Couple Wake Up to Reality of Financing Their Dream
Melissa Kyle and Lisa Hylton want to open a bed-and-breakfast in Florida and raise a family together. But they have a few obstacles to overcome--only one of which is money.
As a lesbian couple who plan to become business partners, they will have none of the legal protections enjoyed by married couples who own a business together. Lacking a marriage license, Kyle and Hylton will have to assemble a set of documents to take the place of that one vital piece of paper.
“Whatever a married couple can take for granted in terms of running a business together, Lisa and Mel have to put in place with legal documents,” said Diane Bourdo, a fee-only certified financial planner with Henrietta Humphreys Group in San Francisco.
Kyle and Hylton met when they were crew members on California AIDS Ride 6 in 1999 and were surprised to discover that they both dreamed of owning a B&B.; It was an even more unlikely coincidence given that their jobs are far removed from the hospitality industry. Kyle, 32, is an associate producer of on-air promos for Game Show Network. Hylton, 30, does customer service work for dot-com companies via temp agency Adecco.
Kyle has been attracted to the idea of running an inn since her college days. Having a job dedicated to making people happy appeals to her.
“I thought it was a pipe dream, but then I met Lisa and she had the same notion to do it herself, and I thought, ‘Wow, maybe I really can do it,’ ” she said.
Their common goal aside, when it comes to money Hylton and Kyle are a female version of “The Odd Couple.” Kyle is a careful saver whose parents struggled financially and eventually declared bankruptcy.
“It’s affected how tightly I hold onto everything,” she said. “I have a hard time learning to let go of money, even to enjoy it.” Kyle’s savings represent the bulk of the couple’s assets.
An Emergency Fund Is the First Step
By contrast, Hylton is a reformed spender who says she has held 58 jobs since age 18--mostly blue-collar gigs from waitress to bus driver to factory worker. For a while, she even climbed telephone poles as a phone installer for the U.S. Army in Germany.
“I don’t even know what we have, but I’m better with money now--not just from learning from Mel but because I care about the future,” said Hylton, who shares a small, 1920s-vintage apartment with Kyle in Beachwood Canyon below the Hollywood sign.
So how far into the future is their B&B;? A ways off, it appears. Other than the location, few elements of their plan are in place.
Bourdo, the financial planner, estimated the start-up costs will be as much as $250,000. That’s more than 10 times their current net worth of about $23,000--mostly the equity in two cars plus about $17,500 in mutual funds that were hard hit by last year’s stock market slump.
Kyle and Hylton have been saving a healthy $10,000 to $11,000 a year of their combined income of about $64,000. (It was $70,000 until late October, when Hylton was laid off from her pre-Adecco job with an L.A. Internet start-up.) But at this rate, Bourdo calculates that in 10 years they’ll have only about half of the start-up capital they need, even factoring in a 10% annual return on their investments.
Why? Because before Kyle and Hylton start saving in earnest for their B&B; dream, they need to attend to the basics of personal financial management--setting up an emergency fund, for starters.
Right now, the only ready cash the couple have is $400 in savings and checking accounts. Bourdo suggests they save at least $15,000 in a money market account before they put another dollar into the stock market.
“It’s daunting but important considering the fact that you hope to move to Florida within the year,” Bourdo said. “You can consider that fund serves two purposes: emergencies for now and moving costs later.”
Once the emergency fund is established, Kyle and Hylton can go back to contributing to mutual funds--but not the ones they already own, Bourdo said. Kyle’s three funds--Janus Equity Income, Janus Twenty and Janus Orion--are good bets, but they’re volatile and tech-heavy, the planner said.
To balance their portfolio, Bourdo recommends that the couple split new contributions between Oakmark Select and PIMCO Total Return. Unlike the growth-oriented Janus funds, Oakmark invests in value stocks of smaller companies. PIMCO is a bond fund, which often does well--or at least better--in a sinking stock market.
Retirement Planning Takes a Back Seat
Using all of their savings to build an emergency fund and a nest egg for the B&B; pushes aside many of the goals couples usually focus on, such as debt repayment and retirement planning. Luckily, their only real debts are at such low rates that prepaying them is not a priority. There’s Kyle’s $900 student loan and a four-year, $12,000 auto loan at 5.9% for the couple’s new Ford Focus wagon.
Retirement planning is another matter, however. The B&B; will absorb all the money Kyle and Hylton should otherwise put into tax-deferred investments. Today, Kyle has $10,000 in an IRA account and no retirement benefits through her job. Hylton will be able to participate in her temp agency’s 401(k) program but doesn’t plan to, a choice Bourdo supports.
“I hate to say that, because putting money in a 401(k) is one of the best things you can do, but you may want to line up the emergency fund and the B&B; fund first,” the planner said.
As Kyle and Hylton save for the B&B; and plan their move to Florida, they should find a lawyer who specializes in the needs of lesbian and gay couples to draft documents that will give them the same protections as married business partners.
Depending on how long it takes them to move, the couple might have the documents created in California and reviewed later by a Florida attorney to make sure they hold up in both states.
First come wills. “Even though you don’t have a lot of assets, you can use a will to designate each other as the one who makes decisions on your behalf after your death, such as funeral arrangements,” Bourdo said. When the couple have children, as they plan to do in a few years, they can use their wills to appoint each other as legal guardians.
Also important are a series of power-of-attorney forms. Giving each other “durable” power of attorney for both health care and financial decisions would mean Kyle and Hylton could make those decisions for each other if one becomes incapacitated.
Once they open the B&B;, they’ll need regular power of attorney so that each can act on the other’s behalf immediately. And as they acquire larger assets or buy real estate, the couple should acquire the assets as joint tenants with rights of survivorship so the assets will pass from one to the other without going through probate, just as they do between husband and wife.
Which leaves the question of the timeline. Having committed to moving to Florida and sacrificing all other goals to save for their inn, how do Kyle and Hylton amass such a mighty sum sooner than 2015?
Bourdo thinks she has the answer: taking on outside investors, preferably from among friends and family.
But Kyle isn’t ready to take Bourdo’s advice on this point.
“I’d prefer not to because I’d want the inn to be mine, so the only partner I’d accept is limited or silent--someone who has no say in the day-to-day operations,” she said.
“If we have to sell our second car and work more hours to carpool together or economize in other ways to save the money faster ourselves, that’s what we’ll do.”
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Stephanie Losee is a regular contributor to The Times.
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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
This Week’s Make-Over
Investors: Melissa Kyle, 32, and Lisa Hylton, 30
Occupations: Kyle: associate producer, Game Show Network; Hylton: temp employee
Gross annual income: about $64,000 combined
Financial goals: To save enough money to move to Florida and open a bed-and-breakfast inn
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Current Portfolio
* Cash: $400
* Retirement account: $10,000 in Kyle’s individual retirement account, invested in Janus Twenty mutual fund
* Other investments: $7,500 invested in Janus Equity Income and Janus Orion mutual funds
* Other assets: $6,000 equity in two cars
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Recommendations
* Direct all savings to emergency fund until it totals at least $15,000.
* Once emergency fund hits $15,000, split savings between Oakmark Select and PIMCO Total Return mutual funds.
* Draft a series of legal documents to protect their rights as a couple, including wills, power of attorney, durable power of attorney.
* Consider taking on partners to open inn within a reasonable time period.
Meet the Planner
Diane Bourdo is a fee-only certified financial planner with Henrietta Humphreys Group in San Francisco. She is treasurer and a board member of the San Francisco Waldorf School.
