In many households, one partner typically is the money manager.
He or she may write all the bills, make all the investment decisions, work with
the financial advisors, and prepare the annual tax returns. In other households,
partners may split the duties, and never the twain shall meet. The left hand doesn't
know what the right hand is doing.
The danger with either of these scenarios is that crucial financial decisions may
not be made properly, or the death or disability of one partner may leave the other
partner in the financial dark. That's why it is important for both partners in a
relationship to discuss their overall financial picture and share the major financial
decisions.
From the standpoint of efficiency, it often makes sense for one person to handle
the finances. For example, bills are less likely to be overlooked if only one person
is responsible for paying all the household bills. Furthermore, one partner may
not be financially competent or may not have the time or interest.
However, it is important that the partner not involved in a particular financial
task at least knows what the other person is doing. Take bill-paying. A good place
to start is with a budget. One person might assemble the month's budget – but both
partners should look it over –especially if the budget is tight, and they have to
make decisions where to spend their money.
It's also common for one partner to be in charge of savings and investments. However,
investment decisions should always be made in the context of household goals. Both
partners should be involved in goal-setting! Even if only one person actually selects
the investment vehicles and does the necessary paperwork to make it happen, the
other person should be informed as to why a particular fund was picked or why the
portfolio is allocated the way it is to stocks, bonds, cash, and other asset categories.
Tax returns, too. One partner might fill out the return, but the other partner should
review the return and ask questions about any items he or she doesn't understand,
before co-signing the form.
This mutual sharing of financial information not only helps keep the relationship
waters running smoothly – finances are a frequent factor in troubled marriages –
but also becomes critical if the money-managing partner becomes disabled or dies.
The other partner may not be able to take over complete management immediately,
but he or she will at least know in general what his or her financial picture is,
what needs to be done, and will be able to work with professional help to make or
execute specific financial decisions. Being informed also reduces the ability of
scam artists to prey on an ill-informed surviving partner. In divorce it protects
the less able partner from being taken advantage of by the other partner.
If there is the concern that one partner won't be able or is unwilling to manage
the money in the event something happens to the other partner, professionally managed
trusts can be set up.
In all circumstances, good record-keeping is essential. Each partner should know
where everything is located. Both partners should also have the names and phone
numbers of all financial professionals. Better yet, meet them, especially key advisors,
such as a financial planner and attorney.
This column is produced by the Institute of Certified Financial Planners, a national
association representing the top financial planners in the country, and is provided
by Carl W. Landis, CFP, a local member in good standing of the Institute. Carl is
a member of APEX Community Federal Credit Union and has his office in Pottstown
(610) 323-3374. Carl is a Registered Representative of and offers securities through
Mutual Service Corporation member NASD/SIPC. Securities offered are subject to investment
risks including loss of principal.