Getting married

When you get married you automatically enter into a legally binding financial contract with your husband or wife. This contract is dictated by state law. This contract consists of benefits, rights and obligations.

Employment benefits

• Obtaining insurance benefits through a spouse's employer.

• Taking family leave to care for your spouse during illness.

• Receiving wages, worker's compensation and retirement benefits for a deceased spouse.

• Taking bereavement leave if your spouse or one of your spouse's close relatives dies.

Medical Benefits

• Visiting your spouse in a hospital intensive care unit or during restricted visiting hours.

• Making medical decisions for your spouse if he or she becomes incapacitated.

Tax benefits

• Filing joint income tax returns with the IRS and your state.

• Ability to create a family partnership.

Estate planning benefits

• Inheriting a share of your spouse's estate.

• Receiving an exemption from both estate and gift taxes for all the property you give or leave to your spouse.

• Creating life estate trusts that are restricted to married couples.

• Obtaining priority if a conservator needs to be appointed to your spouse.

• Receiving social security, Medicare and disability benefits for spouses.

• Receiving veterans and military benefits for spouses.

• Receiving public assistance benefits.

Family benefits

• Filing for step-parent or joint adoption.

• Receiving equitable division or property if you divorce.

• Receiving spousal or child support, child custody, and visitation if you divorce.

Consumer benefits

• Receiving family rates for health, homeowners, auto and other types of insurance.

Pre-nuptial agreements

A pre-nuptial agreement (pre-nup) is a written contract created by two people before they are married. Usually, a pre-nup lists all the property each person owns, as well as debts, and specifies what each person's property rights will be after marriage.

Couples with or without children, wealthy or not, may want to clarify their financial rights and responsibilities during marriage. Pre-nups can also be used to protect spouses from each other's debts.

What you can do with a pre-nup?

• Keep finances separate. Each state has its own laws which designate marital or community property, even if those assets are held in the name of one spouse. When a couple divorces or one spouse dies, the property will be divided according to state law. A pre-nup will avoid having some or all of your accumulations during marriage automatically divided up according to state law.

• Protect each other from debts. If one of you brings debts into the marriage, creditors can sometimes turn to marital or community property to satisfy the debts of just one spouse. Pre-nups can limit liability.

• Provide for children of previous marriages. A pre-nup is essential if either of you have children coming into this marriage and you want to make sure your children inherit their share of property.

• Keep property in the family. If your family includes something you want to keep in your birth family such as an heirloom or family business, you can specify that item in your pre-nup. This can include an expected future inheritance. (In this case, it's also important to be consistent here and in your estate planning documents.)

• Define who gets what if you divorce.

• Clarify responsibilities during marriage. This includes items such as whether to file joint or individual tax returns, who will pay household bills, agreements about specific purchases such as a house or business, handling credit card charges, and how to settle future disagreements.

What you can't do with a pre-nup.

You can't do anything illegal or against state-defined policy. Also, a pre-nup only addresses financial matters. Personal matters are better addressed outside of the pre-nup, since courts cannot enforce this.

Who needs a pre-nup?

If you don't make a pre-nuptial agreement, your state laws determine who owns property. States differ on their laws, but in general, without a pre-nup, a spouse usually has a right to:

• A share of ownership of everything acquired during the marriage,

• Incur debts during the marriage that the other spouse may have to pay for, and

• Share the management and control or marital or community property including the right to sell it or give it away.

We discussed the advantages above, but there are a few downsides:

• Pre-nups are not romantic.

• The timing may not be right.

• State's laws may work well in your situation.

Making a valid pre-nup

Courts review pre-nups carefully. It's important that your pre-nup be clear, understandable and legally sound. Even if you draft it yourself, it's wise to have separate lawyers representing each of you review it to ensure it will stand up in court and that it is fair to each of you.

Pre-nups often involve giving up rights. Make sure you know what rights you are giving up.

Basic marriage planning

You are both entering into a financial contract by getting married.

Since your spouse will automatically inherit your assets (except those with other beneficiaries), let him or her know what you have! (This seems obvious, but we've seen too many cases where one spouse is in the dark about what the other one owns.)

Once you are married, review every document which has a beneficiary. Remember, if you've named a beneficiary it will go to that person without being probated. This means that if you took out life insurance and didn't know who to leave it to so you named your father, your father will get the life insurance proceeds if you die not your spouse, even after you marry. Make sure your beneficiaries on your 401k, other retirement plans, annuities, and life insurance are who you want. Update your will.

Consider taking out personal life insurance on each of you, especially if one spouse is dependent on the other or one of you feels unstable in a job with a group life insurance plan.

Handling expenses

When couples decide to make a commitment to each other, they have to come up with some way to handle expenses. Some common arrangements include:

      Share and share alike: Many couples have only one checking account. They both deposit their paychecks into it and pay all household bills out of it.

      Split 50-50: Some couples prefer this method. When one partner buys something for the house or pays a bill, he writes his name on the receipt and throws it into a jar. Every few months, they empty out the receipt jar and total up how much each has spent. One then writes the other a check to even things up.

      Each contributes in proportion to her income. This works especially well for people with large income discrepancies.

Whichever method you choose, arrive at this decision together and make sure you are communicating about how it's working as you go on.

We have worked with couples who married and gone "50/50". Usually, couples with this agreement never talk about money. This situation is defensible and "fair", but after a while, it can also cause bitterness and separation. Obviously, the person who earns or has more comes out "ahead" and the person who earns less contributes a larger portion of his or her income to household expenses.

We have also worked with couples who share and share alike who are bitter about how their partner spends money.

The bottom line is that whichever method for handling expenses you choose, you want to insure its really working for you and supporting your commitment to each other. We recommend that you discuss your expense set-up every so often to see if it still applies to your financial situation and supports your intimacy with each other.

Barbara Bachelder, CFP® for Wealth by Design, LLC