Ep # 66: Bringing Two Financial Lives Together

Benjamin Haas | Feb 8, 2022

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Benjamin Haas 00:03

Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts....now! Hey, Adam. How are you?

Adam Werner 00:30

I'm doing great. How about you?

Benjamin Haas 00:34

I am ready for the weekend.

Adam Werner 00:36

I was just going to say the same thing. Yeah, it feels like it's been a long week and for people listening, I know we've shared we often target Fridays to do our recording. So yeah, this is almost like a reward to end the week and why we do these podcasts.

Benjamin Haas 00:55

And why we're usually in a very upbeat mood when things because yeah, it is a great way to kind of cap off the week. So yeah, thanks for joining us yet again if you are not a first-time listener, and if you are a first-time listener, welcome. Yeah, you got a whole back catalogue to get caught up on. There we go, so topic today.

Adam Werner 01:17

Topic today.

Benjamin Haas 01:18

Maybe I'll let you maybe start with it but the concept here is, I think very common for us to be put in the spot where we're doing planning and somebody goes through some sort of life transition. Whether it's a new marriage, a second marriage, whether it's just partnership. There are often a lot of questions that go along with, we'll say, kind of bringing two financial lives together. So let's hit on some of the things that people should be thinking about or we would say we want them to be aware of in that situation.

Adam Werner 01:53

Yeah, I think it's becoming more and more common not only for younger people, I think, to delay that foray into marriage and relationship and kicking that can down the road. I think the statistics do show that is happening later and later in life and with that being a catalyst, it's not uncommon now for people to be very established with their own individual finances. Now trying you know, bring those together in a clean and efficient manner, it just, it raises different issues. On the flip side, I think where we see this the most for our clientele, are those older clients that are either coming from previous relationships, and are now either again, getting remarried for a second time or maybe avoiding that whole side of the marriage and then just going through life as partners. They're essentially married for all intents and purposes except for in the eyes of the state of Pennsylvania. Which again, just creates different issues and different hurdles to have to overcome when it comes to financial planning.

Benjamin Haas 03:05

Yes, so I think the first thing that I would want to talk about then is kind of just to recognize that the formality of that is kind of important because when we're bringing two financial lives together, you and I are going to talk about some of those different things, it really does boil back down to what is documented, how is it documented, and making sure that people are aware of those things because there certainly are defaults to how things go when you're married. Then there are certainly ways that you may look at well, there's this should be a default because we're clearly in a relationship where domestic partners work, however you define it. If the state doesn't look at it that way, those defaults may not apply so just to be clear, it's documentation.

Adam Werner 03:48

Yeah, and I'll say too, I think people may know this about me in particular at this point but you technically, not technically, you more often than not are the optimist and not necessarily the pessimist but I do see things often, as you know, the glass is half empty, not half full. But I think a lot of financial planning is viewed through that lens of what can go wrong in this situation and then let's try to plan for it. Well, number one I guess, let's be thoughtful about it and then if we can plan for it, let's do that. Yes, this to me is no different. It is I guess, the side of it that feels a little odd, you don't want to go into that relationship or you know, merging finances and think, well, what if this doesn't work out? That's not the most uplifting way to view it. As you know, our role as planners is to think of contingencies and kind of look at things through that potentially negative light and let's just make sure that if something negative happens, same for us viewing life insurance, if something negative happens, let's just make sure there are things in place, you can implement if needed.

Benjamin Haas 05:03

So then let's sandwich method this podcast. Let me be the optimist, start with the upbeat. Here are the things to focus on first. We'll throw all that negativity into the middle and then we'll end it positive so that people don't leave this podcast going, man, Adam Werner is really a Debbie Downer. So let's start with like any financial plan and I'll use the example that you brought up where it's later in life, we're talking about two people that have established financial lives. Which means they probably have a system for how they do things, they had goals, they had objectives, or they have habits that have gotten them to where they are and now somebody else is going to be joining that fray. I think, like any financial planning process, we really just want people to be able to communicate what their goals are and what they are both aligned to. What each of them is going to be responsible for and recognize how those things may change, whether that's where they're saving, how they're saving, how taxes are filed, it can be any one of these things, but we really are trying to make sure that this financial life is now viewed as one, even if the resources are coming from two different spots.

Adam Werner 06:25

Yeah, so a recent scenario, and I know she is a listener. So hi, you know who you are when I say this. The just flipping the switch. I mean, so in your example, right, it was older people coming together, I guess I shouldn't call them older, I feel terrible.

Benjamin Haas 06:43

That wasn't very kind.

Adam Werner 06:43

They're pre-retirees but there's different ways to even kind of approach that situation, it can purely be, right the individual silos, what I earn, what I spend, it is complete division of finances and I think through our planning process and through a lot of conversation, we got to the point where that was how they approach things. They got to the point, we've been together so long, we really do view everything as a as a combined unit and then there was just that switch in approach certainly leads to different conversations, just again, based on how they view their finances now. They are still separate but combined, if that makes any sense whatsoever.

