It’s important for partners to discuss finances, even if only one of you takes the lead on the day-to-day money management. Make sure you’re both aware of key financial information in case of injury or illness to keep difficulties minimal.
talking about money
Use these conversation starters to keep both partners aware of what both of you should know.
- Is there a list all accounts, investments, and debts?
- Where are records filed? Are they stored digitally or on paper?
- Do both people know the usernames and passwords for these accounts?
- How are bills paid? How are expenses tracked?
- Where are estate planning documents? Who has copies?
- What kinds of arrangements are planned in case of a death?
- Who are the beneficiaries of your assets?
- How do children fit into the financial picture?
- Where important legal documents are (like birth certificates, marriage licenses, passports)?
- Where are insurance policies?
Before entering into a partnership, it’s important to understand each other’s views about money. Don’t forget: marriage is a contract. You’ll have money flowing in and out. Here are some things to consider.
Topics to discuss before marriage
Before getting engaged, you may have your own savings, checking, and investment accounts. What mix of private and joint accounts is best for you? What independence do you need with your money? What joint goals are you both working toward?
Will you live in one partner’s home or find one together? If selling a property is in the picture, make sure to talk through potential tax consequences from capital gains with your tax professional.
Talk through where you want your money to go and why. How much of a cushion makes you both comfortable? What things do you want to save for? What types of insurance should you have now? (Don’t forget to revisit your insurance needs as situations change).
Now that there are two of you, you may have to take a closer look at each partner’s attitudes about and habits with money. A budget is a good way to make sure you’re both contributing towards your financial goals.
This subject can be tricky, but it’s important. You both will need to feel good about when you borrow money and why. You also need to understand what debt each person is bringing to the marriage, and then decide which debts to combine and which to keep separate. There are pros and cons to each.
Many advisors recommend that each individual keep his or her own credit cards and credit history. Doing so helps ensure financial independence and provides greater flexibility if either spouse finds himself or herself alone at some point in the future. Also, if one spouse has a poor credit history, it may be advisable not to combine debt. This lets the other spouse keep his or her good credit rating.
A wedding is a hopeful thing. It may not feel like the right time to be considering death and disability, but when you’re deciding to take responsibility for each other, it’s something you should discuss. Consider the consequences of losing wages or passing away without an estate plan in place. Pay attention to the beneficiaries on life insurance, IRAs , 401(k) plans and other plans that allow naming a beneficiary. What’s written in those policies could override will or trust instructions. If you have questions, talk to an estate planning professional.
Going through a divorce can be one of life’s most painful experiences. In addition to the emotional stress, you have to make your way through the process of undoing the many financial connections you and your spouse have created over the years.
If possible, try mediation. Litigation can be expensive. If you and your spouse want to limit the cost, consider discussing your situation with a mediator. To find one in your community, visit the Association for Conflict Resolution.
Gather key tax, investment, and financial documents. Be sure you have your own copies and can easily access all important records. Important documents include:
- Tax returns
- Bank, mortgage and investment account statements
- Pension and retirement account statements, such as 401k or IRA information
- Insurance and beneficiary information
- Prenuptial agreement
Know the purchase price of all your assets. As you gather your financial information, it will be important to know what your assets were worth when you got them as well as fair market value of the assets now so you can calculate after-tax values.
Request a copy of your credit report, which you can get free of charge at Annual Credit Report. Review it for accuracy and work to correct any errors.
Create an individual budget (including projected income and expenses) along with a net worth statement (personal balance sheet). Think about smaller expenses, such as extra transportation for shuttling children between parents or extended day care costs. Also, think about any maintenance or cleaning expenses that were normally performed by the soon-to-be ex-spouse.
If you are currently covered on your spouse’s health care plan, you need a plan for your individual coverage. If this will take some time, you might need to extend your current coverage with COBRA to give yourself extra time. Don’t forget about dental or vision coverage for children or other dependents, and be sure to add these new costs in your individual budget.
Be sure you and your assets will be protected after the divorce is final. If you will receive alimony, consider purchasing a life insurance policy on your ex-spouse in case of his or her death. It’s all important to make a plan for potential disability and long-term care expenses that might build up for you as a single person.
