If everyone who explored the institution of marriage explored their feelings about money first, the divorce rate in this country might not be so high.
There’s a very understandable reason money is so tough to talk about it’s the toughest of all subjects. The ability to deal effectively with money is a reflection of so many things personal discipline and goals, family background, and past mistakes. It’s often easier to discuss the unpleasant moments in one’s relationship history than money issues. It is always wise to consult a financial adviser such as a “CERTIFIED FINANCIAL PLANNER” professional to help couples plan their financial future once they have made full disclosure of money issues.
Discuss your money “Personalities”
Does one of you love to spend money and the other hoard it? Does one like to trade stocks daily and the other never venture beyond a passbook savings account? A clash of money personalities can produce far more strain on a marriage than a simple lack of money. Nothing says you and your future partner have to have identical money personalities, but it is important you go into the marriage with your money eyes open. You may need to plan around your differences or similarities (two spenders, for example, may quickly bankrupt a marriage).
Discuss your goals and dreams
Money is often about achieving goals and dreams: children, running your own business, travelling, buying a home, going to college. Talk about those goals and dreams before you marry. They will have a lot to do with how you earn, manage, and invest your money.
Review your individual financial situation
This may not be easy at first. People don’t like to talk about money. On the other hand, it can be unsettling, for example, to take your marriage vows and then learn that your partner is deeply in debt. You won’t be responsible for his or her pre-marriage debts, but liabilities could certainly crimp future financial plans, such as buying a home.
Discuss current earnings, potential inheritances, or anything else financial that may suggest strengths, weaknesses, or potential disputes.
Sharing credit reports
It’s not as romantic as the ring exchange, but couples need to have that uncomfortable but critically important kitchen table conversation where they lay their cards on the table about money. And they need to do it before they move in together or wed.
This conversation should not only feature financial records showing assets and liabilities, but it makes sense to display each other’s annual credit reports from all three agencies Transunion, Equifax and Experience. These reports are available once a year for free at www.annualcreditreport.com.
We’ll feature many of the questions you should ask each other at the end of this article, but here are the high points that should be discussed:
1. The assets each person brings to the relationship and how they’ll be held after the couple weds or moves in together
2. The debt each person is bringing into the relationship and how that will be dealt with
3. When or if you plan to make major real estate or car purchases and how you plan to do that
4. When or if you want kids and how you’ll afford it
5. Whether you should both create and sign a prenuptial agreement
The sharing of credit reports has another important benefit. If you haven’t checked your credit report in a while, you’ll definitely be able to spot errors and other problems you should correct before you walk down the aisle.
Consider pre-nuptials or second marriage issues
Prenuptial agreements are also commonly known as premarital agreements.
Who needs them?
Second marriages raise a host of financial issues, not the least of which involve estate planning. Divorced people with minor or adult children need to address how wealth will be passed down in the event of their deaths. Will all wealth go to the second spouse before it passes down to the kids? It’s not only a matter of planning and documentation, it’s also a disclosure and discussion issue for the family. More than a few second marriages have ended in death and divorce with disputes over assets settle these issues with the help of a financial planner, estate attorney, or tax expert before you tie the knot.
Everyone should at least consider the possibility that they might need an exit plan from a marriage. It’s scary to think about when love has blossomed and everything seems rosy, but it’s necessary. Prenuptial agreements should be drafted by an attorney in your state of residence. You would also be wise to consult with a CFP practitioner or other financial planning professional before you get to the point of drafting an agreement.
Consider the prenup the more formal, pricier equivalent of the kitchen table conversation. You’ll be forced to face all your money issues in a more public setting, which may be good or bad.
Work out money management
Today’s newly-weds are, on average, older, with two incomes. Determining how you’re going to combine those resources can be touchy. Financial planners often recommend that a couple have “his”, “hers” and “theirs” checking accounts. The joint account covers household bills, while his and hers can be earmarked for personal use, vacation funds, investments, etc. It’s also often recommended that each partner have separate credit card accounts so that each can establish credit in their own names in the event of a future divorce or death. However, partners should be sure not to run up large debts with the cards.
