Major life events often trigger important questions about money and can significantly impact long-term financial goals. OJM Group has launched our “Money Milestones” content series as a guide for individuals and families to navigate essential decisions arising from some of life’s most meaningful moments.
For many people, getting married is one of life’s highlights. This lifelong commitment is a huge milestone. Of course, you begin with countless hours preparing for the big day, hoping that everything goes smoothly… only to realize that nothing in life is perfect!
Once the wedding day is a memory and the reality of married life takes hold, money can become a source of tension. Financial issues, in fact, are one of the most common reasons why a marriage doesn’t last. It’s important to have financial discussions early on, in order to avoid potential conflicts down the road. Raymond Hull put it best when he said, “All marriages are happy. It’s the living together afterward that causes all the trouble.”
Fast forward past the honeymoon phase and you’re suddenly overwhelmed with the many moving parts. Do you change your last name? Do you open a joint bank account? If not, who pays for what? Do you update your estate planning documents, including wills and powers of attorney? What is the budgeting process? How much insurance do each of you need? Who pays the bills? How do you approach and handle debt? How will you save for your future?
In this installment of Money Milestones, we wanted to briefly review the steps needed to change your legal last name. The process isn’t simple, since you will have to interact with a multitude of organizations. (Fortunately, in our technological world, there now are companies that can help!) In addition to the actual process of changing your last name, it will also take time for others to get used to your new name.
As an example, my wife, who works in a middle school setting, changed her last name from Kraft to Braunscheidel upon our marriage. Can you imagine the look on her kids faces when she showed up after summer with that behemoth of a last name?! (Most of the students have opted to simply call her “Mrs. B!”)
My wife had a laundry list of items to complete before making this name change official and legal. Here is a list of the many places you will need to update your new legal last name:
- Social Security Administration
- Department of Motor Vehicles (DMV)
- Payroll through your employer
- Credit Card Companies / Financial Institutions
- Insurance (Auto, Health, Disability)
- Voter Registration
- Doctor and Dentist
Unfortunately, updating a wife’s (or husband’s) last name is just one of the many steps to be considered by a newly married couple. Here is a list compiled by Charles Schwab to help with your planning:
- Discuss how integrated you want your finances to be. Decide on roles and responsibilities and research the rules in your state concerning community property. Discuss whether a prenuptial agreement is right for you.
- Develop a financial plan you can both live with. Take inventory of all your assets, debts, investments, and sources of income and how they factor into your financial plans. Identify your goals for the future, such as buying a home, starting a family, and retiring comfortably.
- Review your investment portfolios and retirement savings plans considering your shared future. Decide if you will combine your investment accounts or keep separate accounts and decide how much you will invest as a couple. Also, this is a good time to set up regular, automatic contributions to an investment account.
- Consider your income-tax-filing choices. Have a tax professional assess whether to file taxes jointly or separately. Update your W-4 forms with your employer (employee withholding allowance form) and adjust your tax withholding if need be.
- Determine your insurance needs now and again in the future if you have children. Make sure you’re not duplicating coverage with your life, health, or disability insurance.
- Review and update files for all personal accounts and property. Update beneficiaries for your IRAs, 401(k) plans, and life insurance policies. Update your name on the titles of all property you own. For separately titled accounts, consider a payable-on-death arrangement to name a beneficiary on your bank account, or a transfer-on-death arrangement to name a beneficiary for your stocks, bonds, and mutual funds.
- Consider updating your estate plan, wills, and trusts to include your spouse.
From the list above, one of the more important items to consider is your tax filing choices. This is especially true for younger couples with student loans. Here is a brief example from my personal situation to help illustrate why it may not always make sense to file taxes jointly:
Initially, my wife and I chose to file taxes married-filing-jointly. What we failed to realize is that her student loan payment, which was based on an income-based replacement model, would almost triple upon doing so. After our first year of marriage, my wife’s student loan payment went from $225 per month to $625 per month. (This was because the student loan provider now considered my income into the equation.) Given the recent tax law changes, it now makes more sense for us to file taxes separately. The difference in taxes owed was much less than the additional $4,800 in annual student loan payments. (This only works for us because she is in a public-school environment and that specific type of loan will be forgiven after ten years of service.)
Another crucial step for us was the purchase of life insurance. We wanted to obtain enough life insurance to cover any debts in the event of my death. This meant getting enough coverage to pay off our home mortgage, pay off my wife’s student loans, and to provide some additional income for her. This provides me with some peace of mind since I know that she will be taken care of if I were to pass away.
Building a solid financial foundation should be a high-priority goal for every married couple. We hope that the recommendations outlined in this article offer some important direction for couples to consider both before and after this important milestone.