In Episode 3, I talk about the relationship between money and marriage. When couples get married, they expect that their marriage will be a romantic and spiritual partnership, and for many couples, a parenting partnership. But one thing couples often overlook is that marriage is also an economic partnership. How can you achieve financial harmony with your spouse and use that synergy to build financial independence? I share stories from my own marriage as well as wisdom learned from working with couples as a financial planner.
“Married couples net worth increased 4% annually on average just for being married, when all of the factors stayed the same.
That's what I call the marriage dividend - the effect of teamwork and harmony on making financial decisions together.” -Cynthia Meyer
What you'll get from Episode 3 of the Real Life Planning video podcast:
“It's certainly natural for partners to gravitate towards the tasks that they do best. However, that shouldn't stop you from developing a shared financial vision and a process for making decisions that incorporates the perspectives of each spouse.”– Cynthia Meyer
“Developing a shared vision for our economic partnership required commitment to the process and a willingness to really listen deeply to each other and to learn from each other and appreciate each other's differences.” – Cynthia Meyer
“The right spouse is going to multiply your efforts through good money management and the wrong spouse could send you on a never-ending financial tailspin.” - Cynthia Meyer
“Figuring out how you do money is something that changes over time. It's going to change when your life changes, as you go through different seasons as a couple.” – Cynthia Meyer
“Who you choose as your life partner can have a phenomenally great influence on your life.” – Cynthia Meyer
“Your marriage is also an economic partnership. You want to put some time and effort to work on that side of the relationship with mutual commitment and flexibility and adaptation, you will realize the dividends that come from the power of we.” – Cynthia Meyer
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About the Real Life Planning Podcast
Host Cynthia Meyer sits down with amazing people who share their real life stories of how they are realizing their financial potential.
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Real Life Planning Podcast Episode 3: Marriage and Money
[00:00:09] Cynthia Meyer: Hello friends. Welcome to the Real Life Planning Podcast. Today, I want to talk a little bit about money and marriage. My husband and I recently celebrated our 20th wedding anniversary and I've been reflecting a lot on how beneficial our relationship has been to my life in ways that were both expected and unexpected.
A few years ago I wrote about this in a column for Forbes and I was re-reading that column and thinking, "A lot of this really does apply." So I wanted to talk about this today. So I really hope you enjoy it. And if you have some ideas about what you'd like me to talk about in the podcast, please let me know.
As I said, Steve and I recently celebrated our 20th wedding anniversary.
[00:00:55] Cynthia Meyer: For those of you who have kids, things happen. It turned out to be a rocky day at school for one of our kids. We spent the day dealing with that instead of celebrating the anniversary. I had taken the day off, we had planned to do some things together and it turned out slightly different than the way that I had expected. But it also did emphasize to me that having a life partner can really pay dividends. Who you choose as your life partner can have a phenomenally great influence on your life. So a lot of attention has been paid about, "Oh, don't pick the wrong person." But I say, picking the right person can really be wonderful.
So when couples get married, they expect that their marriage will be a romantic and a spiritual partnership, a parenting partnership, and happily that has been true for us. But one thing couples often overlook is that marriage is also an economic partnership. And so after 20 years together my marriage with my husband, Steve, has taught me more than a few lessons about money.
And I gotta say, as a financial planner, working with lots and lots of couples, most of whom are married. Some of whom are not, but happily together for the long term. How you do money, is how you do marriage. Financial decision-making is a metaphor for the way that you approach marriage. Is there balance in the relationship? Is there a balance of power and opportunity and responsibility? Does one person make all the financial decisions or do you share your financial decisions and responsibilities?
[00:02:28] Cynthia Meyer: It's certainly natural for partners to gravitate towards the tasks that they do best. However, that shouldn't stop you from developing a shared financial vision and a process for making decisions that incorporates the perspectives of each spouse. I think that financial harmony is critically important. What I mean by that is that everybody agrees about how you're going to make financial decisions in the relationship. So how each couple makes decisions may be different in terms of who does what. But it's important that you do that harmoniously. You agree as a couple about how you're going to approach this.
So research shows that having frequent arguments about money is an indicator of divorce. The top predictor. Financial discord can really blow up a marriage and working on the money in your marriage, if it's a source of conflict, can bring you together. So I've seen over time, as I've been a financial planner since 1997 and I've seen that the financial planning process, that process of looking at all your life goals together with your plan expressing numbers, that process of working with a neutral third party, a financial planner, can really help people get on the same page. To be singing from the same song sheet about their money stuff.
