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Prenuptial Agreements

November 19, 1996|Debora Vrana

Neil McGurty is making one of the biggest changes in life: He's getting married.

And if that isn't enough, the part-time college instructor and graduate student is moving with his wife-to-be to the Baltic state of Latvia, seeking a good-paying job teaching English.

Now, as with any young couple just starting out, McGurty, 31, and his fiancee need to prepare financially. They must begin planning now if they want sufficient retirement savings, a down payment for a home, and children.

"I've never thought much about any of these things--retirement, life insurance, bonds, mutual funds," said McGurty, who lives in Ontario, Calif., with his parents while his fiancee attends a university in New York.

As are many younger couples about to be married, McGurty and his fiancee are too caught up in the rush of romance and life to spend a lot of time discussing the nuts and bolts of their finances and long-term goals. McGurty said he hadn't yet told her about the nearly $15,000 he owns in stocks or the amount of his cash savings.

Before they get married in July, the couple will need to get money issues out in the open, or money problems could come between them later, warned Robert Keats, a certified financial planner in Phoenix.

The different spending and saving habits of each spouse could put a lot of stress on the marriage, he said. That can be defused by discussing how much they will save early on, and that in turn will determine the amount of money they can spend.

"She's never had any money," said McGurty of his fiancee, Iveta Silova, a 23-year-old Latvian he met while he was a Peace Corps volunteer. Silova graduates from Columbia University's Teachers College in New York this spring.

"I think she knows even less than I know about all this stuff," McGurty said. "Frankly, we just haven't had any time to talk about this."

That needs to change, said Keats, a fee-only financial planner who specializes in "cross-border planning" for those living abroad.

"You and your wife will need to plan together, figure out what your assets are, set priorities and prepare for the future," he told McGurty.

McGurty thinks they will move back to the United States and will want a home here in about five years, but he doesn't know when they will have children because they haven't discussed it. The decision about children will make a dramatic difference in the couple's finances.

To get on track financially, a couple needs to plan and set realistic target dates for major life events, Keats said.

Because he doesn't expect to buy a home for five years, McGurty has time to get a good nest egg together. He already has some savings and no credit card debt, which will help him purchase a home. He has saved $34,000 in low-yielding bank certificates of deposit.

He also has nearly $15,000 in five single-company stocks, some of which were gifts from family members. They are Chevron Corp. shares worth $4,000, Bank of Santa Maria shares worth $8,000, Compaq Computer shares worth $1,300, Sunrise Medical shares worth $900 and Ascend Communications shares worth $500.

His car is paid for, and his debt largely amounts to a $11,000 student loan at 8% interest that won't come due until 1998.

It's important that the couple establish a regular savings plan straightaway, Keats said.

First of all, McGurty needs to set up an individual retirement account for 1996 and put $2,000 in it each year, or roughly 10% of his expected salary. For McGurty, the contributions can be tax-deductible because his expected annual income is under the federal cutoff level for that benefit. While abroad, he should continue putting money in the IRA on a nondeductible basis, because his foreign-earned income is not likely to be taxable, and then, assuming his earnings remain at a similar level, on a tax-deductible basis when he returns.

That money should all be earmarked for retirement savings.

To buy a home, the couple will need to save even more. They should aim for a 20% down payment, meaning they'll need at least $20,000, Keats said.

Each month, McGurty and Silova should put aside $500 or as much as they can of their salaries in a separate account earmarked for a house.

"It's going to be tough, but if both of them are working, they should be able to save another $10,000 a year for a house," Keats said.

Once in Latvia, McGurty expects to make about $25,000 a year teaching English, although neither he nor Silova knows how much they'll actually earn.

As do many recent graduates facing a scarcity of good entry-level jobs in today's climate of corporate downsizing, the two think teaching English abroad will be a way to boost their careers and make a transition to more lucrative posts.

"Whether or not we stay depends on whether our opportunities pan out," McGurty said. "To be honest, we don't know what's ahead for us in Latvia."

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