little bit more comfortable when you’re talking about money and planning.”
What follows is an edited transcript of the conversation.
The Advocate: Do you hear from couples who are worried that maybe it’s financially unwise to get married?
Michael Nutt: No, no one is really concerned about that. It’s all positive. But just because there’s marriage equality now, people don’t need to rush out and do it.
It’s a process that, even if you’ve been together for 10, 15, 20-plus years, you want to make sure that, even with long-term committed relationships, you’re doing it for the right reason.
With marriage equality now, you don’t have to necessarily jump through a lot of extra hoops. Now, if you wanted to leave everything to your significant other, it automatically goes to them without having to pay any federal taxes on that money. Whereas before, if you’re very wealthy, there were other certain hoops that you had to jump through and do more extensive estate and financial planning to avoid having to pay a lot of these taxes.
If you are a couple who went through the process of making sure you had that taken care of, and then you get married, should you still go back and redo your will?
I think it’s always important when you have a major event in your life to go back and look at the estate planning that you’ve done and the financial planning that you’ve done. Could be marriage, could be switching jobs, if you decided to have children, you got a large inheritance, or something like that. It’s always good to review your estate planning and your wills with major life changes. Also, every several years, it’s good just to review them in general. Relationships change. Things change on a constant basis. You want to make sure that all of that stuff is properly updated. One thing that I do with my clients is we do their financial and estate planning on an annualized basis, just to make sure that everything is up to date.
What about separate accounts? What kinds of things should couples be thinking about if they want to maintain separate expenses?
That’s a great question. I think couples in general a lot of times will spend more time on planning the wedding than they do actually talking about and looking at their financial goals and financial future. It’s one thing that needs to be addressed. Do we keep everything separate? Do we want to combine things? Or maybe do we just have one joint account where we’re going to be paying the bills out of, and we both deposit funds into that, and that money goes out on a monthly basis?
It really depends on what each individual brings to the relationship. If one person comes in with a tremendous amount of wealth, then one thing you may want to consider is doing a pre-nup. Because, let’s hope you’re going to be married and be a couple forever, but things come into play, and things don’t necessarily work out for everyone.
If you don’t have a pre-nup, what exactly are you signing up for in a divorce?
Well, in the event of a divorce, if there is no pre-nup, and depending on what state you live in, because some states like California are community property states, the person will automatically get 50 percent of everything.
And then spousal support might become an issue?
Yes, spousal support might become an issue. If you’re married for a very short period of time, courts tend not to favor. But if you’ve been married for several years, and one spouse quit a job to be the stay-at-home person taking care of things, then yes, spousal support comes into play.
If you get married, are you automatically on the hook for each other’s personal debts?
No, not at all. That typically is kept separate. Let’s say someone had debt, that’s been married for a year or two, then that debt stays with that other individual. Now, if it’s debt that is taken on together — or you had a joint credit card and that other person racked up the debt but it’s still in your name — then absolutely, you’re going to be liable for that.
Maybe you had one spouse who had a really good credit score and the other spouse didn’t have such a good credit score — I know some couples that would then use the person with a really good credit score to apply for everything: loans and credit and furniture applications and such. Are you now always going to be considered together as a couple with one credit score? How does that work?
No, it’s still two separate credit scores. Let’s say you’re buying a home together or a car, and you know, one person doesn’t have good credit, then a lot of times, yes, you may just want to apply for credit in that one individual’s name.
How does it work when filing federal and state-level taxes? I know some folks would try to put deductions all under one partner. Now, if you’re a married couple, are you filing everything jointly?
There are several different ways that you can file. You can file jointly, which if you’re married, typically that’s what you do — and then it doesn’t matter; all the deductions are clumped together and it may be a benefit or it may not be a benefit in terms of filing jointly. Because we’re not allowed to give tax advice with clients, we would bring in their tax adviser to look at the best scenario in terms of filing for the clients. I think a lot of couples that are getting married are finding that they may end up paying a little bit more taxes.
We’ve talked about combining budgets, dealing with debt, pre-nups. Anything else couples should be thinking about if they’re getting married?
Do we want to have children? If we want to have children, which way do we want to go about doing it? Do we want to do it through adoption, foster care, surrogacy? A lot of those questions really need to be answered.
Because they come with very different price tags, that’s for sure.
Yes, exactly, with surrogacy being the most expensive. Adoption being the second most expensive, and certainly fostering a child possibly to adoption would be the more economical way about wanting to have and raise a family.
Has a couple ever asked you to mediate a financial disagreement?
A lot of times I’ll ask them to put a list together. For some of these tougher questions, like a pre-nup, things of that nature, I will include those on the list. Then a lot of times they’ll have some good questions, but they’re not really covering everything that they need to cover. So I will definitely bring up a lot of the questions that they need to be asking themselves before they decide to get married.
How do you advise people on their everyday budgets? Like how to set a good budget and save for their financial goals?
When you’re doing a financial plan for a client, you want to ask them to put together what their current budget is and sort of try to keep a record on that. It’s amazing how a lot of people have no idea what they actually spend money on. A lot of times, I’ll say, “For a couple of weeks, I want you to write down every single thing that you spend money on — whether you go to Starbucks three times a day and get a coffee, you know, write all these things down.” People are like, “Wow, I didn’t realize we were spending, you know, $50 a week at Starbucks. So I don’t really need to be doing that.”
I would say that you probably find in a couple, maybe one is more of the saver and one is more of the spender. Or you know, one is a little bit more free with the money, and one might be a little more…
Yeah, that seems to happen a lot, where someone will want to know everything down to the penny what’s going on, and other people are just like “Oh, whatever,” type of thing. That’s what sort of makes couples great, because they all have different personalities and come from all different aspects of life. Some people really care about planning for their financial future and doing that, and others are just like, “Oh, I’ll just wing it,” type of thing. It’s like, “Wait a minute, you really can’t wing it. We really need to have some set goals here that you’re looking to achieve in the short term and in the long term.”
I don’t know if you’re in a couple, but I imagine you’re the saver.
Yes. You know, it’s interesting. People spend a lot of time on planning a really amazing vacation, but then when it comes time for planning their financial future, they just don’t want to do it or they don’t think about it. It’s so important to do.
You know, that’s what life is all about, setting goals and trying to achieve those goals. You really need a road map and a path to get you to where you want to be. Otherwise you’re going to be lost in the forest somewhere, and then all of a sudden, you know something happens and you’re like, “Oh my, I didn’t plan for this — what am I going to do now?”