Marriage and Finances: For Better or WorseWords by Courtney Kellar Words by: The National Endowment for Financial Education
Image courtesy of (in order): WomansDay.com, AllWomenStalk.com & DadsAdventure.com
The National Endowment for Financial Education gives tips on how new couples can cope with finance issues
For couples, it’s inevitable - disagreements about money. It’s not unusual for two people in a relationship to have very different styles of money management. The key is discovering differences early and reconciling them to maintain a positive financial future and a healthy relationship.
The National Endowment for Financial Education (NEFE), an independent nonprofit organization committed to educating Americans about personal finance, offers the following suggestions for couples to get on equal footing regarding their finances before and after marriage.
Combining Financial Accounts with Your New Spouse:
According to Patricia Seaman, director of marketing and communication for NEFE, “There is not one ‘right’ way for married couples to handle their finances. Factors to consider include convenience, personal spending money for each partner, and comparing the benefits of each other’s accounts.”
When combining finance accounts remember to:
• Decide how to divide household expenses. If the incomes of two working spouses are fairly equal, bills might be split 50/50. If there is a substantial difference in earnings, bills can be prorated. For example, the spouse that earns 70 percent of household income can pay 70 percent of the expenses.
• Review each other’s credit reports prior to marriage. If a spouse-to-be has a poor credit history, don’t apply for a joint loan (such as a mortgage) or credit cards. Keep your credit histories separate until negative information drops off the credit report with the poor record, usually in seven years (10 years for bankruptcy).
• If you add your name to a spouse’s credit accounts or co-sign a loan, you become legally responsible. Similarly, if financial accounts are merged, the assets of the spouse with the good credit history can be seized by creditors.
• Older couples with substantial assets or children from a previous marriage may want to consider a prenuptial agreement to make decisions in advance about financial matters in the event of death or divorce.
Talk with Your Partner:
If your spending is under control, but your spouse overspends, have a conversation about it.
• Explain that you’re partners in every way, including the way you both handle money. Be positive and supportive and emphasize that you want to work together to reach your mutual goals.
• Share ideas how you can cut back and be more responsible with money. Work together to come up with a plan to cut back and try to make it fun.
• Make a list of what concerns you and share it with your partner.
Joint Goal Setting:
• Establish an emergency savings; strive for 3-6 months of savings.
• Make a list of short-term goals (vacations) and long-term goals (mortgage)
• Re-evaluate goals often
Review Retirement Plans:
• Think of each spouse’s employee retirement plans in the context of a combined investment portfolio. Instead of duplicating each other’s investment asset allocation, consider investing in different types of securities to diversify your portfolios and reduce the risk of loss.
• When saving tax deferred, both spouses will benefit from the tax write-off on a joint tax return.
Even if one member of the couple is more financially savvy than the other, there’s still plenty to learn together. Look at financial resources together, such as the NEFE-sponsored website www.smartaboutmoney.org.
Wedding Planning and Your Finances:
“Right after becoming engaged, sit down with your fiancé and list things that are important for your wedding,” said Seaman. “Think back to what you remember from other weddings you've been to. If you don't remember an aspect of a wedding, it probably isn't important to you,” she adds.
• Decide on the size of the reception - this dictates a lot. If you want a huge wedding, you might have to compromise on location or date. It's generally less expensive to get married outside of the summer months and not in an urban area. Visit DestinationIDoMag.com for more planning tips.
• Use “The Rule of Three” to compare at least three providers of every wedding product or service (dress, caterer, cake bakery, photographer, reception hall, honeymoon). Bridal shows can be an efficient way to shop around.
• Try not to put wedding expenses on a credit card unless you plan to repay the balance quickly.
Tips for Remarrying:
If financial matters are not addressed early on, major marital conflicts may develop as a result of some common money issues:
- Undisclosed past financial problems (e.g., previous bankruptcies or credit issues)
- Failure of one spouse to save for retirement
- Inconsistency in child support payments from an absent parent
- Income disparity between partners
- Criticism of previous (pre-marriage) money decisions
- Financial commitments to a previous spouse
- Costs of raising children from a previous marriage
- College expenses for children
- Changes in child custody arrangements
- Inequity in the payment of household expenses
- Financial commitments to parents, siblings and other family members
• When couples sit down for a serious financial discussion, they should be ready to explore:
- Money management style - How much do each of you spend and how much are you comfortable saving?
- Previous financial problems - Have either of you ever filed for bankruptcy or defaulted on a loan or other financial obligation?
- Tax liability - What do each of you pay in income taxes every year, and how will those amounts change if you file a joint tax return?
- Financial commitments - Do either of you have obligations to parents, children or other relatives to provide support or educational payments?
- Retirement income - What are your individual retirement plans? Is a portion of your retirement fund obligated to a former spouse?
LifeValues Quiz (for partners and spouses):
If you are in a relationship where your financial life is connected to another person - sharing finances, sharing financial decisions or your financial decisions affect each other - you should both take the LifeValues Quiz.
Spend some time reflecting on your own life history and decision-making style. Then ask your spouse or partner to take these exercises also and then compare your results. Discuss where and how your values differ and where they are compatible. Compare each of your scores in each of the four domains. Discuss the similarities and differences in your values, particularly where your spouse or partner scores low and you score high and vice versa.
You can strengthen your financial decision making where your values are in alignment, perhaps moving even more quickly toward your goals. When your values are not in alignment, you will gain insight into your partner or spouse’s financial history and motivations when making financial decisions. This will help you negotiate future financial decisions, as you will better understand what aspects are firm and which you are willing to compromise or concede.
The National Endowment for Financial Education commissioned an online poll conducted by Harris Interactive in December 2010, finding that 31 percent of people who combined finances with their significant other have been deceptive with their spouse or partner about money.
The survey examines overall trust issues within couples who are combining or have combined their finances in a current or past relationship, and describes the types of financial deceptions that are often committed—from hiding money, purchases and bank accounts to lying about the amount of debt owed or money earned. The survey also looks at what the impacts are or were on the relationship
According to the survey, of those who committed a financial deception:
• Nearly three in five of these adults (58 percent) say they hid cash from their partner or spouse.
• More than half of these adults (54 percent) hid a minor purchase from their partner or spouse.
• An additional 30 percent hid a statement or a bill from their partner or spouse.
• Thirty four percent of these adults say they lied about finances, debt, money earned.
The survey also finds that:
• Another one in three adults (32 percent) who have ever combined finances say a partner/spouse has committed at least one of the listed financial deceptions against them.
• More than two out of three adults (68 percent) say a current and/or past relationship was affected by the financial deceptions that were committed.
• More than two out of five of these adults (42 percent) say it caused less trust in the relationship.
• Nearly one in five adults (19 percent) say it led to the separation of combined finances.
• Sixteen percent of these adults say it ultimately resulted in divorce.
• Women are more likely than men to say their partner or spouse lied to them about finances, debt, money earned (65 percent vs. 47 percent respectively).
ABOUT THE NATIONAL ENDOWMENT FOR FINANCIAL EDUCATION
NEFE is an independent nonprofit organization committed to educating Americans about personal finance and empowering them to make positive and sound decisions to reach financial goals. For more information, visit www.nefe.org.
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