Young couples, alas, have high odds of ending up in divorce. How can they order their financial lives to stave off a split, and protect themselves if one happens? Cassandra Latsios, Associate Advisor in Philadelphia for Wipfli Hewins Investment Advisors has some wise answers.
Many times, couples do not have financial discussions before they get married. However, arguing about money is the top predictor of divorce, according to a 2012 study published in Family Relations. Typically, financial matters are not a topic of discussion for a young couple in the midst of wedding planning — but they should be.
The face of marriage is changing, and the risk of divorce among young couples is on the rise. In an article for the Institute for Family Studies, Nicholas Wolfinger, a professor of family and consumer studies and sociology at the University of Utah, analyzed the connection between divorce and age, based on a study from the National Survey of Family Growth.
The group surveyed couples in 1995 and in the four-year period between 2006 and 2010. In analyzing the study, Wolfinger noted the couples that married in their early 20s were more likely to divorce within the first five years of marriage. In 1995, couples that married at 20 years old or younger had a 29% risk of divorce within the first five years of marriage.
Between 2006 and 2010, couples in the same age group had a 32% chance of divorcing within the first five years of marriage.
If you are a young couple on the verge of exchanging “I do’s,” there are several things to discuss with your future spouse to help protect your marriage from conflict down the road.
1. Talk about your perspectives on money and wealth.
Understanding your fiancé’s connection to money is an important first step in managing your finances as a married couple. Did he come from a family that struggled to make ends meet, or did his family always live comfortably with no spending uncertainties? When she thinks about money, does it evoke feelings of anxiety or opportunity? Learning about your future spouse’s attitude toward saving or spending can prepare you for how he or she will manage finances after the wedding.
2. Have an open discussion about your current financial situation.
How much does your future spouse earn? Does she have student loan debt, credit card debt or mortgage debt? What is his credit score? Does she spend more than she earns? These are all important areas to discuss with your future spouse. Make an effort to start having healthy, honest conversations about your finances now so you can carry those habits over into married life.
3. Create a cash flow statement.
Before the wedding, outline all of your income sources and expenses, and ask your future spouse to do the same. This will give you a better understanding of where each of you is spending your money. For instance, you’ll know up front whether your future spouse enjoys spending money on clothes or cool tech gadgets, so you’ll be less likely to face conflict over those expenses when you’re married. This exercise can also give you an idea of how much each of you can comfortably contribute when it is time to combine your finances.
4. Discuss your future goals.
When do you and your future spouse want to start a family? How many children do you want to have? Children are more expensive than most people realize — approximately $245,340, according to the U.S. Department of Agriculture – and could put a strain on your finances if your income cannot support the extra expenses. Does your future spouse dream of owning a huge vacation home on the beach, while you would rather have a small cabin in the mountains? This may seem like a shallow difference in opinions. But when both of you move forward in your careers and decide to start saving for a vacation home, it can magnify into a large conflict, unless you are able to make a compromise. Spend time talking with your fiancé about your plans for the future, and set common goals that you can work toward together.
5. Make a decision about money management.
Will you and your future spouse maintain separate accounts, as well as contribute to a joint account? Who will pay the bills? Sit down with your future spouse and make a decision about how the two of you will share finances and who will be in charge of financial decision-making and management. It’s important to have these critical conversations before the wedding to ensure you’re both on the same page.
6. Protect your premarital assets.
While the topic can be uncomfortable, a prenuptial agreement can be extremely beneficial in helping you making financial decisions in case of divorce — especially if both of you are bringing assets into the marriage. Prenuptial agreements can also be helpful in maintaining expectations about financial responsibilities after the divorce is final, instead of making those decisions in a contentious court setting. When drafting your agreement, consult with an attorney who can help you plan appropriately, based on your state’s laws.
7. Meet with a financial planner.
A planner can help you communicate with each other to develop joint financial goals, understand your cash flow and protect yourselves from risk — all important areas to focus on when you are just starting out in your life together. If both of you already have a relationship with a planner, you may want to discuss which person you both trust so you can work together to develop one coordinated financial plan. If you and your future spouse are not in the position to hire a planner, there are also pre-marriage financial education classes that can help you address several of the issues mentioned here.