Even careful planning cannot eliminate all the negative consequences of transitions. However, with some diligence, you can situate your financial life so that you are better prepared when a transition occurs. Here are some general tips for ALL transitions, with emphasis on the “big three:”
Know where things are: This refers to your accounts, your assets, your money, your life insurance, and your deeds for real property. You need to be in the know in case something happens to your partner. In the case of divorce, you need to be prepared for the property settlement. Don’t get caught off-guard! For marriage preparation, it is best if both parties put all the cards on the table, so to speak.
Know what you own and owe: Related to the prior tip, know how things are titled. Are the assets held jointly, or just in your name or your partner’s name? What debts are there, and whose name(s) are on the debts? After the death of a spouse, some assets may transfer to ownership by the surviving spouse automatically, but this depends on how they are held. With divorce, you need to be in the know to understand how the settlement might work out. To prepare for marriage, the fact that your partner has tons of debt is something to know BEFORE heading down the aisle.
Understand all income/expenses – current and future: Where is the money that pays your bills coming from? What income sources might be available to you in the future? What do your monthly/annual expenses look like? Too often, one partner in the relationship lets the other handle most of the financial decisions. This is a mistake. You need to stay on top of things even if you are not the more financially active spouse, because you never know when you might need to step into this role.
Have your estate documents in place: Do you have a current will, living will, health care power of attorney and durable power of attorney? When was the last time you reviewed these documents? Do your assets that have beneficiary designations complement what the documents say?
Have an emergency cushion: This can help in many ways. If as a couple you have established an emergency fund, then in the event of death, the surviving spouse will have quick access to liquid assets. If you are seeing a divorce in your future, you might make a point of accumulating funds separate from the household account to meet short-term financial obligations, like living expenses after you separate. If you are getting married soon, building a savings cushion together is an excellent early step to financial harmony in your relationship.
Don’t make rash decisions: Whenever possible, take your time. There is frequently no rush on things. The standard counsel for widows is to wait a year before making any major financial decisions. Everyone is ready at different times, but if someone is pressuring you to make a major financial decision, that should be a red flag. In the case of divorce, you want to make sure you get your ducks in a row before you start agreeing to terms. It is far better to start preparing financially before actually calling the relationship off, if possible. Likewise, if you are getting hitched, be thoughtful and thorough and get a solid handle on the financial aspects of partnership before diving in.