For a variety of reasons, far too many marriages end in divorce. Money is often cited as a main cause leading to divorce, but it doesn’t have to be that way.
No matter where money issues fall on the list of primary causes for divorce, problems almost always occur when spouses have different values towards money or financial goals. Undisclosed past financial issues or unrealistic financial expectations can also present a serious problem.
There are three steps that a couple can take prior to getting married to lessen the likelihood that money issues could ruin their future happiness.
Show and Tell All
Most folks on the verge of tying the knot have seen or at least know of each other’s “dirty laundry,” and perhaps you've even talked about past romantic relationships. However, far fewer individuals are quite as forthcoming about their personal finances. To get off on the right foot in a marriage, play the” Show and Tell Game” and reveal to each other the following:
- Last year’s tax return
- A current credit report
- Your pay stub, with deductions
- All bank statements
- Statements for all debt: car, credit card, student loans, etc.
- Any judgments or past bankruptcies
- Cash flow plan or budget (if there is one)
Use these as the basis for a serious discussion as to how things got to where they are. What would you do differently, or do more of or less of, now versus in the past? Work to understand each other's thinking (or lack thereof) and how you might work together going forward.
Consider Joint or Separate Accounts
When it comes to cash flow in a marriage, there are many ways to structure your finances, but the options generally fall into three camps.
Totally Joint — Combine all income into one checking and one savings account in both names. All bills are paid from that one checking account. Funding future goals would come from the joint savings account where regular deposits are made. All credit cards are also jointly issued. Retirement accounts must be in each individual name, not joint.
With this option, both parties are fully aware of all income and where the money is spent. This approach is the most transparent. It is wise that both spouses are involved in the cash flow process. A word of warning: Do not assign total responsibility for cash flow to only one spouse. It is often easier to have a delegation of duties; there can be one spouse with primary cash flow duties but sharing the burden of responsibility is a better approach.
Purely Separate — Maintain separate checking and savings accounts. Most folks then assign specific bills and obligations to each spouse. Credit cards and auto loans are held as separate. This system may not work with a house payment, for example, because both names are usually on the mortgage and the combined income of both individuals is often needed to meet financial obligations.
Spouses who tend to spend more money than the other — or who are embarrassed by the amount of discretionary spending that they do spend — often opt for the separate accounts option.
Combo: Separate and Joint — The third option is a combination of the above two in that both parties maintain a separate checking account but there is also a joint checking account into which each spouse makes regular deposits and from which joint bills are paid. Both people maintain separate credit cards and are responsible for each.
This option often works well with later-in-life marriages where there may be children from a prior marriage and because some people prefer to keep their assets separate.
There are pluses and minuses with each option, and there is no right or wrong approach. It is up to each couple to decide on the best approach for them. It is totally OK to try one approach and then change and try another.
Play the “What If” Game
People about to be married often have different attitudes toward money. When people are young, they often have very little money, whereas in later-in-life marriages, there can be quite a lot. Understanding how a spouse would address money concerns in the future is important. The “What If” game is a great, easy way to better understand the attitudes of your future spouse.
For this game, each partner should write out answers to the following questions. At the conclusion, compare and discuss similarities and differences and how, as a future married couple, you would jointly deal with each of these scenarios.
- Is it a common goal to buy a house? If so, how would you save the down payment for a house?
- If you were to buy a home, what amount would you think of spending?
- What amount of money do you think it takes to raise a child, and how would you account for the added expenses of having children?
- When you have a child, how will the child be cared for if both spouses work? Will one spouse stay home?
- Is providing a child’s college education a priority? If so, how would you finance your child’s education?
- Which is the more important funding goal, retirement or your child’s education?
- If you had a windfall of $10,000, what would you do with it? What if it was $100,000, or $1 million?
- If you cannot afford to buy a home in the area you would like to live, would you be willing to move elsewhere to be able to buy an affordable home?
- You want to take a vacation but don’t have the savings to pay for it. Would you put it on a credit card and pay it off over time, or wait and take the vacation after you had saved enough?
- If one person has a lot of debt, discuss the plan to pay it off and what impact will that have on buying a new car or house or qualifying for a new loan.
There is quite a lot to think about when getting married, and finances are too often at the end of the list. The fact is, finances should be front and center if you want to increase the odds of a successful marriage.