Have the “Money Talk” Before the Wedding

Congratulations, you tied (or are thinking about) tying the knot!  It’s time to make preparations for the rest of your lives together – in this post, we are going to talk about the intersection between marriage and personal finances.

A survey conducted by Ramsey Solutions indicated that money issues are the second leading reason for failed marriages, right behind having an affair.  Below, I’ll discuss some tips and strategies for overcoming potential financial obstacles to a healthy relationship, but you’ll see a recurring theme – honesty and transparency.  A sound marriage is built on trust, and being honest and candid about money matters, good and bad, should help foster a healthier relationship and bond with each other.

Have the Important & Uncomfortable Money Conversations

By this point, if you have not already, you should disclose your own financial position and goals to each other.  Both you and your partner will probably have some “financial baggage,” but hiding your issues now will undoubtedly come to haunt you later, so speak up.  The net worth of you and your partner, your credit scores, savings/debt, and income will also differ, so be mentally prepared for some surprises.

Joint Accounts or Separate Accounts?

Before diving into the nitty gritty, you will both need to decide how you are going to divide or combine your personal finances.  We are told that all accounts need to be held jointly or else you and your partner are really not dedicated to each other, but this is a non sequitur.  For some, the mental independence associated with having separate bank and investment accounts may be extremely important.

With bank accounts, I have seen various iterations:

  • The traditional “combine everything” into joint account arrangements
  • Two separate accounts with each partner’s “split” on living expenses and savings agreed to beforehand and the remainder used for discretionary spending for each
  • One joint account used for normal living expenses, joint purchases, and savings and then two separate accounts used for discretionary expenses

I’m only a fan of separate account arrangements when there is still a degree of openness and transparency with regard to finances.  An arrangement surrounded by opaqueness creates a breeding ground for financial infidelity, which is the creation of accounts, lines of credit, and debt without the other partner knowing.  A survey by CreditCards.com indicated that 19% of cohabitating couples have a secret bank account or credit card their partner does not know about.  Financial infidelity is especially prominent among younger generations versus older ones.

Quick sidebar: While secret bank accounts will damage trust in a relationship, it is important to understand that if your spouse took out a loan or line of credit without your knowledge, you are legally not liable to pay your spouse’s loan should they fail to pay it.

Once you have determined your bank account arrangements you should decide on how to split expenses. 50/50 seems natural at first, but consideration should be given to different salaries, debts, and non-monetary contributions to the relationship (cooking, cleaning, dedicating more time/energy raising children, etc.).  It is important these conversations occur early in the relationship to prevent future potential conflicts.  Don’t wait until something goes wrong to address it.

Debt – The Major Financial Baggage

Going into a relationship with debt is comparable to entering a relationship with unresolved psychological issues – you are bringing something into the relationship which you know cannot create a mutual benefit.  Since debt carries such a negative stigma, it should come as no surprise that when newlywed couples argue about money, it’s normally about debt, its impact it has on the family, and whose responsibility it is to pay it off.

I recommend, if you are in debt, to be up front about several key pieces of information, including:

  1. How much debt is it?
  2. When was incurred?
  3. What type of debt it is (student loan, credit card debt, car loans, mortgage)?
  4. Why was the debt created and what is your existing plan for paying it off?

This fourth point is extremely important, as large levels of debt are often associated with overconsumption and irresponsibility.  Having a plan to pay down that debt before you become “Facebook official” (that is, having a plan) will show your partner a sense of responsibility and a commitment to improving your financial standing.  Lastly, if you did go into significant debt because you were irresponsible or ill-informed, it is never too late to start making changes for the better.  Be honest with your partner – you went into $50,000 of debt because you bought a BMW that you knew you couldn’t afford and learned not to make the same mistake again.

Savings & Financial Goals

We go back to the same theme as before, openness and honesty.  You and your spouse will both have short, intermediate, and long-term goals.  First, discuss your goals with each other and prioritize them.  Buying a home, raising a child, travelling, and retiring early may be among them. To achieve each of your goals, you will need to have a disciplined savings program and also realistic expectations of what goals are realistic or not.  When trying to achieve multiple goals at once or when working with long-term goals, it is helpful to have a financial planner calculate and explain exactly how much needs to be saved each month/year in order to meet these goals.

For those who have a difficult time saving, I find it helpful to an embrace an “out of sight, out of mind” mentality with a systematic savings plan.  In other words, asking your employer to directly deposit a portion of your paycheck into a retirement or savings account which you do not use for spending is a good way to keep it out of your checking account.  Another systematic savings method I often use with clients is creating an automatic monthly transfer into their investment account from their checking account.  Over time, the small contributions build and accumulate.

Finally, you will most likely want to check and change the beneficiaries on your existing accounts such as retirement accounts and insurance policies to your partner.  Don’t forget that!

Last & Not Least – Talk About Money Frequently

I had one client at a previous job, a lawyer, who would have quarterly meetings with his wife.  In preparation for his family’s “quarterly reviews”, he retrieves the balances of all debt and investment accounts as well as investment performance.  Lastly, he would go through his bank statements to find major expenses and the family’s monthly discretionary income.  In this meeting, they would discuss spending/saving habits, large past and upcoming purchases, and if they were on track to meet their short, intermediate, and long-term goals.  If they were not, they would jointly decide to adjust their behaviors.  Sometimes they were doing better than they expected and would treat themselves to a vacation or indulge in a big luxury purchase.  This couple had been together happily for 40 years and overcame financial challenges together.

The best way to make uncomfortable subjects, such as money, comfortable, is to discuss them frequently, and speak to each other with respect, honesty, and candor.  By doing this you and your partner will have a healthier relationship built on a stronger foundation of trust as you jointly pursue your life goals together.

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