His, Hers and Theirs For years Jennifer and Coupar Lester have kept their investments separate. The result: no coordination and too much risk. It's time for a financial makeover
(MONEY Magazine) – Jennifer and Coupar Lester had their first big row seven years ago, before they got married. It was about money--$100 that Jennifer had spent on a pair of jeans, to be specific. Coupar, who buys his shirts at Costco, was aghast. Jennifer was defensive. The couple finally decided that although they were compatible in almost every way, money management was an exception.
So they came to an agreement that is becoming more common among two-career couples: Each one would keep control of his or her own money. They promised to divvy up the household expenses and save 15% of their earnings. After that they were on their own. Today they both swear that their ability to maintain financial independence is responsible, at least in part, for their happy marriage. Unlike their friends, they say, they never fight about money.
But their financial harmony has come at a price: Coupar, 38, and Jennifer, 32, have never coordinated their finances. Without consulting each other, both have put nearly all of their savings into high-risk, aggressive investments. Coupar also owns some highly leveraged investment real estate: a one-third share in a Beaver Creek condo and a $425,000 spec house that he's building, financed by a construction loan and a home-equity line of credit against their Denver home. They have just $13,000 for emergencies in a savings account in Jennifer's name. (She has another $13,000 in cash in her SEP-IRA.) Until Coupar's grandmother gave him $71,000 of Federal Home Loan Bank bonds three months ago, he had almost no fixed-income investments.
This mix of investments is particularly unsuitable for the Lesters because neither one has a steady income. Jennifer is a partner in a tiny public relations firm, and Coupar, a mortgage broker, is paid solely on commission. Each brought in about $60,000 last year, but there's no guarantee that they'll do as well in the future.
However separate their finances, Jennifer and Coupar do have shared goals: a more spacious home, a secure retirement and college for daughters Ruby (almost four) and Roan (10 months). To reach those goals, they need a plan that reduces the risk in their portfolio and accommodates their desire for independence. And they need to learn how to talk about money.
IN MARRIAGE, MONEY IS POWER
All couples need to give themselves some room to maintain their individual identities. When their differences are financial, the going can get rough. "Money is certainly one of the most important expressions of power in marriage," says Eli A. Karam, a clinical fellow at the Family Institute at Northwestern University. Control of the purse gives you clout in a relationship, whether or not you acknowledge it. Karam adds that it's becoming rare for married people not to retain some individual accounts. Young women in particular, he observes, want to maintain their financial independence. This is certainly true of Jennifer Lester, who is passionate about her need for autonomy.
For his part, Coupar is the first to admit that he's a tightwad--except when it comes to skiing gear, Jennifer points out--and that his thriftiness sometimes drives his wife crazy. While he has a sense of humor about it all (his friends, he says, gave him the nickname Coupon), he is a true believer in frugality. "As a mortgage broker, I see a lot of people's financial statements," he says. "Some people earn a lot and build a lot. It's impressive. With others I think, 'You're going to be a Wal-Mart greeter till the end of your life because you aren't saving anything.'"
Coupar wants to build wealth, but not at the expense of his family. He recalls that as a child he missed spending time with his father, who worked 80-hour weeks. He'd rather spend less than live in the office; frequently he joins Jennifer in working from home.
His decision to get off the fast track is not a source of disagreement. Jennifer has made the same choice. But it makes putting their finances in order all the more important. That doesn't require total financial togetherness--a good thing, since Jennifer shuddered at the idea of pooling her money with her husband's. It does, however, require communication and flexibility. Couples, says Karam, "have to commit to a lifelong dialogue about money. People change jobs and occupations throughout life. Anything can happen. You have to have a pretty good plan and a willingness to change."
Karam says the Lesters should make a point of discussing alternative ways to run their household. "What would they do if they had to change their plan? Could they resolve their differences?" he asks. Karam also suggests that they experiment with a joint household account.
THE LESTERS' MAKEOVER
MONEY took the Lesters' portfolios to Sarah Williamson, a Denver financial planner affiliated with Ernst & Young. Her task: to draw up a solid plan that would respect Jennifer's and Coupar's desire to be independent. Each spouse needs a portfolio that can stand on its own.
Williamson's program for the Lesters has four parts.
1. BUILD A CASH CUSHION. Although the Lesters are great at putting away money, they put it all into long-term investments and don't keep enough cash on hand. And when their cash flow slows they run up credit-card debt. Coupar has no savings account and owes approximately $8,000 on his credit card. Jennifer's $13,000 in savings is earmarked for her daughters' education. Williamson's advice: Transfer Coupar's outstanding balance to a no-interest card and pay it down while building an emergency fund equal to his share of the family's living expenses for three months.
2. OPEN 529 COLLEGE SAVINGS PLANS FOR EACH OF THEIR CHILDREN. Colorado allows parents to deduct contributions from their state income tax, which makes the in-state plan a good choice for the Lesters. First, though, they should check whether their children might qualify for financial aid in the future, as a 529 could limit potential awards. (To test eligibility, go to finaid.org.) If they enroll in the Colorado plan directly rather than through a broker, there's no sales load. Jennifer's and Coupar's families can also contribute.
3. SET UP A LIMITED-LIABILITY CORPORATION FOR THEIR INVESTMENT REAL ESTATE. The Lesters' real estate investments concern Williamson. Both buildings are largely financed with debt, including $52,000 from their home-equity credit line. Forming a limited-liability corporation to own and manage the properties would shield the Lesters from financial disaster in case of a lawsuit or a real estate downturn, which could leave them owing more than the buildings are worth. And they should delay any new real estate projects--Jennifer wants to try an office building--until they sell the spec house.
4. CONSOLIDATE AND REALLOCATE ASSETS. Coupar holds his $147,000 portfolio--including his current 401(k), the 401(k) from his previous job, some IRAs and a taxable account--in a random assortment of financial institutions. (For instance, he has individual stocks in one account with Schwab and another with E-Trade.) Consolidating into a single account would give him a better sense of what he owns and make his investments easier to manage. He'd also save more than $200 a year in account maintenance fees, an idea dear to his frugal heart.
Like many investors, Coupar believed that since he owned various stocks and funds, he had adequately diversified his investments. But most of his funds fit squarely into the growth-stock category. Although his grandmother's $71,000 gift provides ballast, he needs to add to his small international stash and think about some value funds. (Williamson's recommended allocations are at left.)
Jennifer's $27,000 in growth funds and individual stocks (almost all in SEP and Roth IRAs) is offset by her oversize cash stake, but her equities aren't diversified. Since she is adamant about piloting her own ship, her allocation should mirror Coupar's rather than complement it, Williamson says.
All this sounds good to the Lesters. They've even decided to visit a planner together. That way, they reason, while their portfolios may be separate, their united future will be on track.