The times are changing for good and now we have come from the orthodox route of having relationships and family. The generation now is freer to be and choose any kind of relationships they want to be in. The relationships that you are in or when you change it or circumstances change your relationship it impacts how you invest and manage your finance. This article deals with Impact on Investments Marriage Divorce.
Not all the status you are in a position to choose. For the eg death of a spouse or an unfortunate divorce. So whether happy or sad turn in life, you are impacted emotionally and financially.
We shall see how one can deal with this situation financially.
Change Relationship Status Impacts Investments
We shall discuss these 5 Status and their impact on Finance and Investments
- Live in
- Single Parent
- Death of Spouse (Widow/Widower)
This a 2 part article and in this first one we will cover marriage & divorce.
It is important that when you decide partners for life, important aspects like savings and investments are discussed with them.
When you marry life goals like buying a house, financing a long vacation, taking care of your child’s education, or even long term goals like your retirement become common.
Besides, transparency about finances and investments among spouses helps while dealing with family exigencies if the need arises.
Marrying may be an ideal situation but what about other change in relationship status such as marriage, divorce, re-marriage, living as a single parent, etc. …
Let’s begin with various scenarios…
It is good that couples spend more time planning their marriage. This gives time to discuss their views on money, goals and current assets.
The couple can be really different and even polar opposite. I have a client whose wife is completely into debt investments. And he himself is pure equity person who knows how equity can be beneficial in long run. And the irony is now he manages both the portfolio after marriage and struggling to arrive at a comfortable asset allocation.
Here is what should be your approach before marriage:
- Understand your life partner’s outlook towards money.This is knowing what he/she thinks about money.
- It is essential to understand how he/she deals with and approaches money. Some people are really stressed with money and few are obsessed.
- What motivates him to earn, save and invest?
- What is his attitude towards saving and investing? Is he/she a disciplinarian or casual?
- Is financial security on the top of his agenda? How much risk he/she is comfortable with.
- How does he/she invest? What are the current choices of investments and time of investments?
- Ascertain the investment horizon and his approach to different goals like short term goals like vacations or shopping and long term goals like retirements.
- His investment objectives & investment instruments he prefers and his detail understanding. Simple buying shares or investing in IPOs is not equity investing.
- Will he/she be comfortable that you deal in investments on his/her behalf?
This will provide you with a perspective and make a prudent intervention to chart a corrective course.
Financial goals reflect aspirations like buying a dream home, a car, electronic gadgets, traveling abroad, children’s future needs, retirement needs and a host of other goals.
Many of these goals now will be common like dream home or say vacations. It’s vital that the outlook towards money and investments are aligned suitably so that these aspirations come true for both partners.
Also, it is necessary for goals to be well-defined and written, to create a roadmap to achieve them.
Both partners arrive with certain assets and liabilities. Make a clear distinction between what is owned and owed combining. You see, debt is a major cause for many relationships facing stress.
Avoid jumping to conclusions about your partner’s debt. Instead, make an effort to recognize the reason and circumstances behind the debt – which could be a housing loan, personal loan, credit card dues, etc. – try to see the situation and factors behind that behavior.
Best way going forward is to share expenses: First step would be to carry the marriage certificate with other documents and open a joint account, wherein both credit proportionately (on a rational basis) a part of their earnings to meet daily expenses.
Investing in an individual capacity post-marriage can create problems on demise or physical incapacity of the spouse. Thus one should invest jointly and also add a nominee. Change nominees of old investment in case you wish to make spouse your beneficiary in future.
Once you have invested for your financial goals, you must also review your financial plan and see if your investments are progressing towards your goals, and make changes if necessary.
Life will take a lot of turns when you are together. We see couples facing a job loss, medical emergencies, going down in debt due to investing in multiple flats, losing major savings to start a business.
Situations like these do not have a tailor-made response plan to think before facing these. As a partner you should know:
- Support your spouse financial decision
- When to pull the plug
- When to call for help
- Again building what is lost
That’s what is union of marriage all about…isn’t it?
Parting ways are never easy after a mingled life. It has a bearing on health due to the stress, career, and finances. But there could be circumstances that compel you to move on in life.
Below pointers are my personal experience as my two best friends (one male another female) had to face a separation. Through them, I have really seen how both genders see it and prepare and often caught with no preparation at all.
While divorces are messy, emotionally challenging, involving negotiations and time taking, here are pointers to consider from a personal finance point of view in the interest of your long-term financial well-being/security.
Take into account the legal expenses involved. This will the second largest drain as it may take 6 months to an unlimited time. Lawyers are not a cheap service. With this, you may require paying for traveling, documentation, evaluation, and arbitration related expenses.
|Financial Fact: Lump sum alimony is tax-free – monthly maintenance is taxable. Judges and lawyers insist on up fronting the payment to benefit especially in the case of children under issue.|
If possible initiate divorce by mutual consent. Best for an emotional and financial reason – split amicably. It is really important to keep a dialogue with the estranged partner. A lot of things can be solved if you are in communication.
Set all emotions aside while doing the paperwork & documentation. Gather important documents such as identification proofs, investment papers, insurance policies, loan documents, credit cards, deeds of real estate agreements, and so on.
Liquidate joint investments/assets
Ascertain your savings component & investments. Try to liquidate it with the consent of the partner and transfer money from joint accounts to individual accounts. Likewise, split the other assets by selling and dividing or paying/accepting for your share.
Take a count of the debt i.e. how much you owe alone and jointly. Pay the joint loans by selling joint investments. Open loans are a major source of loss in future.
Assess the cost of living alone. There may a case when you have to leave your shared home or move to different job or city. Divorce can be economically difficult. Share your problems with a trusted friend or family member.
Avoid any major investments or purchases till the case is settled and you have a clear mind.
Once you are back (may be with a scar) it’s time to re-evaluate your financial goals and restructure your financial plan again. Be in touch with your planner and start. Like everything in life, this phase will pass too.
Besides a lawyer, also feel free to visit a professional financial advisor and check if your investment documents are in order and suit your new status.
In next article, we will go through the financial requirements by new age relationships like Live-in, Single Parent & Dealing with Spouse Death.
Share this article and feel free to tell us your encounters with this topic.