marrying you finances_pre-marital discussions
TRANSCRIPT
Marrying Your
Finances
The WII Group, LLC
Jeff Wilson II, CPA, CGMA, AFC
Personal Finance Counselor
Presented at Mt. EnnonBaptist Church
8 Keys to Effective Business
Partnerships
1. Commitment to a common mission
2. Unselfishness
3. Complimentary Communication
4. Ongoing Communication
5. Acceptance of Differences
6. Forgiveness
7. Fairness
8. Trust
“ There can be no freedom or
beauty about a home life that
depends on borrowing and debt.”
-Henrik Ibsen
Rule # 1
Financial responsibility means that youare accountable for your future
financial well-being and nobody else.
ACHIEVE
INVEST in Mutual Funds Stocks and Bonds Real Estate Retirement Plans
HANDLE the Credit Cards Installment loans Savings Account Education costs
Housing Expenses Transportation expenses
Insurance expenses
Income taxes ContingenciesMANAGE the
Long-term goals Short-term goals Organized financial records
Realistic budget Emergency savings fund
ESTABLISH
Checking Account Savings Account Money Market Account
Insurance protection
Employee benefits
Create a BASE
FOUNDATIONUse of regular income to provide basic lifestyle and savings
Financial Successful
House
Building a House of Love
Financial Planning: The Process
1. Evaluate your financial condition
2. Define your financial goals
3. Develop a plan of action to achieve your goals
4. Implement your plan
5. Review your financial progress and make changes as appropriate (every 3 months)
Financial Planning: Evaluate your Financial Condition
1. Before the wedding , reveal everything in your financial closet (NO skeletons).
2. Order a free copy of your credit reports (www.annual creditreport.com)
3. Set preliminary financial goals both long and short (goals are likely to change after step #3)
4. Develop Personal Financial Statements (optional: with help of Financial Counselor or Financial Planner)
Create an Income Statement/Financial Portrait-(past)
Develop a Balance Sheet/Financial Portrait (present)
Household Budget Planner/Zero-Based Budget (future)
Financial Planning: Set Preliminary Financial Goals
Financial Plan Areas Long-term Goals and Objectives Short-term Goals and Objectives
For Spending
Evaluate and plan major purchase Purchase a new can in two years Begin saving $200 a month for a down payment of a car
Manage debt Keep installment debt under 10% of take-home pay Pay off charge cards at end of each month
For Risk Management
Medical costs Avoid late medical costs Maintain employer-subsidized medical insurance policy by paying $135monthly premium
Property and casualty losses Always have renters or homeowners insurance Make semiannual premium payment of $220 on renters insurance policy
Always have maximum automobile insurance coverage Make premium payments of $440 on automobile insurance policy
Liability losses Eventually buy $1 million liability insurance Rely on $100,000 policy purchased from same source as automobile insurance policy
Premature death Have adequate life insurance coverage for both Buy life insurance
Income loss from liability Buy sufficient disability insurance Rely on sick days and seek disability insurance through private insurance
For Capital Accumulation
Tax fund
Have enough money for taxes withheld from salaries
by both employers Confirm that employer withholding of taxes is sufficient.
