What Each Spouse Should Know About Finances

Just 28% of couples were "completely confident" that either spouse alone was prepared to steer their joint retirement finances, according to a recent study by Fidelity Investments.

Disability, divorce or death can thrust new responsibilities on spouses when they are ill-prepared. But talking about such "what ifs" can stir up uncomfortable questions and issues, so many couples avoid doing so.

"There's a tendency to say, 'Tomorrow, tomorrow, tomorrow,' " says Dorian Mintzer, a retirement-transition coach, speaker and author. Most couples "want to avoid confrontation and don't want to think about their own mortality," she says, even though "talking about it can free you up and help you try to plan what's ahead."

Here is what couples should do so that each partner will be able manage their financial affairs responsibly if they have to.

List of Assets

The best way to start the conversation is to make an inventory of assets, says Christine Palmer Hennigan, a certified divorce financial analyst and representative of Hornor, Townsend & Kent Inc., an investment firm in Horsham, Pa. Knowing what you own, and its value, will help you make informed decisions about how to distribute those assets when confronted with an unplanned transition, she says.

Start the list with financial accounts, including 401(k)s, individual retirement accounts, brokerage and checking accounts. Include where the accounts are held, whose name is on what account, and logins and passwords for any online accounts and assets.

Add insurance policies, indicating where those policies are held, whether the premium has been paid and whom to seek for advice about the policy.

Make a note of the beneficiary listed for each account or policy. Too many newlyweds forget to change the beneficiary of their 401(k) to their spouse from, say, their mother, says Stuart Ritter, a vice president and certified financial planner at T. Rowe Price Group.

In a prominent place on this list should be the couple's emergency fund and how to access it. Both spouses also ought to understand how their partner is compensated, including stock options and other deferred compensation.

Atypical Assets

Experts also recommend itemizing and valuing physical assets such as your house, car, or boat, as well as assets not typically mentioned in a portfolio, like airline miles, hotel points and vacation timeshares.

"I had one client who collected Civil War memorabilia," says Jerry Focas, an estate-planning lawyer in Towson, Md. "He had some really valuable stuff, and some junk that he just liked." Mr. Focas says the client identified someone he trusts to help his family liquidate those assets should the need arise.

Mr. Focas says he advises clients to write up not just a list of assets but a detailed letter explaining how some of those assets should be managed. "Investment assets will to some extent take care of themselves," he says, but other assets like collections, boats or rental properties can "have special maintenance needs."

Ms. Hennigan suggests the list also should propose the order in which assets should be tapped either in retirement or in case of an emergency, with an eye toward maximizing the assets' value and avoiding taxes or penalties for early withdrawals, for example.

Once the list and letter are finished, they should go in a safe place—but not until you've had the conversation: a frank discussion in which both partners talk about the assets and how the management of those assets fits into their financial security and long-term goals.

When Disaster Strikes

John Sweeney, executive vice president of retirement and investing strategies at Fidelity, says that when couples openly discuss how much they are willing to save and spend, it prepares them for when disaster strikes.

Says Mr. Sweeney: "When you encounter a bump in the road, you can say, 'I've thought through this situation during a period of calm in my life,' so there's a whole lot less emotion and I can execute a plan."

Ms. Hennigan, the divorce financial analyst, recalls a client who after her divorce was flummoxed by the investment portfolio that she assumed from her ex-husband. The portfolio was "very aggressive," Ms. Hennigan says, and lost a lot more money in market downswings than a portfolio more aligned with her client's risk tolerance would have.

"The fact of the matter was, she could have been in a portfolio that never had to lose money, and it cost her such stress and loss of assets," says Ms. Hennigan. This could have been avoided if both partners had more openly aired their goals, she says.

Ms. Rosenthal is an editor for The Wall Street Journal in New York. She can be reached at [email protected].