Finding the time to meet someone and date are really hard when you work in tech. There are the long hours at work, and the frantic pace of San Francisco. But, if marriage is part of your plan, a number of factors could lead to working with your spouse at the same company.
The New York Times reported on how the Don Draper’s of the world used to marry their secretaries but are now marrying other executives.
On average, we are getting married later leading us to the workplace as natural spot to meet someone. There is the rise of assortative mating where people choose a spouse similar to themselves (similar education, income, etc.) which is also contributing to the trend.
Tech is no different.
Since you finished your undergrad degree, your life has become more focused and specialized. This can contribute to a narrower group of social contacts a lot of whom are like you.
Whether in grad school or at work, there’s a good chance you will choose a spouse who is in tech too.
Other writers have done a great job of reporting on the impact that sharing a workplace can have on your relationship:
The focus of this post is on how two spouses working for one tech company can impact your financial plan.
Here’s what you will find in this post:
- Marriage and Money – the basics of building a solid money foundation for your marriage
- How to Plan for Both Spouses Working at a Start-Up
- Planning for a Shared IPO
- What if We Both Work at a Publicly-Traded Tech Company
Two Tips for Working with Your Spouse
There are a few general items you need to take care of before adjusting your financial plan to work at the same company.
- Get on the Same Page – Talk about money. Be careful about the how, when and where of your money talks. Do not have big money talks while you are at home, watching TV, about to go to sleep, or otherwise distracted. Schedule a time to meet together and discuss your shared finances.
- Hire an Advisor – Talk about money, discuss hiring an advisor, and meet with the advisor together. Your advisor is an independent third-party. She doesn’t feel the emotions you feel about your life and money.
Our experience with married couples is that working with an advisor creates a sense of commitment to and investment in managing your money together.
Taking care of the basics will get you ready to plan for working at the same company.
How to Plan for Working with Your Spouse at a Start-Up
Working at a start-up changes the financial plan of single, tech employees. The risk and exposure is doubled for a married couple.
Start-ups fail. There is a greater risk that you both will lose your job. You hope if it happens that your unemployment is limited to the misfortunes of your employer and you can simply move to another job.
The worst case is that your job loss occurs as part of larger factors affecting the entire tech industry. You both may be out of work when finding a new job is not as easy as a trip around the block in San Francisco.
A larger part of your compensation working at a start-up will be stock options and equity. Stock options at a start-up are hard to value, the risks are tricky, and there may not be an opportunity to realize the value in the form of cash for years or more.
You and your spouse will get a larger share of the pie with your combined equity. But, it adds another level of complexity.
Take a look at three parts of your financial plan if the two of you are working at a start-up:
- Cash and Emergency Reserve
Our normal recommendation is to keep ten percent of your annual income in cash. You pair that cash in the bank with an emergency reserve of twenty percent of your annual income or twenty percent of your outstanding mortgage balance.
A couple both working earning $300,000 would keep $30,000 in the bank and $60,000 in an emergency reserve. With a mortgage balance of $800,000, the emergency reserve would grow to $160,000.
Working at a start-up, you and your spouse are taking very concentrated risk. It’s not quite like starting a company, but it’s a lot different than working for Google or Salesforce.
Evaluate your cash needs. Keep more cash on hand than you normally would. Evaluate your stock options and set aside cash to pay for exercise.
- Investment Strategy
Should you work the start-up by day and buy shares of Twitter and Facebook by night?
Adjust your investment strategy around the concentrated risk you both are taking at work.
Don’t make the mistake of considering work, stock options, and 401(k) as pieces that are best viewed individually.
Each piece is part of one puzzle. Our goal is to build a lifetime of wealth. We need to take smart risks.
The recommendation to increase your cash and emergency reserves flows through to your other investment accounts. Avoid individual stocks, especially the stocks of publicly-traded tech companies. Invest more in bonds. Broadly diversify in both stocks and bonds.
- Stock Options
Your stock options will be a big part of your shared compensation as a couple. Part of the stock option piece starts with negotiating a job offer. You or your spouse may have the opportunity to trade salary for equity or vice versa.
We usually view the salary vs equity decision through the lens of risk capacity. How much risk can you afford to take?
We start by looking at your living expenses. Having a gap between your living expenses and the salary in your job offer, where salary is greater than expenses, gives you the ability to take less in salary. With both of you working, you may find this is true for you because of economies of scale with two people sharing one household.
Do you have a consistent savings habits? Good savers, who have little to no debt, may be able to afford taking more risk in the form of increased equity and less salary.
What are your other resources? You may have greater risk capacity if you have had time to accumulate a lot of assets. You also want to evaluate your ability to exercise your options. Having stock options is great, but without the ability to pay for an exercise those options are worth a little less.
Taxes have a huge impact on the potential realized value (net cash received in future) of the stock options you and your spouse are granted. The real opportunity is to receive Incentive Stock Options (ISO), with the ability to early exercise.
Look for this as you evaluate a job offer.
Beyond stock options and a potential big payday, your first concern working at a start-up should be your career and company. The tips above will help you decide if both of you working at the same start-up is the right move to make.
Planning for a Shared IPO
Career and company may be your first concern, but you are exchanging more salary at a larger company for more equity at the start-up. The plan is for that equity to pay off some day. Be ready when it does.
Watch out for taxes. An IPO does some crazy things to your taxes.
You may have started out with Incentive Stock Options. The company grew. There were additional rounds of funding. Along the way you were granted Nonqualified Stock Options (NQSO) and Restricted Stock Units (RSU). All three are taxed differently.
