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Stages: Marriage and the Financial Advisor

If your client is tying the knot, you should move aggressively to make sure he stays yours--and become theirs.

The month of June officially ushers in the wedding season, and if you have clients getting married, it is in their — and your — best interest to meet beforehand to discuss their finances.

Before meeting with a couple, you should send them a short questionnaire that functions as a springboard for your initial conversation (see table on page 82). Once you have covered the basics — including viewing their financial statements and their questionnaire responses — you should have an understanding of their overall goals. It is then time to move on to more complex issues:

Handling Existing Debt

This will not be an issue for all clients. However, given that personal debt has hit record levels, there are likely to be occasions where one or both parties enter the marriage with sizable liabilities. The low interest rate environment offers some obvious debt consolidation opportunities. Of course, this process is not so simple if only one of the parties comes to the union with debt. Often a spouse without debt is hesitant to sacrifice nest egg money to the debt he has married into — even though such a move is necessary to pave the way for many post-marriage financial events, such as a home purchase.

Whatever your recommendation, it is critical for both spouses to be comfortable with the debt-reduction plan. And in order to solidify personal credit ratings, be sure that both husband and wife retain credit cards in their own names.

Develop a Joint Asset Allocation Strategy

If both the future husband and wife have financial advisors, you may be asked to manage only a portion of their total assets. In such a case, you need to explain the benefits of consolidating their accounts and working with a primary advisor. When two advisors are involved, neither has a complete picture of a family's wealth, and this can result in a collection of investments at odds with one another. Consolidating with a single advisor allows the portfolio to be analyzed for:

Fragmentation issues — a number of small positions that aren't adding value to the couple's total portfolio.

Concentration issues — an inappropriate and unintended allocation to a particular security or industry.

Risk/reward issues — a portfolio that doesn't address the couple's evolving investment goals and risk-tolerance level.

Updating Important Documents

It may be a cumbersome task, but it's imperative that you have the new couple review and update their wills, living trusts and beneficiary designations. In addition, you ought to discuss how to develop medical directives should the need arise.

Insurance Needs

The loss of income because of health-related issues can be devastating to a couple, both financially and emotionally. Therefore, in addition to life insurance, the new couple should consider purchasing disability insurance. While an employer may offer some form of both life and disability insurance, you need to review the coverage and the fine print to determine if additional insurance is appropriate. With an older couple, long-term care insurance should be considered. This is especially important if either the future husband or wife has more significant assets — and a desire to pass along those assets to family members.

Prenuptial Agreements

Prenups aren't just for the wealthy or for people getting married for the second or third time. In fact, prenups are increasingly common in first-time marriages, particularly when one of the parties has been in the workforce long enough to accumulate assets. Prenups are also attractive to spouses who plan to trade their careers for homemaking after marriage. The prenup assures a homemaker that such a move will not be disastrous in the event of a divorce.

If spouses with substantial assets are reluctant about a prenuptial agreement, certain offshore trust structures may be appropriate. For people getting married late in life, concerns over divorce might carry less weight than those about death and, specifically, about ensuring the proper disposition of their estate when they pass away. In this case, a qualified terminable interest property trust (QTIP) could be ideal from both a tax-planning and family-dynamic standpoint — especially when one spouse is significantly more affluent than the other. A QTIP provides the less well-to-do spouse with an ongoing source of support, while protecting the trust's principal for the more affluent spouse's designated heirs.

For a couple in which one (or both) are not U.S. citizens, a qualified domestic trust (QDOT) should be considered. Assets passing to a non-U.S. citizen's surviving spouse will not qualify for the estate tax's unlimited marital deduction unless they go through a QDOT.

Setting the Stage for a Long-Term Relationship

As we've seen, there are many areas where you can add value to couples being married. Your guidance will not only alleviate money-related issues down the road, but it can also help strengthen relationships and set the stage for a long-term union between your practice and clients tying the knot.

Writer's BIO: Susan L. Hirshman is vice president at JPMorgan Fleming Asset Management.

Engaging Questions

A pre-meeting questionnaire for the betrotheds.

  • How did your parents handle the managing of their money?

  • Who in your family will pay the bills?

  • How much can one partner spend without consulting the other?

  • Will you be holding your assets in personal or joint accounts?

  • Have you put together a family budget?

  • Do you currently save for retirement through a company-sponsored plan?

  • How much do you hope to save each month?

  • What are your charitable intents?

  • Do you have financial obligations to other people (i.e. children from a previous marriage)?

  • How would each of you describe your investment style (conservative, moderate, aggressive)?

  • What are your short-term (1-3 years) financial goals?

  • What are your longer term (3+ years) goals?

  • What are your major concerns regarding your finances?

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