Revolving savings fund
Always have sufficient cash in local accounts to meet
monthly budgets expenses Develop cash-flow calendar to ascertain needs. Keep all funds in interest earning accounts
Emergency fund
Build up monetary assets equivalent to three months
take home pay Put $150 per month into an emergency fund until is totals one month's take-home pay
Education
Maintain educational skills and credentials to remain
competitive Both take one graduate class per term
Savings Always have a nice sized savings balance
Investment
Own substantial shares of a conservative mutual fund
that will pay dividends equivalent to about 10% of
family income Start investing in a mutual fund before next year
Retirement
Retire at age 60 or earlier on income that is the same as
the take home-pay earned jest before retirement
Establish an IRA before next year. Contribute the maximum possible amount to employer-
sponsored retirement account
Estate planning Provide for surviving spouse Each spouse make a will
Financial Planning: Develop a Income Statement
Monthly Income Budget You
YOURS SPOUSE,
PARTNER, OR OTHER
CONTRIBUTING
MEMBER TOTAL
Employment (1) see notes 4,140.00$ -$ 4,140.00$
Overtime - - -
Child Support/Alimony (2) see notes - - -
Pension - - -
Interest - - -
Public Benefits (3) see notes - - -
Dividends - - -
Trust Payments - - -
Royalties - - -
Rents Received 1,250.00 - 1,250.00
Help from Friends or Relatives (HRSA loan repay)1,606.00 - 1,606.00
Other(List) 1,908.00 - 1,908.00
Total (MONTHLY) 8,904.00$ -$ 8,904.00$
MONTHLY INCOME BUDGET
Financial Planning: Develop a Income Statement
Monthly Income Budget You
YOURS SPOUSE,
PARTNER, OR OTHER
CONTRIBUTING
MEMBER TOTAL
EXPENSE TYPES (4) see notes
Payroll Deductions (5) see notes -$ -$ -$
Income Tax Withheld 175.00 - 175.00
Social Security - - -
FICA - - -
Wage Garnishments - - -
Credit Union - - -
Other - - -
Home Related Expenses 3,420.00$ -$ 3,420.00$
Mortgage or Rent (6) see notes 1,776.00 - 1,776.00
Second Mortgage - - -
Third Mortgage - - -
Real Estate Taxes (7) see notes - - -
Insurance (8) see notes 35.00 - 35.00
Condo Fees & Assessments 245.00 - 245.00
Mobile Home Lot Rent - - -
Home Maintenance/Upkeep - - -
Other 1,364.00 - 1,364.00
Utilities 379.00$ -$ 379.00$
Gas 60.00 - 60.00
Electric 90.00 - 90.00
Oil - - -
Water/Sewer - - -
Telephone: - - -
Land Line - - -
Cell 104.00 - 104.00
Cable TV 125.00 - 125.00
Internet - - -
Other - - -
MONTHLY EXPENSE BUDGET
Financial Planning: Financial Goals
Financial Plan Areas Long-term Goals and Objectives Short-term Goals and Objectives
For Spending
Evaluate and plan major purchase Purchase a new can in two years Begin saving $200 a month for a down payment of a car
Manage debt Keep installment debt under 10% of take-home pay Pay off charge cards at end of each month
For Risk Management
Medical costs Avoid late medical costs Maintain employer-subsidized medical insurance policy by paying $135monthly premium
Property and casualty losses Always have renters or homeowners insurance Make semiannual premium payment of $220 on renters insurance policy
Always have maximum automobile insurance coverage Make premium payments of $440 on automobile insurance policy
Liability losses Eventually buy $1 million liability insurance Rely on $100,000 policy purchased from same source as automobile insurance policy
Premature death Have adequate life insurance coverage for both Buy life insurance
Income loss from liability Buy sufficient disability insurance Rely on sick days and seek disability insurance through private insurance
For Capital Accumulation
Tax fund
Have enough money for taxes withheld from salaries
by both employers Confirm that employer withholding of taxes is sufficient.
Revolving savings fund
Always have sufficient cash in local accounts to meet
monthly budgets expenses Develop cash-flow calendar to ascertain needs. Keep all funds in interest earning accounts
Emergency fund
Build up monetary assets equivalent to three months
take home pay Put $150 per month into an emergency fund until is totals one month's take-home pay
Education
Maintain educational skills and credentials to remain
competitive Both take one graduate class per term
Savings Always have a nice sized savings balance
Investment
Own substantial shares of a conservative mutual fund
that will pay dividends equivalent to about 10% of
family income Start investing in a mutual fund before next year
Retirement
Retire at age 60 or earlier on income that is the same as
the take home-pay earned jest before retirement
Establish an IRA before next year. Contribute the maximum possible amount to employer-
sponsored retirement account
Estate planning Provide for surviving spouse Each spouse make a will
Prioritizing Savings and Retirement
• Contribute at a minimum 5% to 10% of salary to 401K, TSP, or 403-B retirement plans.
