Episode Transcript
[00:00:17] Hey. Hey, friends. So I know you guys are used to me having a guest, but every other week I'll be coming on to chat about a specific topic focused on premarital planning and the impacts of not doing the work. Before you say I do. As a seasoned divorce attorney, I've seen a lot of marriages fail for reasons I observe as being avoidable. But if you let things go on long enough, the ability to move forward can seem impossible and the pain too. Great. So I'm sharing what I know. Enjoy.
[00:01:02] Okay, guys, today we are talking about savings and investment goals during marriage. One question I get a lot during my consultations with both people seeking a premarital agreement or even my divorce clients is what about the retirement accounts? What about my brokerage accounts? What about my savings account that I have worked hard over the last couple years to build up things like if I make more money, I should get to keep my full retirement account in the event of divorce, right? Or he spent all the money during the marriage, I should get to keep the savings account because I was the one that saved it all. Comments like this are so common, but depending on your state laws, it can be much more complicated. And I have a lot of clients come into my office, leave frustrated because what they thought was going to happen isn't so simple.
[00:01:52] So here is what I have my clients talk about before getting married when it comes to savings and investments specifically, and some of this is going to also impact spending. But if you have solid savings and investment goals, then the spending habits of one party or both parties during the marriage are going to be worked out within that goal itself.
[00:02:13] So I have them talk to their partners about, do you have an emergency fund? How much do you keep in this emergency fund? Separate from that, is there another savings account or savings goal for something specific you are saving for? Like, do you have dreams of having a house within the next two years? Do you have dreams of owning a business in the next couple years or investing in something specific? Talk about it and ask questions. So both of you understand what those savings goals are. Not just, oh, I want to have x amount of dollars in the bank or, you know, I want to be able to have three months rent covered. But specifically, what are those goals that you're setting and why? Right. Why do you feel like you need to save for this or why do you want to do this? That's not to question your partner and their savings goals. That's to understand where they're coming from. So when the two of you come up with a plan for your goals, as now legally married couple, you're in line with both parties goals, not just one person's goals.
[00:03:20] Another question I have them talk about is how much do you allocate towards savings each month? So not just an overall goal that maybe you look at it at the end of the year, but how much do you allocate towards savings each month? What is coming out of our monthly income? And how are we going to look at that on an annual basis to make sure we've, we have enough in each savings account to meet the different savings goals we plan.
[00:03:47] So not just how much you put in each month, but what does that look like over the year? Right, because you can say, oh, I saved $300 a month, but at the end of the year I also put like $1,000 in. Well, now we're making it more complicated. Right. So how much each month so we can look at monthly goals, our budget, things like that. But it's important to know how that person saves. Do you have a specific retirement plan that plays into your investment and saving strategy? So this comes up a lot because some people say, I want to work really hard until the age of 50 and I want to retire early, or, you know, I just want to work and I'm okay working until I'm 65. I just want to be able to slow it down.
[00:04:30] Those types of questions or those types of feelings can significantly impact your retirement goals as a couple. Right. And how you plan and save for retirement as a couple. It's not just about one person. One person can sit here and say, I want to, you know, retire at age 50 so that we can travel and do all these things while we're, you know, still young in our minds or in their minds, whoever, you know, however you're going to measure it. But what if the other person doesn't feel that way? What if the other person says, I don't want to work so hard that I don't get to enjoy my life now, I'm okay working a little bit longer and stretching out goals so that we can enjoy things. Now, that's obviously going to be a little bit of a conflict, not a deal breaker per se, but it's a conflict in the way that you're viewing your plans. And so you've got to be able to come up with a retirement plan not only how you're saving for retirement, but how quickly you want to get there. So going through these questions and building a plan that works for your marriage, no one else, right. Because what everyone else is doing doesn't matter. But coming up with a plan that works for the two of you is very important when it comes to retirement and savings. Now, the answers being different, right. And I kind of just mentioned this, but the answers being different aren't make or break. Right? Understanding how you two will make financial decisions in the future is where this conversation should focus. Okay, well, if one person wants to retire early and we're going to stock up retirement there, how are we going to balance with that? The other person is going to keep working or wants to keep working. What changes to your lifestyle need to be made? I don't know what those are right now largely depends on the couple and the type of work you do, but that is the conversation that needs to happen. You have to pull at that thread a little bit so you can make plans regarding your savings and investment strategies together.
[00:06:27] And remember, what you two end up agreeing on might not line up with what the law says. Right. So you can say, okay, well, we want to contribute to retirement plans like this. And no matter what happens, husband keeps this retirement account and wife keeps this retirement account. Right.