In some cases, being married and working with your spouse helps save you money on your taxes. Your deductions and tax benefits can be increased by being married (two personal exemptions, more income at lower tax brackets). The benefits start to fade at higher income tax brackets.
The IPO may push into the top tax brackets, where the benefits of being married are less.
RSUs can trigger a lot of ordinary income without you doing anything. You and your spouse worked hard all year. You know what your salaries are. Then in January you get a W2 showing a million dollars plus in income.
The time to plan is now.
Hopefully you were able to early exercise both of your ISOs to convert more of that income to capital gains. There are other things you can do by timing the exercise and sell of your shares and planning around the Alternative Minimum Tax. Be sure, when you start selling, to check the basis of your shares to avoid being taxed twice.
Working with Your Spouse at a Publicly-Traded Tech Company
Equity and options are less of a concern. The salary and benefits should be better.
You may feel like you and your spouse are less exposed, but the risks of working at one company remain. Your salaries and benefits are concentrated in one place.
If the company suffers and you both lose your job, your income goes to zero instead of being cut-in-half the way it would if you had different employers.
The basic strategy is to maximize the benefits made available to you while you work there. Here’s how:
- Employee Stock Purchase Plan
An employee stock purchase plan (ESPP) allows you to purchase your employer’s stock at a discount, usually 15%. Your ESPP will have two six-month offering periods per year. You can contribute up to 15% of your pay to the ESPP and purchase no more than $25,000 in stock. The contributions then purchase stock at a 15% discount.
With a salary of $125,000 and a max contribution, you will contribute $18,750. Your $18,750 contribution will purchase stock valued at $22,059. You just increased your potential income by $3,309 or 2.6% of salary.
Your ESPP may have other features that set the price even lower making the potential gain greater.
With two spouses at one company, you can double the benefit. You each earn $125,000 and contribute 15%. Your total contributions are $37,500. Your contributions purchase stock valued at $44,118 an increase of $6,618.
Your 401(k) should have more features and a better match than what you might find at a start-up.
Double the benefit. You and your spouse should make max contributions and fully capture the employer match.
Your 401(k) may also have features such as after-tax contributions and in-plan Roth conversions. You will want to explore these if you are looking for places to save even more.
Prioritize your savings by maxing your pre-tax 401(k) to save on taxes, contributing 15% to your ESPP to get the discounted stock, and then consider an after-tax 401(k).
- Restricted Stock Units (RSU)
Restricted Stock Units are taxed as ordinary income. On the day they vest, shares will be sold to cover withholdings. The income and withholdings show up on your pay stub. The one-year holding period for long-term capital gains starts on the day the shares vest.
Our usual approach is to recommend selling the shares as soon as they vest. This effectively converts the shares to a cash bonus that can then be directed into your investment plan. Selling the RSU shares allows you to be done with taxes related to the shares since they were paid at vest and manages your exposure to your employer’s stock.
If you want to invest in the stock instead, decide on a percentage of your portfolio to allocate to your company’s stock. Let’s say 20%. Twenty percent of $1.5 million would be $300,000. You will then sell existing shares to get down to $300,000 or accumulate shares through your RSU and ESPP until you hit $300,000.
The approach we use remains the same with two spouses at one company. The difficulty of managing the RSU will increase because you will be working with two sets of shares (your shares and your spouses).
Agree on the approach you will use and automate the sell of your shares if you can.
- Avoid Phantom Exposure
Most people think about their RSU shares and employee stock purchase plan, when talking about how much investment exposure they have to their employer. You need to think about phantom exposure if you want to avoid being overly concentrated in your employer’s stock.
Target date funds are a popular option in 401(k) plans. It’s simple. You invest in one fund that gives you exposure to stocks and bonds based on how many years you have till retirement. But, what’s inside the fund?
Take for example the Vanguard Target Retirement 2045 Fund (ticker VTIVX). VTIVX like most target-date funds is a fund of funds, meaning that the fund invests in other mutual funds. 54% of the fund is invested in the Vanguard Total Stock Market Index Fund (ticker VTSMX).
A review of the top 50 stock holdings of VTSMX will reveal a number of bay area tech companies including:
Making max contributions and with rollovers from past employers you and your spouse will accumulate significant assets in your employer 401(k). Watch for phantom exposure to your company stock by checking the stock holdings within your 401(k) investment options.
- Individual Insurance
Your employer life and disability insurance may be good enough if it’s just the two of you. This changes when you have kids or both end up at the same company.
Rates on group life insurance (like an individual policy) are priced based on your age. Early on in your career you may be able to obtain group insurance at a significant discount compared to an individual policy.
This changes as you age. Plus having your insurance wrapped up in one company instead of two further increases your exposure to the fortunes of the company you both work at.
Look at the income replacement or insurance benefits that are unique to your workplace. Large, publicly-traded tech companies usually have great benefits. The benefits they offer are one way they compete with start-ups for tech talent. Just like with the 401(k) and ESPP, if your company offers a benefit that goes beyond basic life and disability make sure you both take full advantage.
Basic group life and long-term disability is different. It’s easier to replace your employer’s coverage with an individual policy that you own. Owning your insurance is a way to separate yourself from your employer and lessen the risk you and your spouse face working at the same company.
Work with your financial adviser to find an insurance provider, price coverage comparable to what your employer offers, and decide if purchasing individual insurance is right for you.
Know Your Risks Adjust Your Plan
A plan for working with your spouse at the same tech company introduces a specific set of risks to your financial plan. The risks you face and how to adjust vary based on the company you both work for.
Know the risks. Adjust your plan. Take full advantage of the opportunities offered by both being at the same company.
A great way to start is by scheduling a call today.