If you’re wondering whether you should have a financial contingency plan for your spouse or partner, let us help you arrive at an answer: you should! Statistically, one partner in a relationship typically manages the household finances. While major investments and purchases are often still joint decisions, the daily management of finances and bill payments largely falls to one partner.
While my wife and I collaborate on major purchases, I assume the role of Financial Planner at home, just as I do in my career, managing daily household finances and investment decisions. Recently, during a post-dinner walk, we found ourselves discussing what would happen if I were hit by the proverbial Mack Truck and suddenly incapacitated. Would my wife know the usernames and passwords for all our bank accounts? Would she be aware of where our mortgage is held and when payments are due? Would she be able to access my 401(k) plan or the kids’ 529 plans? Her response was candid: “I honestly don’t think so.”
This scenario raises a significant question: What happens when the household CFO can no longer fulfill their role? How will the other spouse —or family member—effectively navigate this situation? The answer is simple but essential: effective communication and a solid contingency plan.
The Basics
The best first step in creating your contingency plan is to clearly and systematically organize your assets. A simple net worth statement can be invaluable, providing a high-level overview of your financial situation.
While the net worth statement is an excellent starting point, additional work will be required to access your accounts. Sharing passwords can be extremely difficult, especially in today’s security-conscious environment. Most reputable financial institutions require that passwords be updated regularly and that the accounts enable two-factor authentication, making access to shared accounts more complicated. There are many reliable password management apps available for smartphones, but it is important to choose one that offers encryption to safeguard against potential hacks. Apple’s new app, Passwords, which is included in the iOS 18, is another great option.
Whenever possible, add your spouse or partner as an authorized user on your financial accounts. This will enable them to create their own login credentials to access shared accounts.
Estate Planning
According to LegalZoom, only 33% of American adults have created estate planning documents. Clients in our industry often believe that a will alone is sufficient for a comprehensive estate plan. One key document that is often overlooked is the Financial Power of Attorney. Given the rise in cyberattacks, financial institutions have become increasingly skeptical of anyone requesting access to one of their customers’ accounts. However, in the event of a spouse’s death or incapacitation, a Power of Attorney grants a designated person access to all financial accounts. Having assisted several clients through the loss of a partner, I’ve seen how critical this document can be.
Security issues are just the tip of the iceberg when it comes to estate planning strategies. An effective estate plan doesn’t have to be complex, but if you’re unsure where to start, consulting with an advisor or estate attorney can be immensely helpful.
DIY Investors
In the industry, we refer to the way a couple manages their finances as their “financial system.” Often, this system involves one partner handling all household investments without input from the other. This “do-it-yourself” approach includes making decisions about asset allocation, risk selection, and the timing of buying and selling investments. I suppose this strategy works for those who understand market dynamics and the tax implications of different accounts. However, this approach can also become a daunting and overwhelming burden for a spouse should the unexpected occur.
We recommend creating a survivor investment policy statement that addresses questions such as:
- What are your goals, and have they changed due to recent life events?
- Is the current investment portfolio structured correctly to achieve these goals?
- What is your risk appetite, and should the portfolio be adjusted to satiate that?
- Are there strategies that can be implemented to mitigate the impact of taxes now and in the future?
- What will your income needs be, and do we need to develop a distribution strategy?
- Should you hire a professional to manage your investments?
Where to Go from Here
Establishing a financial contingency plan is one of the most important steps couples can take to ensure long-term security and peace of mind. While one partner may manage most day-to-day finances, it is crucial for both partners to have a clear understanding of their financial situation and a plan in place for unexpected events. Whether it involves organizing accounts, establishing access protocols, or developing a streamlined investment strategy, investing time in preparation now can save your family significant stress and hardship in the future. As with any major financial decision, consulting with a professional can be invaluable in creating a plan that protects your family’s future.