J. Lo may tell you "love don’t cost a thing," but money sure can determine the fate of your relationship.
Forget deciding where to eat or who gets control of the remote — finances continue to be one of the biggest pain points for couples. In fact, a recent study from Ameriprise Financial shows that about 30 percent of couples disagree on finances at least once a month, mainly about big ticket purchases or overall spending habits.
“Money can’t buy you love, but it can certainly tear it apart,” says David Rosell, founder and president of Rosell Wealth Management and author of Keep Climbing: A Millennial’s Guide to Financial Planning. He emphasizes that there is no one-size-fits-all approach to dealing with your partner and your bank account, but that talking about your attitudes towards cash is key. “It comes down to having open lines of communication,” he says. “Remember you are a team.”
Whether you’re moving to the next stage of your relationship, or want to nix your constant squabbles, there are a number of ways couples can successfully merge their finances. Read ahead for tips from financial experts, no matter what your Facebook relationship status is.
Dating: Focus on the End Game
Make it a priority to learn about the other person’s attitude with money.
Though you may be head over heels for someone, financial experts largely agree that at the very start of a relationship you should mostly keep finances separate. Deciding to go Dutch, alternate who pays for dates or letting the partner who makes more pick up the check is a completely personal decision, but it’s a good time to get a sense of the other person’s attitude towards money.
“You want to begin with the end in mind,” says Josh Jalinski, president of Jalinski Advisory Group and CEO of Wealth Quarterback. “If someone you’re dating is not showing responsibility with money early on, then how do you know they will in the future?” He notes that your end game (whether it’s marriage, moving in together or buying a home) should be in the back of your mind when you begin dating someone — and you should be watching out for red flags. “If you’re dating from a pool of financially irresponsible people, you will end up with someone financially irresponsible,” he says.
As you get more serious, it’s important to be frank about your attitudes when it comes to cash, according to Rosell. Are you thrifty and your partner is generous? Are you a spender and your significant other is a penny pincher? “Both people need to sit down and talk about it; there’s simply no way around it,” he says. You’ll have to determine how your attitudes towards money will work together to achieve your common goals.
Moving in Together: Protect Your Assets
Test out the arrangement with a 3-month trial period for all expenses.
If you’re planning on buying property together before putting a ring on it, it’s important to put documents in place to protect yourself. “Make sure that you legally have an agreement that should the relationship end, you’re equitably distributing assets,” Jalinski says.
Before signing a lease, Gary Marriage Jr., founder and CEO of Nature Coast Financial Advisors, says couples should sit down and list all their future expenses — including but not limited to rent, phone, cable, internet, groceries and pet costs — and create a separate checking account where the total amount will be deposited by both partners. He suggests that both parties put the agreed upon amount aside for three months before even thinking about renting a moving van, just to make sure both people can actually afford it. “If they can’t, then [the test period] will save people a lot of anguish,” he says. “The other person is going to have to commit to [meeting] these expenses. You’re essentially testing out your potential new spouse.”
If you’re in a serious relationship and not married, experts point out that it’s prudent to outline your wishes in the event of death or medical emergency. An advance healthcare directive is a good way to make sure that your better half has a say in medical decisions if you’re incapacitated. A will ensures that if you pass way unexpectedly, your assets are distributed according to your wishes. “Setting this stuff up is not expensive, and very simple,” says Rosell, who says couples can get these documents online when they’re just starting out, and get lawyers involved as they accumulate more wealth or have more complex assets.
Engaged: Know What Baggage You're Acquiring
Offload as much debt as possible and bank three months of expenses before you walk down the aisle.
It’s not the most romantic topic in the world, but experts suggest considering a prenuptial agreement before getting hitched, particularly if one person stands to inherit a large sum of money or earns substantially more. Either way, it’s important to have that conversation early on in the relationship. If you want a prenup, Marriage recommends bringing it up early on in the relationship — before getting engaged. “[Current statistics show] that there’s a 50-55 percent chance that a marriage will end in divorce,” he says. “If someone told you there was a 55 percent chance that you could get into a car accident, then wouldn’t you put on a seat belt?” According to Marriage, a prenuptial agreement outlines how marital assets will be divided in case of a split and can protect you if there is a wealth imbalance in the partnership.
If someone told you there was a 55 percent chance that you could get into a car accident, then wouldn’t you put on a seat belt?
It’s also key to be clear on any financial baggage that your partner may be bringing to the table, including credit card debt, student loans or money hang-ups, Marriage says. He recommends that couples pay off as much debt as possible before walking down the aisle. When it comes to your partner’s debt pre-marriage, you’re only legally responsible for debt that you’ve co signed for. So for example, if your significant other has a mountain of student loans incurred before you met, you are not obligated to repay them should your significant other skip out on payments. If you decide to get a joint credit card and roll the debt over, then both parties would be responsible for the debt.
If you haven’t already done so, Rosell recommends setting up a “rainy day” account for those unfortunate situations that always seem to pop up at the worst time. “You just never know when your dog is going to need veterinary care, your car breaks down or you need to buy a plane ticket for a funeral,” he says. Rossell suggests stashing away at least three months of living expenses in an account you can access in the event of an emergency.
Married: 'Til Joint Account Do Us Part
Know how combining finances affects your financial standing.
When it comes to actually putting your money together, Marriage recommends opening up a brand new checking or savings account and matching what your partner puts in 50/50. That said, don’t put in all your cash (keep some for your own bills, expenses and savings) just in case things go south. “This way if the relationship for some reason does not work, you will not have all of your funds together,” he says.
Having a joint checking account won’t affect your credit score, Marriage notes, though adding someone as a co-signer or co-owner to your mortgage, debts, leases, utilities or loans will. The benefit of a joint account is that it gives each user the ability to add or remove funds, as opposed to a linked account, which allows another party to see the account, but not remove funds, Marriage says. (Keep in mind that laws in some states allow creditors to garnish funds from joint accounts if one person in the partnership owes them money — regardless of whether the debtor is the one contributing funds to the account. Again, this is why it’s important to have tough money conversations with your sweetie before pooling your assets.)
Having a joint checking account won’t affect your credit score; adding someone as a co-signer to your mortgage, debts, leases, utilities or loans will.
Once you decide to make it official, it’s also time to start thinking about preparing for unforeseen circumstances, experts say. “You should not get married to anyone who won’t get term life insurance [and] disability insurance,” says Jalinksi. Term life insurance pays out a benefit in the unfortunate event of a death for a specific “term” — say 20 or 30 years. This can help cover gaps in income if the breadwinner dies and a grieving partner is left with a mortgage, a family or other obligations. “You shouldn’t get married if they’re not willing to protect you when they die,” Jalinski says.
On a more upbeat note, money experts recommend having regular checkups when it comes to your finances. This includes sharing smaller procedural information like where retirement accounts are located and what bills get paid regularly, and bigger picture topics like where you stand when it comes to your financial goals. Jalinski suggests sitting down once per year with an outside financial adviser to examine your money situation. (An independent financial adviser who doesn’t work for a large bank or brokerage firm is your best bet, as they can recommend financial products and tools without being beholden to their employer. Jalinski recommend choosing one that has a protection-minded focus and will recommend insurance products alongside wealth creation products.)
“You and your honey should both be in on the money,” he says. “Both people should have some level of understanding of your finances.”