[00:03:48] Cynthia Meyer: For Steve and me, our economic partnerships started off with full financial disclosure and that helped build trust and accountability. When we got engaged, I had never been married before Steve had been married before and been divorced for about five years. We told each other everything.
I was still paying off the last of my student loans and I had a few debts that I was almost at the end of, from when I had been self-employed when I had a political business. I was saving very aggressively in my 401k, my employee benefits at Merrill Lynch, where I worked at the time. I have even given up my car so that I could pay down debt and save more money because I had really wanted to buy a house at that point. Steve was a divorced dad of my step-daughter and he was juggling a really demanding professional career with the needs of parenting and juggling custody with his ex. He made really good financial decisions since his twenties. He came out of the gate when he graduated from the University of California at Berkeley, and he made one good decision after another. Whereas I was a little bit further behind. I was a little bit further behind in the savings. I had a good-paying career earlier and then I switched into another field and I was rebuilding. But I had declared my own financial independence and I was actively working on developing and practicing really solid financial habits.
[00:05:13] Cynthia Meyer: We spent some time early in our relationship figuring out our spending goals. How we were going to manage expenses? How we were each going to contribute to the family budget? And the parameters that we were going to use for making financial decisions. And later on, we went through the financial planning process together.
He's a financial professional, he was an actuary. I was a financial professional, but we still went through that process together. And it was so illuminating. First, we found that we were on the same page about most of our major goals. When we were going to travel and we were going to try to have kids and where are we going to live?
That process brought us closer together on key issues including when we might consider retiring and when we would prioritize other goals. Developing a shared vision for our economic partnership required commitment to the process and a willingness to really listen deeply to each other and to learn from each other and appreciate each other's differences.
My friend, Tania Brown, who is also a CFP, and we worked together - she said that it takes commitment from both spouses to be financially successful together. You gotta get on the same page with money. And if you can't, Tania says, "Get counseling." and I agree with her. One of the other things that Tania and I have been talking about is you got to choose your spouse wisely. Because as she said, "Your spouse is the greatest economic engine to your financial future." So the right spouse is going to multiply your efforts through good money management and the wrong spouse could send you on a never-ending financial tailspin.
When Tania and I both worked at the employee financial wellness company, Financial Finesse, our CEO, Liz Davidson, wrote a really excellent book called, What your Financial Advisor Isn't Telling You. In it, she wrote a chapter about how picking the wrong person can be your financial worst enemy.
[00:07:02] Cynthia Meyer: There is a power of we. When there is a "we" and "us" in the relationship, when the couple experiences financial harmony, there's a tremendous synergy that can result. For one thing, two people live more cheaply than one, right? They can live more cheaply than if they live separately.
So their collaborative efforts also produce a synergy that produces results that can be greater than the sum of their individual efforts. And I see this every single day in my financial planning practice, where I work with real estate investors who are actively building their portfolios.
You know what it takes to be a real estate investor and to buy rental property after rental property means you're a pretty good saver, right? Those people that I work with, they've got the relationship money stuff down. They know how much they're saving as a percentage of their income.
They agree on how much they're saving, where they're going to invest it and how they're going to reinvest the proceeds in this case, net rents,to continue to build their net worth or their assets. They're singing from the same song sheet about this. Whether they're married or they're in a long-term partnership.
[00:08:12] Cynthia Meyer: An Ohio State research study showed that couples who stay married get richer faster. Married couples net worth increased 4% annually on average just for being married, when all of the factors stayed the same. That's what I call the marriage dividend- the effect of teamwork and harmony on making financial decisions together. Certainly, in our case for Steve and I, we've certainly seen the marriage dividend. Marriage has been good for both of us. Both in economically and emotionally. From the start, we really focused on keeping our living expenses below what one of our incomes could support independently. This has come in handy over time.
This allowed us to save for important goals like funding retirements and putting money in our kids' 529 accounts when they were born. As well as building a diversified investment portfolio, we started off in securities and then later on during the last recession, we branched out into real estate.
When we launched our real estate business, that was something we thought about and talked through together. Then begin to build together. All the savings that we did over time and how we handled our savings and where we invested it has been personally a very positive process.
[00:09:26] Cynthia Meyer: There are even more tangible benefits for those of you who are just getting started as a couple. Maybe you have student loans or you're figuring out how to take that small slice of savings that you have and apply it towards retirement or kids college or paying down student loans or credit card debt or what have you.
One of the benefits in terms of the employee benefits that you have access to as married couples, many companies offer spousal health insurance. You can put your spouse and your kids, if you have them, to participate in the health insurance at a reduced rate.
