Protecting your financial plan means preparing for the unexpected – together.
Love and marriage – and finances.
A milestone event, marriage represents the blending of two separate lives into one. From deciding where to live as a married couple and whose furniture makes the cut for the shared home to whether or not children will eventually be part of the family’s future, there are countless decisions couples make throughout their relationship.
If you and your spouse (or future spouse) are like most couples, your financial planning and saving is likely geared towards exciting future goals like vacations, buying a home, college for your (future) kids or buying a home. When the topic of managing risk comes up, it's likely to be in the context of choosing the right path and banking and investment products to reach those goals.
But life can be unpredictable and unplanned expenses can pop up, potentially threatening the financial security of those milestone plans.
“One item that I have found to help clients manage their financial risk is creating a miscellaneous expense category in their plan,” says Amy Rohde, Regions Private Wealth Management wealth advisor in Southwest Florida. “This allows for that built-in emergency fund that can be used when life throws you a curveball.”
This could be anything from a major home repair project to an unexpected health situation in the family – or worse.
Asking the tough questions:
- What would happen if one or both spouses lost their jobs, became disabled or passed away?
- How would you manage if you became responsible for the care or financial support of a family member – an elderly parent or a child with disabilities?
- If your marriage doesn’t stand the test of time, would you both emerge financially intact?
And while these are emotional and often unpleasant questions, talking them through can help you build a stronger, more resilient financial plan, Rohde says.
Funding the unexpected
A miscellaneous expense category takes into consideration existing funds and earmarking them for unexpected expenses.
Rohde shares the example of a client that was always worried about paying for items that were breaking in their home because they were concerned about running out of money or spending too much on necessities.
“When I sat down with them to put a financial plan in place and added the miscellaneous expense, the wife shared that she could finally sleep at night and felt much better about their money and their financial picture,” shares Rohde. The couple had not received a plan in the past that showed them they would be okay even if they had to spend extra for unexpected needs.
“This is what I love about working with clients like this wonderful couple, being able to give them peace of mind to enjoy retirement,” says Rohde.
"You can't avoid unexpected events, but you can mitigate their impact," Rohde explains. Having emergency savings to cover three to six months of living expenses is a start, but couples need to think bigger, she notes.
"If you haven't saved sufficient resources to weather something like a lengthy health crisis or the death of a spouse—and some people might never feel comfortable that they have enough—then disability, long-term-care and life insurance policies can help cover that risk," says Rohde.
There are a number of potential financial risks in today’s busy world. Serving on a board, running a home-based business or renting out your vacation home all present risk exposure, and all are reasons you might consider revisiting your insurance needs with your Wealth Advisor to identify areas of exposure that you may not have considered.
Tackling transitions
Business owners and couples with complex estate plans can be particularly vulnerable to gaps in exposure. Without proper guidance, for instance, the illness or death of an entrepreneur can send a company—along with his or her family's financial well-being—into free fall. A thoughtfully crafted, well-documented succession plan, however, could help safeguard the futures of both the business you've worked for years to build, and your family members.
"Your succession plan may involve a buy-sell agreement with a business partner or a plan to transfer equity to family members working in the company," says Rohde, who helps business owners navigate succession and wealth-planning issues alongside partners in the Commercial Bank. Ask yourself: If something were to happen to you, could your spouse count on a guaranteed income stream from your business?
Many times, clients, especially business owners, don’t take the time to implement planning.
“There was something I heard recently that I thought put it into perspective for clients very well,” says Rohde. “Most people will spend a lot of hours and money planning a vacation with their families or loved ones. They go on the vacation, and everything that they planned for is done in a week, the money is gone, and normal life resumes. However, if you took two hours of your day twice a year to plan for you and your family’s future, it would pay dividends for not only you, but also your loved ones for many years.”
Taking the time to plan for your future, whether it is the sale of a business or just simply retirement, can be crucial to a successful transition.
Open communication
Understanding one another's financial situations and intentions, including debts and obligations, is important in a marriage. For example, in a second marriage, your spouse may be planning to cover college tuition for children from a previous relationship, or you may intend to financially support an aging parent. "The biggest risk we see with couples starting new lives together is a lack of transparency about personal finances," Rohde notes.
Also, couples often have different goals. Rohde likes the idea of both clients talking about their specific goals and discussing how best to merge them in order for all parties to be content with the planning.
“It is important that both spouses are on the same page and each spouse feels like they have a say,” notes Rohde. “If we only know part of the puzzle, it makes it difficult to put the entire picture together.“
