It often comes up in conversation for us: If one spouse manages the finances and investments, how should the other, less involved spouse manage their role? How should the couple work together?
While there is no cut-and-dry answer, it is a situation where anyone who is married and in a more passive role about their family finances should ask themselves: “How should I be involved?” After all, your finances are critical to your long-term well-being. To not be at all involved is analogous to handing over control of your physical health. It just isn’t something you should do.
Likewise, if you are the more active spouse, leading the family’s financial strategy, you should be concerned about how best to involve your more passive partner. After all, one day he or she may need to manage things without you.
Over the years, we have met countless married couples and have seen that transparency is best. Here’s how to get there….
Do your best, as a couple, to get into the specifics together:
Whether you have a financial advisor or not, have a spousal meeting at least twice a year about all the strategic, long-term financial issues: retirement investing; education funding; life, health, and disability insurance; long-term care strategy; property and casualty insurance; trusts and estates documentation; charitable giving strategies; spending priorities; planning for any other goals. Some of the topics can be annual if your life is not changing much.
When you have your spousal meeting, walk through all these topics, with the less involved spouse asking for any needed clarification along the way.
Get granular on the investments. For example, walk through every investment statement together. If you have a financial or investment advisor, do this with them.
If the more active spouse is a do-it-yourselfer, she or he should be able to explain the purpose for every individual holding among your investments. They should be able to discuss the approximate “expected volatility” and the approximate “expected return” of the portfolio. If they don’t know what these quoted items mean, it may mean the more involved spouse needs help with investing concepts, which could be an important learning opportunity. Also, they should be able to explain how the portfolio is “well diversified.” If they cannot, that also probably indicates a knowledge gap.
If you have a financial advisor, it may be hard to schedule a long enough meeting to discuss every holding, so you could pick a few holdings to ask about, and see how comfortable you are with the answers you get. Also ask for a report on—and discussion about—the “aggregate characteristics” of the portfolio, such as the amount of U.S. versus international equities, and the amount of equities overall versus bonds. If your advisor is unable or unwilling to do this, that could be a warning sign.
See also our appendix list of questions, below.
Get granular also on the other items—spending, debt, insurances, trusts and estate documents, etc.—as well. Long-term financial management involves strong conceptual thinking, but it is always implemented in details. As in so many disciplines, “the devil is in the details.” Looking at the summary pages for every insurance policy and every mortgage every year is a good idea. It’s okay, typically, to review trusts and estate documents every few years, unless something major is changing in your family.
Include your financial advisor, if you have one, on these items at least every two or three years. Consult your attorney at their recommended frequency, likewise your insurance advisor.
See also our appendix list of questions, below.
Specific guidance for the more active spouse:
Do be mindful of the leadership role you have here for your spouse and your family. It’s important for you to put your ego to the side and be open to the possibility that you may have concepts yet to master, or that more or different professional help could be a good idea.
It helps some people to be reminded that the media are sending the message that savvy investing is easy for do-it-yourselfers. Please take our assurance that it is not easy. There is a substantial body of knowledge for a do-it-yourselfer to learn and master. It’s more than “okay” to need to learn more, or to need help.
Specific guidance for the less involved spouse:
The key with all these steps is to press the people you are counting on—whether it is the active spouse and/or a financial advisor—to explain the details. If an explanation is unclear or confusing, ask for clarification; don’t be shy. Sometimes a metaphor can help; don’t hesitate to ask for one.
With persistence, the less involved spouse should be able to get a good sense of the mastery and detail-orientation of the person explaining. And this could allow you to get a better sense of whether the active spouse may need more learning, or more or different professional help.
We prepared an appendix (below) with our list of top questions for less involved spouses to ask. It’s not exhaustive, yet it covers some of the common areas where we have seen problems.
For our clients, we strive to facilitate clarity and address the below questions together. If you’re encouraged to move towards more transparency for your family finances, we invite you to contact us to open a conversation.
Appendix list of questions, for the less involved spouse to ask:
What are our various saving and spending strategies for retirement, education, and other goals? Why are these the right strategies?
Which accounts are meant for our retirement? What is their percentage of equities (they should be able to show you a report or tell you how they know that number)? What percentage of the equities is international (it should be well more than zero)?
How well diversified are our equities? How can I see that, please?
Do we have any stock positions that are more than 2-3% of our wealth? Why not more diversified? (If there are a good number of large positions, ask to get more diversified.)
What percentage of our stocks are in each sector of the economy? How does this compare with a “neutral stance,” like an index fund would have? (If some significant sector over-representation, ask to get more diversified.)
What percentage of our retirement accounts are in bonds (or “fixed income”)? How can I see that? Why is it that percentage versus higher or lower? How well diversified are our bonds? How can I see that, please?
What are the details of our mortgages and how much equity do we have in our properties? Also, what are our other debts, if any?
How much life insurance do we have on each of us? Why that amount? When does it expire? Why is that expiration date okay? (What about the risk that your/my health changes when we think we might want more insurance?)
What is our strategy for long-term care? For healthcare? For disability?
What are the key provisions of our wills and trusts? Show me, please. Why those choices?
Please show me all the key property and casualty coverages. Why are those our limits?