[00:06:49] But if you don't legalize it in the event of divorce, that's not how it's going to play out. And the reason I'm pointing this out right now is when you two are talking about what your retirement plans are as a couple, one person might save a lot more than the other, because like I said, if their strategy is to retire early and yours isn't, then they might be stockpiling money while you are spending it a little bit more. One, during the marriage, that can build resentment and things like that. But two, it allows people to kind of have that assumption that I talked about, which is, oh, I made all the money or I saved all the money, I should keep it. So even if you two agree that that's what would happen, you need to understand. You need to understand the laws. Don't assume things will go smoothly in the event of divorce, especially when it comes to retirement accounts and savings that are available when you actually file for divorce. Right. Whatever that amount is at the time you file for divorce. So I'll highlight an example of how complicated these things can be, not only once you decide what your savings and investment strategy is during the marriage, but in the event of divorce. What happens with all this money? Right. So I have a client wants a prenup, and they've already talked about it a little bit. They say they want retirement accounts to be separate property. So they have retirement accounts already that they earned before they got married, and they want to keep it that way. So whatever, you know, wife puts into retirement, she keeps. Whatever husband puts into retirement, he keeps.
[00:08:23] But they also want all income earned during the marriage to be jointly owned income. And in California, that's essentially community property, right? So all their earnings are going to be community property. And so when I'm listening to people kind of tell me what they're thinking and what their wants are, as an attorney, my job is to issue, spot and figuring out where the problems are going to be. And so these are some of the questions and comments that I might have for a client asking for this particular type of arrangement.
[00:08:56] So if income is community joint property, then the money going into the retirement accounts that you just said are going to belong separately to each person is community money, right. And the gains on that money in those retirement or savings accounts is also going to be community.
[00:09:17] And so we've got to be able to define exactly what money is going where and how it's going to be divided in the event of divorce to avoid all this messiness with what money goes where.
[00:09:38] I have helped so many people start their marriage off right with a premarital agreement. But going through this process with people time and time again, I have learned that just getting a premarital agreement left gaps in the premarital planning process. It was my job to handle the legal and practical outcomes of the process, including preparing what I consider to be a type of marriage insurance to reduce conflict and the amount of money the parties may spend in the event of divorce. But what about the hard conversations that don't necessarily make their way into a prenup? This is why I created marry me Smart, a premarital planning method that guides you through the important steps to take before you say I do so you can build a solid foundation for successful and lasting marriage. Mary Smart is now live and available for purchase and for a limited time is $100 off my marry me smart premarital planning course guides you and your partner through hard, uncomfortable conversations you need to have before you walk to down the aisle. From finances to children, housework expectations, family dynamics, holidays, and outlines the legal considerations every couple should know. This is what I call the discuss and disclose phase of marry me Smart. Now you can take it one step further with phase two, which is the smart start marital operating agreement course. Take everything you talked about in the first course and work it into a marital operating agreement that is aimed at how you, too, intend to navigate certain decisions throughout your marriage. You will get a guided training as well as a customizable word document to edit and save for yourselves.
[00:11:14] What you learn from these two courses will answer the important question, do we want a prenup? Now, notice I didn't say, do you need a prenup? Because that answer, in my mind, will always be yes, but do you want one? Is it right for your marriage? Knowing the laws of your state and turning that marital operating agreement into a legally binding contract in compliance with your state laws is the final phase of marry me Smart. You can get both marry me smart courses by following the link in the show notes. Now back to the show.
[00:11:50] So I'll ask things like, do you have an agreement on how much each of you can contribute to retirement or savings? Because, again, like I said, if one person saves a lot and one person spends, there's going to be some resentment there when there's imbalance, especially when you're using what this particular couple is saying is joint money, right? All of our money is joint, but one party gets to funnel a bunch of that into retirement and the other party gets to spend it all. That's not in line with a joint savings goal. Right.
[00:12:19] And so if they say, yeah, you know, we agree that we can max out retirements or we can spend this much on a monthly basis for, you know, ourselves, because if that's the answer, we can say, okay, well, then maybe we can craft an agreement that carves out a percentage of income that each person can contribute to savings in retirement. Let me break that down. For example, if all the money that you earn is going to be jointly held money, you're both entitled to it. But each of you can take $1,000 a month for retirement or savings or spend. It's kind of like either or. And that money goes into retirement and it's separate. Anything over and above that is going to have a community component, meaning there's going to be some amount that could be divided in the event of divorce.
[00:13:13] And I'm making sure not to make it overly complicated because really, depending on your state, it's going to be different if you don't have a prenup in place. But the point of all of this is these issues can be really complicated if you don't define them right. You have money that's supposed to be community, but you're putting it into retirement accounts that's yours, and then there's no rules on how much you can. So one person maxes out and the other person doesn't. And in the event of divorce, one person doesn't have any retirement. And where does that leave them? Right. That's where problems arise. People always say, Chelsea, I'm not going to get a prenup. They get challenged all the time. Well, no, they don't get challenged all the time. That's a whole nother episode. And they're really hard to overturn when done. Right. But that doesn't mean people won't try and litigate it. Right. When you don't have really defined terms that say exactly what both parties should expect to happen during the marriage and what they expect will happen in the event of divorce, that is where the door opens for litigation and argument.
[00:14:15] So one of the financial stressors in marriage is when one person is spending more than the other and the other is saving. Right.
[00:14:22] That's very common. I think maybe even between friend groups. Right. You'll have friends in different relationships and you can hear them complain about their spouse spending too much money or doesn't let you spend enough money. Whatever it is, you've heard it from somebody. And that is why it's so important to have this conversation before you get married.
