Making Marriage A Merger Of Equals
Since financial issues are one of the leading causes of marital strife, it helps to think of the relationship as a merger and not an acquisitiion.
That’s why it’s important to make sure you and your partner openly discuss and agree on money matters before you tie the knot. The following ten tips from financial experts can help get your marriage off on the right foot:
Step 1: Outline What You Have and What You Need
"The first step is for both spouses to create a balance sheet with all assets and liabilities,” says Eric Cramer, a certified financial Consultant with Charles Schwab.
The list should be comprehensive, including assets such as cash, investments accounts, real estate, cars and other high value items. Liabilities should include everything from mortgages to credit card debt to student loans and promissory notes.
Cramer says it’s also a good idea to discuss assets that you expect to receive down the line, such as an inheritance, large bonus or payout from the sale of assets.
Ray Julian, a certified financial planner and executive partner with Winslow Financial Planning Group, adds it’s important that couples do not overlook jointly held property.
If one of the partners has an asset — for example, a checking account, mutual fund or piece of real estate — that is jointly held with another relative or friend, you should disclose it to your new spouse and discuss whether it will become joint property.
Step 2: Consider a Prenup
For some couples it makes sense to keep individual assets separate. This is particularly true for people who have accumulated substantial wealth or who have children from a past relationship. If so, consider a prenuptial agreement – a legally binding document that spells out who gets what if the marriage ends.
“These days the court looks at dissolution of a marriage just like dissolution of a business,” says Deena Katz, an associate professor of personal finance planning at Texas Tech University. “If you have any financial resources of substance you should protect them."
While prenups are as unromantic as you can get, Katz says the trick is to “take the emotion out of it. You have to step back and say ‘I have things to protect that I don’t want to loose so I m going to have protection on that.’”
Step 3: Determine How to Handle Liabilities
Deciding how to manage each other’s debts is also a key issue. Some couples may opt to keep their liabilities completely separate, which can be documented in a prenup. Other couples, however, may look to combine forces when it comes to paying off debt, particularly if the partners have significantly different levels of wealth
“Maybe one spouse has a lot saved and the other has high-interest credit cards,” says Schwab’s Cramer. In such a case, it might make sense to pay off the interest .
For some couples, it may even make sense to pay off lower interest rate debts, such as a student loan, if the money is readily available.
Step 4: Set Up Yours, Mine and Ours Accounts
For couples who plan to merge all of their assets, many experts advise creating individual accounts for day-to-day purposes as well as a joint account for big-ticket items and household expenses such as the mortgage, insurance and groceries.
Setting up “yours, mine and ours” accounts spares each partner from feeling obligated to disclose every small, personal purchase while allowing them to be aware of and involved in the big picture.
Katz adds there's a nice perk, “If you want to buy a special gift for your spouse it’s nice to have a place where you can have some of your own money.”
Step 5: Discuss Your Credit Report
Credit scores can effect everything from securing a mortgage or a new credit card to determining insurance rates to even qualifying for a cell phone service plan.
If people merge assets upon marriage, “you are tied inextricably to that person as far as credit goes,” says Katz. “You really need to know what you’re getting into.”
Julian of Winslow Financial agrees, saying “each person should look at the other’s credit report" to avoid surprises.
While the person with the superior credit can help a spouse's by adding him to jointly held assets such as an investment account, that good credit score can be adversely affected -- for instance, if the other spouse makes late payments.
You can secure a free copy of your credit report from the big three credit reporting agencies, Experian, Equifax Inc. and TransUnion LLC by visiting the website.
Step 6: Talk About Children
Schwab’s Cramer says this is clearly one of the most important topics for couples to discuss.
If children already exist you need to determine how they will be supported, from day-to-day expenses to big ticket costs, such as cars and college tuition.
If children are not yet in the picture, it’s important to discuss whether you want them at all, and, if so, how many, as well as the division of care-taking responsibilities.
Step 7: Talk About Parents
As more people take on the responsibility of caring for their parents, be they elderly or ill and in need of assistance, a spousal discussion on parent care is just as important as child care.
According to Julian of Winslow Financial Planning Group, couples need to discuss each other’s expectations on care, covering personal involvement on a day-to-day basis and financial support.
Step 8: Update Your Documents
Make sure you are up to date on all important documents that require a beneficiary.
These include life insurance (work and/or personal), IRAs and other company sponsored retirement plans such as a 401(k) plan and savings and investment accounts.
Experts also encourage couples to include a contingent beneficiary, in event that both partners die at or around the same time or if one partner dies and the other fails to change their primary beneficiary.
Step 9: Create an Estate Plan
It’s also a good idea for couples to do some basic estate planning before they are married or soon after. This includes creating or revising wills, creating a healthcare proxy and granting durable power of attorney, should one person become terminally ill.
Having an estate plan in place is particularly important if children are involved — especially minors — or if one or both of the spouses has considerable wealth.
Step 10: Get Insurance
Cramer of Schwab says newly married couples should consider getting adequate insurance, especially on the primary earner so the partner is protected in the event of death
“I’m a big fan of level term life insurance,” Cramer says, adding that you should save as much as you can and get a term policy for the period that you really need and invest the savings.
Katz agrees, saying life insurance should be a consideration for couples. It’s important to discuss whether you have obligations that need to be taken care of if something happens, she said, as well as whether you have insurance through the workplace or if you need to get outside insurance.