Before “I Do”: Marriage and the Money Question.

Statistics estimate that 45% of marriages end in divorce. The number one factor leading to couples splitting up? Money-related issues. Relationships disintegrate when partners have different financial expectations, spending and saving habits, and investment strategies than the other. Divorces in and of themselves are extremely costly too, what with lawyer and court fees and settlements afterwards.

photo by http://www.flickr.com/photos/lel4nd/

It’s just better to make sure partners are financially compatible before tying the knot. Going into a marriage, there should be no surprises looking, and that includes with finances. Make sure you are both on the same page by having a frank, open discussion involving the following marriage and money questions. It’s not the most romantic or exciting topic in the world, but it is certainly an emotional one that is essential to having a working marriage. It may be what makes your marriage rock-solid where there otherwise may have been cracks in the foundation — and it will save you a ton of money and heartache later on. For other common sense tips on saving money, check this out.

• Discuss how your parents handled money: So many of our habits are learned from what our parents did, especially with regards to money. It’s important to know how each other’s parents handled money, both to draw on their successes and avoid their missteps. Did one hide money from the other? How were things when money got tight? Knowing what you each learned, both in what you took from your parents and are consciously avoiding, can help you both understand each other’s financial habits and aims.
• Check out your credit scores: Probably the least exciting of any pre-marriage planning, but people forget all too often that money is not just about numbers — there are deep emotions attached to it. Credit scores can determine whether couples qualify for loans on new cars, houses, or businesses, essential aspects of building a future together. A partner’s bad score can be a deal-breaker, one that will come as an ugly surprise if not disclosed previously. Don’t let there be any surprises from a partner’s past when going into marriage. Learn each other’s credit scores, and work together to improve any discrepancies.
• Figure out who handles the bills: Money is power, and those who control the finances have it in a relationship. Therefore, couples used to living on their own and handling their own finances may struggle with each other to take control of paying the bills. Those who don’t pay the bills don’t know where the money is going, and are left in the dark feeling powerless. At the very least, meet together to do the bills once a month so you’re both in the loop.
• Come to a compromise on who decides what: One of you is a tech geek, the other couldn’t tell you the difference between a Mac and a PC but loves cars. So the techie gets to decide what computer you buy, while the car aficionado gets final say on your next ride, right? Well, maybe or maybe not. That’s something each couple needs to figure out amongst themselves. Who gets final say on what purchases? Coming to decisions together is key, but so is knowing when to defer to the other who is more knowledgable.
• Know your expectations: How affluent do you want to be? Do you want to be extravagantly rich but have a spouse you will never see until retirement? Make sure you each know each other’s goals for future financial success. It will help in all aspects of your relationship as you plan your future together because so many of those aspirations will be contingent on money.

Edward Stern is a guest blogger for My Dog Ate My Blog and a writer on online universities for the Guide to Online Schools.

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What’s in your spouse’s wallet?

“Consider: Half of the pairs in a 2003 study came up with completely different figures when asked to estimate their family’s income and net worth. In a survey last year of couples ages 43 to 70, some 35% were more than two years off when guessing when their spouse planned to retire.”

YIKES!

This is from a recent article at CNN’s Money Magazine.

The article discusses why many couples end up with a schizophrenic financial picture. Mostly because couples marry later in life and have their own financial identities already established through their own credit cards, car payments, savings account and retirement accounts. Still, it isn’t what one would call “optimal.”

This is a problem, even if you are lucky enough to have chosen a fiscally responsible mate. Let’s look at retirement accounts for example.

RETIREMENT.

In a simple case, let’s say you and your spouse each have a 401(k) account. Worst case scenario: you have a properly balanced portfolio, but your spouse has 100% of their balance invested in company stock. This is bad. If the company your spouse works for goes out of business, then you not only lose an income, but you have effectively lost half of your retirement savings as well – even though you were savvy enough not to invest in your company stock.

But even in a non-worst case scenario, there are still things to consider. If you and your spouse are the same age and expect to retire at the same time, then should you also each have the same portfolio allocation? For example, if you each have your portfolio allocated 70% stocks and 30% bonds between the same mutual funds (or even very similar funds), then you are essentially paying twice for the fund! In this example, you might be better off splitting your asset allocation among each account, for example: stocks in your account, bonds in your spouses. Or vice versa.

Of course, there are other factors to consider like what funds are available in each account, and how much each of you can put into your 401(k)s. This is one reason an IRA   is a better choice since you have the whole world of funds available by comparison to a dozen or so in the typical 401(k).

DEBT.

Debt is probably the single biggest trap if you and your spouse don’t talk about finances. Since you are married, you are most likely on the hook for your spouses debt as well as your own so it’s definitely something you should be up front about.

THE PERFECT BALANCE.

So what’s the solution to a fractured financial situation? Communication.

You and your spouse need to have regular and honest discussions about money. Each must be aware of sources of income and bills and other obligations that take a piece of that income.

Balance is important however. I know some people who share everything, but argue when one spouse spends money on something the other thinks is unnecessary. On the other end of the spectrum I’ve seen people who lead financially separate lives each with their own bank account, credit card, etc.. only to have them become emotionally separate as well and the marriage ends in divorce.

For a while, when my wife was working, we had two incomes, our own credit cards etc. We had a joint account that funded communal expenses (rent, utilities, etc.) and we kept a predetermined amount from each paycheck for our own spending on whatever we wanted. That worked pretty well, but eventually we decided my wife should stay home and raise our children. Now we joke that we don’t have any extra money to worry about spending on non-essentials.

Still, it’s only a half joke since we do occasionally argue when she spends money on a new pair of shoes, or I spend it on a CD.

What’s your situation, and how is it working for you?

photo by Big Swede Guy

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