This can be particularly useful if you're working spouse doesn't have access to employer-provided coverage. So let's say one person is a corporate employee and the other person is self-employed or a stay-at-home parent. So keep in mind that many companies have disincentives for adding your spouse to your health care plan if they are otherwise eligible for employer-paid insurance through their company. There are social security, spousal and survivor benefits. So even if one spouse is a stay-at-home parent and has never contributed to social security, they may be able to get retirement and Medicare benefits after 65 or later if their spouse is receiving retirement or disability benefits.
You may qualify for benefits based on your work history. But if your benefit based on your spouse's record is higher, you'll get additional payments so that your benefit equals that higher amount. Widowers of eligible spouses also receive survivor benefits if their spouse predeceases them.
When a pre-tax retirement account is inherited from a spouse, the surviving spouse has the option of rolling it into their own IRA and treating the account as their own, which means delaying distributions if distributions haven't started yet and then taking distributions later on based on their own life expectancy.
In terms of estate taxes, unlike other beneficiaries, somebody that's your child or somebody that is another relative or friend, your spouse can inherit unlimited assets from you without triggering estate taxes. The floor at which an estate starts to be taxed is pretty darn high, most people are gonna fall underneath that. The idea that a spouse can pass an unlimited number of assets to the surviving spouse can be very helpful. Certainly, somebody to think about, especially as things may be changing in this current administration. There have been some proposed changes to the estate tax.
Capital gains taxes: Married couples also have double the exclusion on profits from the sale of a primary residence. As an individual filer, if you have gains up to $250,000 in the sale of your home, you can exclude that from taxation. If you are married, you get double that.
So if you have a highly appreciated home and you sell it, you may take up to $500,000 in the capital gains tax exclusion for the sale of a primary residence. Obviously, that's something you're going to talk with your tax advisor. That's the general outlook about that.
In terms of income taxes, a lot of people ask, " Is there a real marriage penalty?"
Is there a tax benefit to getting married or is there a tax penalty? And it really depends on the couple. Certainly, the legislation over the past decade has smoothed over the marriage penalty where people paid more taxes if they were together. But there's still some marriage penalty for the 25% tax bracket or higher.
[00:12:45] Cynthia Meyer: There can be a marriage bonus when there's a large difference in the spouse's income and they pay less taxes filing jointly than they would if they paid as a single filer. Figuring out how you do money is something that changes over time. It's going to change when your life changes, as you go through different seasons as a couple.
Having two of us at home made it easier for my husband, Steve, to travel for work. He was a single parent. Now there was somebody else to help in. Though he could advance his career a little bit more quickly without disrupting my stepdaughter's schedule. When we had our two children together, he was able to return the favor when I was actively traveling for work, he was able to take care of our young children's schedule while that was going on. We also had the flexibility for me to take a career break when the kids were born, and then relaunched part-time as we were building our real estate business, and then now full-time, working back in employee benefits for large financial wellness programs. Now as the principal of my own firm, Real Life Planning. Not long after our daughter, Samantha was born, Steve got this fabulous offer to work in his field in Bermuda. Because we had always lived on one income, we were able to say yes to this offer, even though that meant that I would have to leave my financial planning partnership at the time and go move with him to Bermuda for a while.
That was really something that we could take advantage of because we had a low house payment. We were only living on one income. Although we had to give up my income for a little while, that turned out to be a tremendously wonderful decision for us.
[00:14:23] Cynthia Meyer: Life really can give us unexpected surprises, both pleasant and unpleasant. Being somebody that's been married 20 years, I want to say, flexibility and compassion are essential in meeting difficult challenges in a marriage. This could be things like unemployment, illness, caring for a special needs child or maybe an aging parent. It's important to think upfront before you get married, ideally, about what might cause you to rethink how you're going to do money. Before you get married, you want to discuss with your partner what would happen in these situations? You want to get an idea. Does one of us want to stay home with the kids? Whose career is going to take precedence in different seasons of life and how are you going to make decisions about that?
What if one of our parents needs help or needs to live with us? Before we get married, we all focus on how we're going to handle the pleasant life changes. But it's a really helpful part of getting to know each other in the engagement process where you figure out how would we deal with the unpleasant stuff?
The not-so-pleasant things like unemployment. If you're thinking about getting married or you're already married, remember that what you put into the relationship is what you get out of it. Your marriage is also an economic partnership. You want to put some time and effort to work on that side of the relationship with mutual commitment and flexibility and adaptation, you will realize the dividends that come from the power of we.
I can say celebrating 20 years of marriage that we've really found the power of we and it has accelerated us beyond our wildest expectations economically. I wish that for you too. So until next time, have a great day and we look forward to seeing you again on the podcast.
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