[00:14:45] The savings goal, the investment goal, but also the spending goals. Right. This has to be discussed before you get married. And when you sit down and say, okay, we need to come up with what's our long term plan as a couple, and what are our goals around savings and investment and spending, what are we both comfortable with? Now, if you have two people that are on totally opposite spectrums of, you know, how they feel about savings, either one person's really aggressive with savings and the other person's not so much, you have to find a balance. It can't be one person's way or the other because that won't work. It has to be a compromise. And I'm not a huge fan of saying splitting things in the middle because I just don't think that that's well reasoned in most situations, even in divorce negotiations. Yes, sometimes it does happen when it makes sense, but it's about setting a number both of you are comfortable with.
[00:15:39] Set a fun money budget, what each of you can spend on things that only you two like as individuals. It's not necessarily something that's going to benefit both of you. And this doesn't have to be some hard rule that really is going to depend on the income of both of you. If you have a little bit of a tighter budget because your incomes are not far exceeding your expenses, then you may need a hard rule to make sure that you don't overspend and you're on track with all your other bills and expenses and savings goals, but it might just be around a certain number or no more than this number, something like that. So that, again, you're trying to avoid resentment and making sure that you are being transparent and open with one another.
[00:16:27] Talk about where money goes each month, right? So not just, oh, you can save $1,000, you can spend $1,000, talk about where it's going, right. What savings account is it going into? What investment account is it going into? What about retirement accounts? Now, I'm going to do a whole separate episode on discussing and disclosing finances before you get married, but just talking about where it's going. Check in with each other.
[00:16:55] Part of my marry me smart course is I talk a lot about having at least an annual board meeting, right. Of the couple.
[00:17:02] I really think that these conversations should be happening monthly. But obviously, once a year, reassess your goals, reassess your finances, and make sure you're on track.
[00:17:11] But in real time, you can talk about savings, investments, retirement goals, and, you know, you might have heard some of this on the episode with my husband, Nick, that, you know, I make certain decisions on a regular basis, and I tell him, like, okay, I'm moving money around.
[00:17:28] Just so you know, I moved it from this account to this account. He knows what's going on, and he has access if he wants to go. Look, he doesn't. That's just him. But I'm mentioning it, right? I'm bringing it up. I'm kind of communicating, hey, I spent this much on this. This is why I needed it. You know, I don't have to get permission for every little thing I spend. But you guys are partners, and marriage is a type of business, right? You're collaborating in a lot of different ways to build a successful partnership.
[00:17:56] Talking and sharing things without the other person asking can be really huge to opening lines of communication, especially when it comes to finances. You two both really need to brainstorm priorities for your marriage, right? And consider a financial planner and maybe those financial planners, different for both of you. Maybe you have your own individual planners. Depending on how significant you choose to define separate property and community property. If you have a premarital agreement, having separate financial planners for your own separate money is fine, right? It's just another part of the conversation that you have as a couple. But you can definitely have a joint financial planner that says, okay, this is all our community money, this is what we're going to do with it, or, this is all our separate money. How can we maximize what we're doing individually as well?
[00:18:46] There is no one size fits all approach to talking about savings and investment goals. The reason I chose to kind of put this episode out before I went in, what I think is my order of operations when it comes to financial discussions is because I think it really touches a lot of pain points for people. Financial security for most couples is that issue that bleeds through in divorce so heavily. When one person doesn't know a lot about the finances, especially what they're going to have in their bank account once they sign the divorce document, it can make getting agreements really difficult because they have a lot of those insecurities about where the money is going to come from. And if you both have a savings and investment goal, the person who might not be as involved in the finances on a day to day basis is going to at least have some knowledge and eliminate some of those unknowns when they go into the divorce process. They're going to say, okay, well, this was our plan. This is what we agreed to. So by my estimates, right, there should be this much in savings, there should be this much in retirement. And yes, in divorce, all this stuff's going to be disclosed. But that confidence and the understanding that both parties knew where the money was going, especially when it comes to savings and investments, can really help your divorce go a little bit more smoothly because both people have information in order to make educated decisions as you navigate the process. And there's also trust there. There's trust that if the money that's in the accounts adds up to an estimate of what the goals were over the course of the marriage, then one person's not going to be sitting there saying, well, I thought we had a million dollars more, and it's all gone. Well, no, that doesn't line up with the goals you set. Right. So number one takeaway from this conversation is have a savings and investment goals set up before you get married. It doesn't have to be perfect because I know some people are sitting here saying, well, that's, you know, it's going to change. And that's not really that serious. Depending on the party's income, you know, there's going to be multiple conversations. Sure, it can change, but sit down and picture if your life didn't change right now, if your incomes were the same, if your spending wasn't different, what would our goals be and how do we accomplish them? Set up a date night, talk, all things finances, but definitely sit down and come up with a savings investment goal. So your marriage can thrive without that financial stress. Dress. All right, you guys, thank you for tuning in. I hope you found this helpful, and I will see you soon.