Be sure you know the after-tax value of traditional (after-tax) retirement accounts as well as Roth IRA, Roth 401(k) or any other after-tax assets in retirement accounts.
- Remove your ex-spouse as beneficiary, executor, personal representative, successor trustee, or agent under healthcare and property powers of attorney (as appropriate).
- Update your will. If you have minor children, consider leaving any assets in a trust for the children. You may want to name someone other than your ex-spouse as trustee.
- Review both primary and contingent beneficiary designations. Don’t forget about:
- Disability insurance
- Long-term care insurance
- Company benefits
- If you know your ex-spouse’s estate plan, discuss it with your attorney. Your attorney can help you decide if and how your ex-spouse’s plan should affect your plan.
WATCH FOR STRESS
If you or your children are having difficulty coping with the divorce, don’t wait for the problem to get bigger. Consider talking with a qualified counselor or spiritual advisor.
be smart about inheritance
The best thing you can do when you receive an inheritance or other type of payout is take your time. You need to think about short-term and long-term goals and opportunities. You’ll need to understand your priorities.
First, identify your financial priorities. Look for short-term opportunities to use this money to further your financial goals.
- Create an emergency fund that will cover at least six-month’s worth of expenses.
- Pay down or eliminate debts. Some experts recommend starting with the highest interest rate debts first.
- Check in on your retirement savings progress. Do you have enough saved?
- Review your insurance coverage. Do you have appropriate health insurance? Property and casualty insurance? Do you have life insurance if there are others who rely upon you?
- If a mortgage could be a burden in retirement, considering paying that down.
- Look at funding a child’s college education.
- Consider your own legacy for your children or grandchildren, or for your favorite charity or worthy cause.
If you’re not sure where to begin, consider these questions when thinking about how to handle this money:
- Is the money needed for immediate use?
- What do you want to use the money for? Organize your wish list into “needs” versus “wants.” Prioritize the needs first, but you may be able to spend a small portion of your payout to buy something you want or do something fun
- Do I want to leave money to my children or grandchildren?
- How can I make the wealth last?
- If you inherit things rather than money, such as cars, boats, real estate, and jewelry, what can be done with them?
- How would the person who left me the inheritance want me to handle it?
- With the Minors Trust and Per Capita Distribution, how can I invest it for my future education or achieving the great American dream of owning a home?
You may experience lots of emotions when coming into a payout. These feelings can cloud your judgement or keep you from seeing the long-term possibilities or consequences of your decisions.
Inherited wealth often results from the passing of a close family member or friend. You may feel guilty or undeserving of this money. Others may think that how things are distributed is unfair, creating friction between survivors.
Sudden access to significant money like an inheritance or Minors Trust or Per Capita Distribution could create a lot of excitement, leading to a spending spree or impulsive decisions for major purchases.
You may also feel overwhelmed by responsibility and unsure of what you should do next.
The many feelings you may experience after receiving a payout are why it’s so important to take time before making decisions.
You don’t have to go through this alone. Trusted advisors can work with you to manage the inheritance in a way that lines up with your goals by:
- Determining the best investment options and planning strategies to build, protect, and manage your money
- Developing a financial and estate plan
- Understanding the various financial issues involved with different types of inherited assets
ABLE Accounts: A Savings Opportunity for Qualified Individuals with Disabilities
The Achieving a Better Life Experience Act (ABLE), signed into law on December 19, 2014, opens new pathways to financial stability for millions of Americans with disabilities and their families.
Words you should know
ABLE is the abbreviation for the Achieving a Better Life Experience Act signed into law on December 19th, 2014. ABLE amends the tax code to allow states to establish ABLE programs that offer eligible individuals with disabilities and families the opportunity to open one ABLE account, a tax-advantaged savings account to help pay for the extra costs of living with a disability.
Qualified Disability Expense
Funds contributed to an ABLE account and income growth from the selected investment choices short- and long-term can be used to pay for “qualified disability expenses” (QDE). A QDE covers the cost of many products and services that assists the ABLE account beneficiary to increase and/or maintain their health, independence or quality of life. A QDE may include expenses related to education, housing, transportation, employment training and support, healthcare, financial and legal services and technology-related assistance.
