If you’re like most couples, each spouse ends up assuming responsibility for certain roles. Usually, that’s all well and good – but not when it comes to financial life. Here are several reasons why you’re better off when both spouses are involved in wealth management.
APPROACH GOALS MORE EFFECTIVELY
Very often in money matters, two heads are better than one. Say that one spouse is determined to purchase vacation property, but the other is unsure whether all family members will enjoy that kind of getaway. Together, they may decide to rent a vacation home for a couple of seasons before making a large financial commitment.
Sticking to investment goals is also easier when both spouses work together. Perhaps it’s about not withdrawing funds for a luxury item from a Tax-Free Savings Account (TFSA) that you designated for retirement savings. Or, when markets are down, a second voice can help maintain the discipline to continue investing.
AVOID POTENTIAL CONFLICT
What happens if one spouse controls financial matters and makes a decision the other spouse ends up questioning? That’s a conflict that could have been avoided if both spouses had been involved at the outset.
Perhaps the spouse solely in control loans a large sum to a sibling for a business start-up, the venture fails, and the loan isn’t paid back. Now the other spouse wishes there had been more discussion and input around the decision.
Involving both spouses is often helpful in cases when spouses have different views about money matters. For example, an aggressive investor and a conservative investor share a non-registered investment account and, with guidance from their advisor, strike a balance between their two risk levels. The aggressive investor doesn’t take on potentially excessive risk, and the conservative investor benefits from greater market opportunities.
Or perhaps one spouse is more of a live-for-today spender and the other a compulsive saver. By embracing compromise, the couple is better able to enjoy life now while also putting enough away to secure a comfortable retirement.
CONTINUE DURING RETIREMENT
Developing the habit of involving both spouses in financial matters puts a couple in good stead when retirement arrives. That’s because decisions must be made about completely new areas, including retirement income, tax and estate planning, and charitable bequests.
For example, say that a retired couple has significant funds designated as an inheritance for their children. Do they keep the funds invested in equities because of the potentially long time horizon? Or do they invest conservatively with the primary aim of preserving capital? It’s an important decision that should involve not only the advisor, but both spouses too.
THE BOTTOM LINE
Spouses don’t need to share financial tasks fifty-fifty – that’s unrealistic for many couples. What should be shared is information about their finances. Both spouses, ideally, should have at least a general understanding of their investment program, insurance, loans and estate plans.
Also, both spouses should be able to openly discuss their own thoughts about the couple’s financial life and make decisions together. That kind of involvement is healthy for the relationship and enables a couple to meet their financial goals more effectively.
FINANCIAL MATTERS AND THE WIDOWED SPOUSE
If one spouse controls a couple’s finances and passes away first, the widowed spouse may feel unprepared and overwhelmed. Yes, the advisor would guide them through all financial matters, but the widowed spouse would be more at ease if they were familiar with their finances.
FULL FINANCIAL PLATE
A widowed spouse must deal with just about every component of wealth planning. If their spouse had life insurance, they’ll want to know how to use or invest the proceeds. If the widowed spouse receives rolled-over investments from their spouse’s registered retirement plan, they must plan for the assets’ eventual tax liability. Investments may need to be re-allocated to suit the widowed spouse’s risk tolerance. Add education savings to the list if the widowed spouse is younger, or retirement income and estate planning if they’re older.
SOLUTION: SHARE INFORMATION
If both spouses are always informed about the couple’s financial life, the widowed spouse can manage wealth planning more comfortably. That’s why financial literacy is important and why both spouses should be familiar with the couple’s financial matters.