Both you and your future spouse should have a good overview of the other’s finances. A large amount of financial secrecy in a marriage is a trouble sign. You should also assign financial responsibilities in the marriage. For instance, it’s best to designate one to be in charge of paying the bills, balancing the check-book, budgeting, investment oversight and so on (including tracking those credit card charges). That way, things are less likely to slip through the cracks.
In the flush of the honeymoon and getting settled into a new relationship, it’s easy to forget the little things such as changing the beneficiaries of
your life insurance policies, retirement plan, and so on. You probably don’t want your parents or your ex-spouse receiving the benefits instead of your new spouse.
How you title property also can be critical. Joint ownership may not always be appropriate, particularly if this is a second marriage. Consult with your FINANCIAL PLANNER PRACTITIONER and an estate planning attorney.
Update or draft wills to reflect your new marital circumstances, as well as put into place a durable power of attorney (to handle the financial consequences of incapacity) and living wills (to handle decisions regarding medical treatment).
New life insurance or a larger policy may be in order since marriage typically creates financial dependency.
All this may sound unromantic, but reviewing your finances before you many could be the best gift you can give yourselves on your wedding day.
What bankruptcy can mean to a marriage?
Bankruptcy is a tremendous blow to a household, but timing does have some relevance. Generally, if your future spouse faces a bankruptcy filing, it is best to insist he or she have their bankruptcy judgement finalized before you walk down the aisle. If nothing else, it will give the non-filing spouse a better idea of the state of the couple’s future finances in advance of the nuptials. It is also important to get the advice of a CFP practitioner before the marriage so both of you can fully understand the impact a pre-marriage bankruptcy will have to your post-marriage finances.
After marriage and even after divorce, bankruptcy can have a devastating effect on the financially healthier partner. A bankruptcy can have a negative effect on a couple’s credit for a full decade after a filing, which means that if you’re borrowing jointly for a house or other major purchase, you’ll generally pay a higher rate than borrowers with squeaky clean credit reports.
Couples who divorce can also feel a hangover from the other spouse’s debt. Generally, when a divorced spouse defaults on an obligation made during the marriage, a creditor may turn to the other spouse to pay the debt. That means that a bankruptcy court can undo what a divorce decree supposedly set in stone.
That’s why debt-any debt and any amount has to be aired fully between two partners with an eye toward managing it effectively during the marriage.
Unmarried and same-sex couples
Marriage isn’t easy, but it definitely makes transfer of assets easier when one spouse is incapacitated or dies. Life is much more complicated for heterosexual and same-sex partners who aren’t married. For you, it’s not enough to write down on a sheet of paper who gets what and hope that your family’s honour it.
First, get some financial advice.
Then get a lawyer. You’d also be well advised to craft an agreement on how assets should be shared while you’re living together and dispersed should your relationship end. Not doing so could mean the partner with greater financial resources could command the upper hand once you separate.
The number of unmarried couples in the United States jumped 72 percent from 1990 to 2000, to about 5.5 million U.S. households, according to the Census Bureau. Roughly one or nine of these households were unmarried same-sex partners.
If one of you dies and particularly if you have children, that legal documentation will be even more important. Some of the options you might consider:
• Domestic partnership agreement. This spells out how a couple should handle the assets each person brought into the relationship and those acquired afterwards.
• Financial power of attorney. This designates your partner as the person who will manage money on your behalf in any number of circumstances.
• Healthcare power of attorney/medical directive. Specific language that designates your partner in charge of all health decisions based on specific language you designate.
• Wills. Unmarried partners must have a will that designates a partner as the immediate beneficiary of all assets, executor of the estate and most importantly, custody of the children in the relationship if one partner dies.
• Beneficiary forms. These provide more exact information on who will get specific assets not mentioned in the will.
• One joint account. Others work with three accounts-one joint and then one for each individual.