Source: National Disability Institute
What is an ABLE Account?
ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families. Contributions may be made to an ABLE account by the account beneficiary, family members, friends or an employer. There are no restrictions on who can contribute to an account.
There are restrictions on how much can be contributed to an ABLE account each year. Each state sets limits as to the maximum contributions over time that can be contributed to an ABLE account. For individuals with disabilities who are recipients of Supplemental Security Income (SSI), the ABLE Act sets further limitations.
Why the need for an ABLE account?
For parents raising a child with a disability or a working-age adult with a disability, there are extra costs associated with the disability that occur on a regular basis. Those extra costs could include healthcare, medications, assistive technology like screen readers or communication devices, personal assistance services, transportation, and home and vehicle modifications for improved access and use. Government benefits and programs may cover some of these costs and set resource limits that impact eligibility. However, ABLE accounts provide an opportunity for individuals with disabilities and their families to set money aside in a savings account managed by state ABLE programs as a supplement.
For a young adult, a working-age adult, or an entrepreneur with a disability, contributions to an ABLE account become an important way to help improve their health, independence and quality of life. The ABLE account lets people set short and longer term financial goals, create and manage a budget, engage others to become contributors and from a circle of support. They will also establish a plan for spending the savings for qualified disability expenses.
Who is eligible to be an ABLE account beneficiary?
The ABLE Act limits eligibility to individuals with significant disabilities where the disability started before the person turned 26. If a person meets this age requirement and they also receive Social Security benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account with the state program of their choice. If the person is not receiving Social Security disability benefits, but still meets the age requirement, there are other eligibility criteria. The person does not have to prove inability to work, nor is there any type of income or asset test that would limit a person’s eligibility for opening an ABLE account.
To learn more about all state ABLE programs, there is an interactive map on the ABLE National Resource Center website. You can try out a comparison tool that provides questions and answers about state ABLE programs and compare up to three state programs at the same time.
How to open an ABLE Account?
To open an ABLE account, eligible individuals with disabilities and families may choose which state ABLE program best meets their needs. An ABLE account is not for every individual with disabilities and their families. To open an ABLE account, the person must meet the eligibility requirements related to age and level of disability. Even if an individual meets the eligibility requirements, there are other factors to consider. These include current debt status, other protected savings, and financial needs and goals.
To select the right ABLE state program, think about:
- fees and costs to open and maintain an account
- choice of investment options
- withdrawal restrictions
- ability to understand the account and make informed financial decisions
- features of the account to help an individual save, manage, and grow the account savings
What are qualified disability expenses?
Funds in an ABLE account can be used to purchase products and services that are “qualified disability expenses.” A qualified disability expense must relate to the designated beneficiary of an ABLE account. The purchase of the item or service must assist him/her in increasing or maintaining their health, independence and/or quality of life.
What else you need to know
Please note that, upon the death of the beneficiary, the state in which the beneficiary lived – or may have received Medicaid services – may file a claim for all or some of the funds remaining in the account after all qualified disability expenses have been paid. The state can’t take back more money than it spent on the beneficiary on Medicaid-related expenses, starting at the time the account was originally opened. This is known as the Medicaid Payback Provision. Check with your state ABLE program administrator for more information.
When to open and make deposits to an ABLE account: Next Steps
Similar to other long-term savings plan, such as the 529 college savings plan, the earlier you open an account, the more time your investments have to grow. This means your account can make more money in the long run.
Each individual and family will have to decide when opening an ABLE account will be possible and make the most sense to meet their needs. There is no age limitation of any current state ABLE program that says you need to open the account before the individual with a disability reaches a certain age.
Once you decide to open an ABLE account with your selected state ABLE program, be sure to create a plan that sets financial goals and identifies the need for saving. Be sure to manage the account and establish spending priorities, and regularly review the account statement.
Stay up to date
As tax codes are updated over the years, this information may change. Please visit the ABLE Accounts page on the IRS website for the most current information.