Money

Merging Your Money When You Marry

If you’re newly engaged or just tied the knot – Congratulations! Getting married is exciting, but it can also come with several challenges. One challenge that you and your spouse will have to face is how to merge your finances. Planning carefully and communicating clearly are important, because the financial decisions that you make now can have a lasting impact on your future.

Discuss your financial goals

The first step in mapping out your financial future together is to discuss your financial goals. Start by making a list of your short-term goals (e.g., paying off wedding debt, new car, vacation) and long-term goals (e.g., having children, your children's college education, retirement). Then, determine which goals are most important to you. Once you've identified the goals that are a priority, you can focus your energy on achieving them.

Prepare a budget

Next, you should prepare a budget that lists all of your income and expenses over a certain time period (e.g., monthly, annually). You can designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both you and your spouse are going to be involved, make sure that you develop a record-keeping system that both of you understand. And remember to keep your records in a joint filing system so that both of you can easily locate important documents.

Begin by listing your sources of income (e.g., salaries and wages, interest, dividends). Then, list your expenses (it may be helpful to review several months of entries in your checkbook and credit card bills). Add them up and compare the two totals. Hopefully, you get a positive number, meaning that you spend less than you earn. If not, review your expenses and see where you can cut down on your spending.

Bank accounts--separate or joint?

At some point, you and your spouse will have to decide whether to combine your bank accounts or keep them separate. Maintaining a joint account does have advantages, such as easier record keeping and lower maintenance fees. However, it's sometimes more difficult to keep track of how much money is in a joint account when two individuals have access to it. Of course, you could avoid this problem by making sure that you tell each other every time you write a check or withdraw funds from the account. Or, you could always decide to maintain separate accounts.

Credit cards

If you're thinking about adding your name to your spouse's credit card accounts, think again. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it will negatively impact the credit rating of the other.

If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won't show up on the authorized user's credit record. But remember, you remain responsible for the account.

Insurance

If you and your spouse have separate health insurance coverage, you'll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. For example, if your spouse's health plan has a higher deductible and/or co-payments or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You'll also want to compare the rate for one family plan against the cost of two single plans.

It's a good idea to examine your auto insurance coverage, too. If you and your spouse own separate cars, you may have different auto insurance carriers. Consider pooling your auto insurance policies with one company; many insurance companies will give you a discount if you insure more than one car with them. If one of you has a poor driving record, however, make sure that changing companies won't mean paying a higher premium.

Employer-sponsored retirement plans

If both you and your spouse participate in an employer-sponsored retirement plan, you should be aware of each plan's characteristics. Review each plan together carefully and determine which plan provides the best benefits. If you can afford it, you should each participate to the maximum in your own plan. If your current cash flow is limited, you can make one plan the focus of your retirement strategy.

Choosing The Right Method For You

The most important thing in deciding how to combine finances is to be honest about your feelings from the start and always keep an open line of communication. Money is frequently considered to be the biggest strain on relationships, but working together to find solutions that work for everyone can reduce some of the stress.

If you’re looking for some objective outside perspective to help make some of these tough decisions, please feel free to schedule a free consultation. We also have a great checklist for newlyweds – click here to get your copy.

How Do Restricted Stock Units Work?

A question I often get from clients and friends – “I have these things called Restricted Stock Units (RSUs)what are they and how do they work?”

An RSU is a contractual right to receive company shares or an equivalent cash payment at some point in the future. They are an increasingly popular form of equity award offered by companies of all shapes and sizes. Many companies here in the Raleigh-Durham area have shifted to RSUs because they are administratively convenient, are “easy” for employees to understand, and can be structured in a way that helps attract and retain key employees and drive performance.

So with that in mind, let’s take a closer look at what RSUs are and how they can work for you.

You’ve been granted RSUs: Now what?

If you’ve been granted RSUs, congratulations! It’s most certainly not a bad thing! You have likely been given this equity award because you are valued, and your employer wants you to stay with the company and meet certain performance benchmarks. But it’s important to understand that your employer has merely promised to deliver shares (or an equivalent cash payment) to you at a future date. As such, RSUs can be thought of as a form of deferred compensation.

You do not owe any tax at the time of the RSU grant. In fact, you will not owe tax until you actually receive the shares. RSUs typically come with a vesting schedule, and there may be performance conditions that must be satisfied before the stock can be delivered. Unlike a stock option, your RSU has intrinsic value; whether the value of the company increases or decreases after the grant, the stock will have value and can never be “out of the money.”

What happens when RSUs vest?

Once RSUs vest, they will be delivered to you and you will recognize ordinary income based on the fair market value of the stock at the time of delivery. Unlike with stock options, no analysis regarding when to exercise is needed. In most cases, the employer will withhold shares in order to cover the tax, delivering the net shares to you. You may have additional options for withholding, you may be able to elect to receive cash instead of stock, or you may be able to defer the delivery of the shares beyond the vesting date. Be sure to check your plan document to ensure that you understand all of your options.

Once you own the employer stock, you are free to hold it or sell it immediately. Your cost basis in the shares is the fair market value on the date they were delivered. So, if you sell the shares immediately, there will be no additional taxable gain. But if you choose to hold the shares and sell them down the road? You would pay capital gains tax on any gains earned since you acquired the shares; if the shares decrease in value, you would have a capital loss that you can use to offset other capital gains.

Planning questions you should be asking

 

·       Should I hold or sell?

·       What happens if I leave the company?

·       What if I’m planning to retire?

·       What’s the risk?

·       Will I be pushed into a higher tax bracket?

 

A valuable benefit

RSUs can be a valuable piece of an employee benefits package, especially when they are incorporated into a financial plan. As you can see – there are lots of moving parts and several important questions that need to be reviewed. Working with a financial advisor and tax professional can help you plan accordingly and make the most out of your RSUs.

Still confused or want to talk about your situation – contact us and we’d be happy to schedule a time that is convenient for you.