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The Importance of Financial Discussions Prior to Marriage
P. Lindley Bain | September 10, 2014
Some of the leading causes of divorce are financial disputes. Financial infidelity can be just as destructive to a relationship as sexual infidelity. People with differing financial values i.e. a saver versus a spender can cause friction. And often it is very difficult for an individual to change his or her fundamental financial values, habits, and routines. Additionally, if a couple has poor communication skills, the financial disputes are exacerbated. Therefore, for a successful marriage, it is important to have certain key financial discussions. If a couple is considering a premarital agreement, these discussions should be incorporated into that negotiation so each party is entering into the premarital agreement with eyes wide open. Ideally a couple should determine if their financial values are compatible BEFORE marriage. However it is never too late to have these discussions now or when an issue arises by meeting with a neutral financial professional or marriage therapist to assist in this discussion. Even though these are financial decisions, these conversations are fraught with emotions so a third party professional can help you stay on topic and get you through the emotional hurdles. And these financial issues will evolve throughout your relationship depending on a number of factors – i.e. starting a family, change in income, nearing retirement, dealing with a disability, supporting elderly parents, and education planning for children and spouses to name just a few- so learning from a professional how to have these sometimes difficult conversations can significantly improve your relationship’s viability in the future. Two of the most important initial discussions to have are the following: 1) whether to combing operating checking account or continue to operate out of separate checking accounts; and 2) preparing a monthly budget and cash flow statements and setting up mechanisms to achieve the goals of the budget.
1) Combining checking accounts. Do you combine your operating checking accounts or do you continue to operate out of separate checking accounts? For some couples, it is important for the balance of power for both parties to deposit their monthly income in the same account and pay bills and credit cards out of that account. Some couples prefer more daily autonomy in their day to day spending with less accountability to the other spouse. A number of other factors could affect this decision including whether there is a premarital agreement.
2) Prepare a monthly budget and cash flow statement. Complete transparency and openness with your partner about the state of your current financial situation is important for a sustainable relationship. Both spouses should gather and disclose to the other spouse all of his or her current income and debt obligation statements. Then set up two or three one hour meetings a few days apart with your spouse outside your home to discuss your monthly income and debt obligations and to put together a monthly budget and cash flow statement. If one spouse is not very financially savvy, having a financial professional involved to educate and assist with this process is highly recommended. Knowing how much you are bringing in each month versus your expenses will help prevent future arguments about money and spending. Set up an accountability structure in your budget and schedule periodic reviews of the budget and cash flow. Also include monthly saving allowances for future goals and a mechanism for achieving these monthly savings allowances (i.e. a monthly automatic withdrawal into a savings account, automatic monthly debt payment over the minimum payment amount, or a monthly automatic retirement contribution.) This budget and cash flow exercise will also assist you in discussing long term financial goals such as saving for retirement, creating a 6 month emergency fund, saving for a yearly travel fund, contributing to 529 plans, or paying off debt. Incorporate your long term financial goals into your monthly budget and cash flow statements.