Talk finances before saying ‘I do’
MONEY TALK: A good way for couples to have that first financial discussion, says Horizon Financial Group’s Rachel Stewart, is to keep it casual. (Photo by Don Kadair)
Talking about money and personal finances is a touchy subject under any circumstance. So imagine having such a conversation while planning for a wedding? Caterer … check. Flowers … check. Honeymoon … check. Prenup …?
Not as fabulous as planning a honeymoon retreat to the Greek Isles, no doubt, but financial experts say if you’re about to marry it’s important to have open and honest conversations about money and finances with your future spouse. What assets and debts will each party bring into the marriage? Does one partner love credit while the other adores the Dave Ramsey-like, cash-only lifestyle? And, believe it or not, prenuptial agreements aren’t just for the one-percenters anymore.
Rachel Stewart, associate financial advisor with Horizon Financial Group, suggests starting out with a casual conversation, perhaps over a glass of wine. Talk about your financial history and how your family handles money, and come clean about existing debts.
“There’s no right or wrong way to do any of this; it’s just about talking to one another,” she says. “To make progress every day from there on out is going to be rewarding and bring you closer together.”
At first, talking about your finances might feel unnatural. But if you have these conversations frequently, it gets easier over time, Stewart says.
Couples might want to pool all of their assets, keep everything separate, or something in between. Going all-in makes budgeting easier, but it can lead to conflict if two people have different spending styles. Separate accounts allow for more independence, but you’ll still need a system for shared expenses.
Couples nervous about merging all of their finances might start out with a single joint checking account for shared expenses like utilities, rent or mortgage payments, and have each person dedicate a set dollar amount or a percentage of their income to the account. Or maybe each spouse will be responsible for specific bills.
“It’s OK if it doesn’t work out, because we can always change it,” Stewart says.
Couples with disparate income levels often take the in-between approach, says Megan Courtney with Postlethwaite & Netterville. If one spouse brings home 75% of the money, they might pay 75% of the bills, or the couple might divert a percentage of their incomes into a joint account for shared expenses or savings. Some couples set a discretionary spending threshold—say, $500—above which any purchase needs approval from both spouses.
Keeping everything separate can lead to losing opportunities to work together on savings, retirement planning or large purchases. It can also increase the risk of one spouse getting caught off-guard by the other’s profligacy.
“You don’t want any surprises,” Courtney says. “Everybody’s heard the horror story of the spouse that’s running up all this credit card debt.”
Courtney says high-income couples, or couples with a stark income disparity, are most likely to have prenuptial agreements. Often, a spouse wants to make sure the interests of their children from a previous marriage are protected.
“I think it’s smart to at least consider it,” Courtney says. “You don’t have to think of a prenup as a bad thing. You just have to think about it as planning for your future. You never know what can happen.”
Money often is a key reason for divorce, so it’s important to thoroughly discuss financial matters before marriage, says certified financial planner Chad Olivier. You want to understand your spouse’s thoughts on debt, savings, retirement, paying for children’s education, and overall life goals, he says.
Olivier strongly recommends keeping pre-existing assets separate, which calls for a prenuptial agreement. If your future spouse has a large amount of debt, he says, have them explain why, and find out if they have a strategy to pay it off.
If there are children from a previous marriage, a will and a prenuptial agreement should be in place to protect their inheritance, Olivier says. If you intend to leave assets to support your spouse after you die, he adds, make sure the assets come back into your estate after the spouse passes away.
In Louisiana, debts or assets acquired by either spouse generally are presumed to be community property, explains Pablo Reyes, a family law attorney with the Rowe Law Firm. If your spouse buys a car, it’s your car too, even if it’s not in your name.
A prenup allows a couple to opt out of that community property system. A postnuptial agreement serves the same purpose, although unlike a prenup it must be approved by a court.
Couples with a stark income or asset disparity, or those entering their second or third marriage, often choose to opt out, Reyes says.
“It has nothing to do with trust or mistrust,” Reyes says. “Even if you don’t have a financial reason, a lot of people don’t feel comfortable subjecting themselves to community property.”
When crafting a prenuptial or postnuptial agreement, Reyes recommends both spouses have their own attorneys to ensure both sides’ interests are protected.