Benjamin Haas 07:34

It does and I'll use them as the example where when it came to bigger picture questions like, when can I retire and what will I tap into? It really was this, well, your resources may not be the most efficient to use in this situation right away when his may have been? So are we okay to talk about that and are we okay to support each other in that way? And that's what we mean by goal orientation. Make sure you're on the same page and even if, by account title and ownership, things are separate, are they supporting the same goals? And that's the stuff we'd want to bring to the table here and I'll use the word efficiencies again. Just to help people be efficient about the way they're doing it.

Adam Werner 08:18

Yes, that's a great point. Thank you for sharing that. I think the other side of that for this client in particular, but I think for many, and again, we're using this unmarried partnership as the example. You hit on it earlier, too. When it comes to the estate planning side of things, the defaults will not work. Right, the defaults when it comes to estate planning and if someone passes away, it is bloodline. It is direct family. So being very thoughtful about if something happened to me, where would I want my assets and property to go and more often than not, I think we see, it's to support the surviving partner. But then if there are other family members, you want that money to possibly come back to your side of the family when the other surviving partner passes. There's just a lot of contingencies, I think that just need to be built into that process. Again, it's not necessarily a fun conversation but at the end of the day, it is planning. It's what do you want to see happen if XYZ event occurs? And making sure that you have it properly documented and structured so that what you would like to see happen actually happens in real life.

Benjamin Haas 09:43

Maybe I'll use that as a little bit of a segue to similar conversation for people that may be getting married for the first time and I'll use the example of wanting to be married. So bring the human side to the financial side. There's absolutely a check list of one that occurs and these two financial lives come together. Yes, some of those defaults may now apply but it's still on you to go through that checklist of making sure beneficiaries are updated. Making sure you now have a joint cash reserve, making sure you understand how to file your taxes together, making sure that the family savings models are working on both sides. There is that checklist to if you're getting married for the first time bringing these financial lives together. Just because you're married doesn't mean these defaults mean, you don't have to do any work. There still is

Adam Werner 10:32

That's fair.

Benjamin Haas 10:32

There still is the work to document those things.

Adam Werner 10:35

Yeah, good point. Yes.

Benjamin Haas 10:38

So what if things don't work out?

Adam Werner 10:43

So this is where I get to be Debbie Downer? No, I get to - I have to.

Benjamin Haas 10:50

Yeah, but let's put it in a more positive camp have, like you said, let's prepare for certain situations that could occur because if we prepare properly, then hopefully, what could be a negative is not something that is realized.

Adam Werner 11:07

Perfect, thank you. So yes, it is the idea of a pre-nuptial agreement and I will share in full disclosure, I do not have one. I don't know have you, Ben, had one with Desiree? Yeah, I didn't think so. I don't know how common it is but when it does come to planning, especially if you're thinking of through this lens of established financial lives, whether that is a younger person or that is older people coming together later in life. It can often be viewed through that uncomfortable kind of light of it's almost insulting, right, to bring it up. But again, through the planning lens, it is preparing for the worst and I think certainly in life nowadays it is, I don't know what the statistics are anymore. It used to be half of marriages, and then divorce. Yeah, the other half end in death. So it really sorry, that was a bad joke. But I think a lot of people have firsthand experience, whether it's themselves, friends, or family around them. So it is fairly common I think where that may come into play or I guess the benefits that would come out of establishing a prenuptial agreement is not only protects your assets, right, that you come to the marriage with. If there are specific family heirlooms or family property or specific assets that you would want to keep in your side of the family, that certainly gets built into it. But I think it works in the reverse as well. If there is, again, I'm now thinking younger clients that are graduating college and may have larger amounts of student loans, graduate debt, things of that nature, that you wouldn't necessarily, if you're the other spouse and you go through a divorce, you wouldn't want to necessarily assume someone else's debt. Again, that can all be factored into that agreement. Again, it's just looking through that if something were to go wrong and this relationship does not work out, what would we want to see happen from the financial and asset and debt side of things?

Benjamin Haas 11:19

Nope. Yeah, I think, as uncomfortable as it may sound, it's just an important conversation and maybe it's not between you and the person you're marrying, maybe it's coming from outside sources, the family. If there's a family business or I think he said family property, oh, I think about that, you know, these large acre farms around here that now somebody marries into the family. When you get divorced, the first thing the divorce lawyer is going to do is say, well, what are the marital assets that we are splitting up here? And the whole point of a prenuptial agreement is not to have this uncomfortable conversation of saying when this doesn't work out, now, here's what's going to happen. I think it's just takes some of the uncomfortable things and just gets a document put in place. Who knows, it gets put in place to protect everyone, not just you and a potential spouse and I do also think about it going back to the estate planning side of things. When you are bringing two financial lives together, oftentimes that is just for the two of you, but let's say you had kids from a prior marriage, prior relationships, and now they're in the middle of this too. If it is to make sure that things are supporting each other but then once there's not that portion to that person to support, that it comes back to your own bloodlines, these are the reasons to have these types of documents.