• Plan to save 8-10% of salary in savings; or have at least 6 months of households expenses in cash savings
• Ensure that all of you risks which you cannot save for are insured
• Begin planning for your child's education with your retirement in mind
• Avoid taking on “non mortgage debt” greater than 5% of your gross salary
• Avoid eating out during the month
Financial Planning: Develop A Plan of Action
Prioritizing Credit and Spending
• Avoid using credit cards for purchases that you don’t’ have the cash for
• Debts with collateral are almost always your highest priority debts
• Creditors making the most noise are not necessarily your most important creditor.
• Always pay family necessities first
• Do not move a debt up in priority because the creditor or collector threatens suit
Financial Planning: Develop A Plan of Action
Community Property States vs. Common Law Property States
Who Owns that Debt or Property, when your married??
MD, DC, VA are all Common law property states
Community Property – in most situations husband and wife act as a “community” acquiring property and incurring debt as unit
Common Law States – the assumption is that property acquired by the spouses together and held in both names is marital property, while all other is separate
* Not what you think*
* Not what you think*
• Community Property- Community property is liable for all joint debts (debts incurred for the benefit of the community)
• Who Owes the Debts – If you live in a common law property state, who owes what debt depends on when the debt was incurred and in some instances what the debt was for
Community Property States vs. Common Law Property States
* Not what you think*
Debts Incurred Before Marriage
•All debts incurred by a spouse before the marriage begins or after it has ended are that spouse’s individual debts
Ex. James owes $3,000 on a Bose sound system and XBOX he purchased before he married April. The $3,000 is James’s separate debt, and only he is responsible for it
Community Property States vs. Common Law Property States
* Not what you think*
Debts Incurred During Marriage
•All debts incurred by the spouses jointly during the marriage are joint debts. All debts incurred by one spouse during the marriage and before permanent separation are separately owed by that spouse unless any of the following is true:
1. The creditor looked to both spouses or considered both spouses credit information before approving credit
2. The debt was incurred for family necessities, such as food, clothing, or shelter
3. The debt was incurred for medical purposes (in some but not all common law states)
Community Property States vs. Common Law Property States
Income Taxes for Married Couples
Income Taxes
Seven Tax Tips for Recently Married Taxpayers
• Notify the Social Security Administration Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.ssa.gov, by calling 800-772-1213 or at local offices.
• Notify the IRS if you move If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from www.IRS.gov or order it by calling 800–TAX–Form(800–829–3676 ).
• Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.
• Notify your employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
Income Taxes
• Check your withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.irs.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee's Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay.
• Select the right tax form Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
• Choose the best filing status A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial.
Income Taxes for Married Couples
Disadvantages of Married Filing Separately
Earned Income Credit
Child Care credit (unless spouses lived apart for last six months)
Education Credits
Lost Credits
Lost Education Benefits Student loan interest deduction
Tuition and fees deduction
Savings bond interest exclusion
Standard Deduction If one spouse itemizes deductions, the other must also itemize ( that
is, cannot claim the standard deduction)
Taxable Social Security A greater percentage of Social Security benefits may be taxable
unless the spouses lived apart for the entire year
IRA deduction and contributions phased out
Spousal IRA rules do not apply
IRAs
Net Capital loss deduction is limited to $1,500 per spouseCapital Losses
Sale of Home Gain exclusion is limited to $250,000 per spouse
In addition to the exemption phasing out, some high income
taxpayers must add an amount back to AMTI.
AMT Exemption
Income Taxes for Married Couples
QUESTIONS, COMMENTS, OR CONCERNS?
Contact Information: Jeff Wilson II, CPA, AFCEmail: [email protected] address: http://www.wiicpas.com