By K. Bridget Schneider, CFP®, CRPC®
It would be a good thing if every couple embarking upon marriage or a similar long-term commitment would take time to discuss their financial habits and expectations with each other. Especially since financial troubles are a leading cause of divorce. But those topics can be difficult to bring up when you are riding the wave of love. Seeing a financial advisor before marriage may help facilitate those tough discussions.
Prior to marriage, each person should disclose their financial picture including income, assets, and liabilities. Let’s say there is a piece of furniture that you inherited from a family member and it holds historical and sentimental value to your family. It might be important that this item remains in the family. Identifying items or assets and agreeing on their disposition in case of divorce or death will go a long way toward avoiding problems in the future.
Spender or Saver
Couples need to talk to each other about their spending habits. If one is very frugal and the other loves to spend, problems will usually develop. Conflict can occur even when a couple’s financial situation is secure. Being on the same page is crucial whether you are maintaining a budget or considering purchases of any size during the marriage. It is helpful to mutually agree on a spending plan as well as how to finance significant purchases.
As part of your budget, you should discuss:
- the use of cash versus credit
- how you will save for your retirement (401(K), IRAs, etc.)
- other savings goals like home or automobile purchases
Joint Accounts or Individual
There are pros and cons to each of these. For example, if you decide to put your accounts into joint names, both parties have access to the accounts. You will both be able to see where the money comes from and goes to. But it also makes it possible for one party to withdraw funds from the joint account(s) and leave the other party penniless. In contrast, maintaining individual accounts may help to keep assets and income separate. But separate accounts could also lead to suspicion between the couple. In the end, it may make sense to have both joint and individual accounts.
Payment of Bills
It’s a good idea to decide who will be responsible for paying the bills. Even if one person will handle the bills, rather than having complete control over everything, it is advantageous to have both spouses involved in the financial decisions. Another option is to split the responsibility. One might pay day-to-day living expenses while the other pays set expenses such as the mortgage or automobile payments.
Sometimes couples may feel they don’t have enough assets to worry about this, but estate planning encompasses much more than drawing up a will. Couples should plan to address what will happen in the event the unthinkable happens. Would the survivor be able to maintain their current lifestyle? What happens to the digital assets of the deceased? There may also be issues due to a previous marriage or children from a prior relationship to consider.
I understand some couples try to avoid monetary topics before marriage, but that is a big mistake. Taking the time to understand each other’s financial personalities is an important step in building your life together. Seeing a financial advisor before marriage and planning ways you may deal with major money issues could save your relationship.
As your friendly financial guide and ally, we can help you make sense of your financial life and help you get started on the right foot together. For more information on financial planning, visit our website today, click here to schedule an initial meeting or call us at 217-605-8130.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.