Adam Werner 14:52

Yeah. Any anything else then on that front? Like we had one other example.

Benjamin Haas 15:00

What if things don't work out? I know we focused on prenuptial agreement. When you're bringing two financial lives together and you're responsible for each other, that is the insurance conversation. Your assets and what you bring to that relationship, the income that you bring, if that is truly supporting somebody else, then you need to have a conversation on what of that is insured. Either through life, disability, long term care, whatever any of those things are. It's not to say that everyone has to go and transfer that risk but it has to be a conversation on how things would be handled.

Adam Werner 15:31

So that is a perfect segue because it does lead to the next example that I think we wanted to go through which is buying property or buying a house if you are not married. We see this, again, not only with older clients that may not want to get married at that point, but we see it with younger clients too. In this housing market, it's theoretically easier to go buy a house or maybe it's not easier, right? They disappear very fast nowadays. They may not be married yet but want to put down some roots and establish a home and a lot of what you just said, thinking of what can go wrong. If there is, it's very rare, for these relationships to be complete 50/50 splits. They earn the same, they have the same assets, like everything is just split right down the middle, piece of cake. You have a roommate. It doesn't work that way. Odds are in your previous kind of example there may be someone that either is responsible for the majority of the income. We want to be thoughtful to that. So yeah, if it's not a complete split down the middle, you just again, want to be thoughtful for how are we going to effectively buy a piece of property together, where the financial considerations may not be exactly equal and you hit on the insurance side of things. Maybe there needs to be some sort of life insurance that goes along with that purchase process. Again, thinking of worst-case scenarios. God forbid, the main income earner that is responsible for the majority of either the down payment or making the mortgage payments, prematurely passes away. How is that going to affect now the partner that is left or the spouse that is left and may not have that insurance in a lot of cases to make it work.

Benjamin Haas 17:33

Yeah, or, again, maybe this is staying in Debbie Downer world if that relationship doesn't work out this. This can often be a difficult thing to unwind because, think about the human side of this. One of you is going to move out so now one person's responsible for these bills and if that mortgage or the property was bought together, thinking from a bank standpoint, there are two incomes, there are two sets of assets supporting this. You may not be able to even stay in that property. You may not be able to refinance that into your own individual name. There are so many different things and I realized that this podcast is not giving a lot of advice. It's more giving you a lot of what ifs to think about but it really is important that you think about some of those contingencies. Again, we think about documentation being the best way to go. Here's what we decided together so that when things go awry, we can look back to this and go, here's what we agreed to and it was to protect everyone. So uncomfortable conversation but buying a property with somebody that you're not married to is, it's just bringing some complication so be very thoughtful.

Adam Werner 18:47

Yeah, and I don't know if this necessarily applies but it does feel like as uncomfortable as some of these conversations can be. I'm guessing it's way more uncomfortable to have those conversations through attorneys in the event that it goes wrong and now you're communicating through attorneys, and we don't want to bad mouth attorneys. But more often than not, if you're having communications in that way, they're going to come with some bills, legal fees, to have those conversations.

Benjamin Haas 19:19

So yeah, as uncomfortable as it is, nobody wins in that situation.

Adam Werner 19:24

Right.

Benjamin Haas 19:26

Yeah, so this is where like the positivity.

Adam Werner 19:35

How do we wrap that up in a positive light?

Benjamin Haas 19:39

The human side of it, we think that goal orientation and people having good habits, the whole point of partnership is that joys can be doubled. The hard parts of life can, you know, be cut in half, right, because you are sharing in those burdens. So, it is meant to be a wonderful thing that we're bringing two financial lives together. We just hope we've highlighted today that there's just a checklist. Let's go through this checklist of things that would need to kind of be done and documented to make sure that these two lives coming together have every bit of opportunity to be on the right footing in the right direction, where even if something does go a little awry, it was already kind of prepared for.

Adam Werner 20:25

Yep. Yeah, it's in my head. It's almost like a type of insurance. It's not a physical product insurance wise, but it is a type of thing that if you have these conversations, you do the documentation, set that aside, put it in a box. It's like insurance in that you have that peace of mind that you have it if you need it, but if you don't need it, that's great, too.

Benjamin Haas 20:50

Yep. Way to wrap it up.

Adam Werner 20:50

Better to have it and not need it than to need it and not have it.

Benjamin Haas 20:57

Amen. All right.

Adam Werner 21:01

Thank you.

Benjamin Haas 21:02

Financial Planning in a nutshell. Have a wonderful weekend and we'll see you, I dunno. Probably same bad time, same bad place next week.

Adam Werner 21:14

Seven days from now. Yep.

Benjamin Haas 21:16

All right. Thank you, everybody.

Adam Werner 21:18

Bye.

Benjamin Haas 21:22

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor

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Ep # 66: Bringing Two Financial Lives Together