When we are in a meaningful relationship, sometimes finances can be a tough subject to discuss. We found several surveys that stated around 50% of couples did not discuss money. Money discussions are essential to a healthy relationship. Honesty and teamwork will make your dream work!
Here are the ten key components to having a healthy money relationship with your partner.
We all have unique personality traits and past experiences that contribute to how we make decisions. Many of us learned about how to use money from those close to us, and not through a formal education. So, automatically we all have baggage and prior money experiences that we bring to a relationship.
It is important that, as a couple, we talk about how we feel about money. Here are some questions to ask each other so you can have a better understanding of how you each deal with money.
- Have you ever made a quick decision about an investment or large expense? Why didn't you take the time to learn more before making that decision?
- Do you have trouble making money decisions? What would make you more confident?
- What were some past arguments you have had about money while in another relationship?
- Do you ever feel lost and not sure what to do next when it comes to managing your investments?
- Have you ever found yourself repeating bad behaviors of others in your life?
- Do you feel like you don't make enough money? Why and what needs to happen to fix that?
- Do you have a bad credit score? Have you changed your ways?
- Is spending a type of therapy for you? Do you enjoy giving gifts?
- Do you know someone may be learning from your money example? What lessons would you teach someone else?
It is important to know what you as individuals dream about in addition to you as a couple. Remember you come to the relationship with pre-existing dreams and aspirations; each person needs to know them. Dreams evolve, and our goals may change, but we need to have empathy for compromises each person may make for the relationship.
Discuss any current or future debt and how you will handle that as a couple. Are the reasons for building debt in the past still present? If so, how will you resolve the debt burden for good? Be willing to have a third party help with this communication if necessary. No one desires to take on debt, but there is an underlying reason we do it. Get to the bottom of it before it is a problem.
Discuss the future. If this relationship is on the path to marriage and building a family, it is vital to discuss children.
- How many kids do you want?
- Does either partner have a desire to stay home with the kids?
- When is the right time to go back to work after children?
- What are future career goals that may impact a family?
There are no right answers here just discussions to have. Be open-minded to what the other person wants. It will take planning and compromise when it comes to building a family.
Discuss any goals that are important, like buying a new car or home together. Talk price ranges and be open to how the other may respond to a given dollar amount. Compromise and talk it through, so everyone feels satisfied with a result. Being open and honest about your feelings is the only way both parties will win. Get it all on the table from the beginning.
Avoid defining your success by what others do or have. We must avoid comparing ourselves to others and their financial choices. All couples will stumble from time to time, and we must stick together to make tough choices. Remember your goals together, the plans you discussed, and measure your success based on what you hold most important to you.
Remember the key factors to setting goals:
- Write it down
- Define steps to take
- Make is measurable – end date and dollar value
- Evaluate Progress
- Make it challenging
- Believe in yourself
Many couples end up fighting about what the other person perceives as a reward to themselves. When someone spends too much time and money at the golf course or buys too many clothes, it is because the individual needs the pick me up or feels they deserve a reward.
Discuss with your partner what the time at the golf course does for them or what feeling they get from buying new clothes. Are there activities that a person feels are non-negotiable? Get to the bottom of the emotional need to spend money on the items they do and see if there are other ways they can be fulfilled.
Aim to agree that each person deserves a reward and that it’s ok to need a pick me up from time to time. Set a limit for those items and agree to discuss overspending in those areas and how to deal with it.
There will always be unexpected expenses and circumstances that show up in life. Being financially prepared can help eliminate a lot of stress. It is important for couples to have an emergency fund. Save 3 to 6 months of must-have expenses in your savings account and if you need to use it rebuild it as soon as possible. Must have expenses include:
- Car expenses
- Minimum debt payments
Many couples who plan for a long-term commitment to one another, like marriage, may agree to live on only one income. A second income is saved and put towards their goals. If one person loses their job, it is less traumatic to the couple’s financial situation when the other source of income is available. Living below your means takes discipline and total agreement by both parties. It will pay off in the long-term.
Creating a budget TOGETHER is a key to avoiding future disagreements about spending. This must be done together! No one likes to feel like they need permission to spend money, and no one wants to feel like someone else controls them. Come up with your personal income statement together; which defines all your income sources, your must-have expenses, flexible expenses and expenses for goals. Know what is left over each month. Leftover income is called discretionary income. Decide what to do with it, together! Consider investing in your future with assets that can grow your wealth. Create financial independence as a team.
Many couples forget to discuss their bonuses from work and what to do with them. Talk about each other’s expectations for bonuses and how you can use them to achieve your goals.
There is nothing wrong with wanting your bonus for yourself but clear up any assumptions or expectations from your better half.
When in a relationship we naturally begin to take on roles. Someone typically empties the trash while the other might do the dishes. Someone routinely mows the lawn while the other vacuums. Or, maybe someone does all the household chores while the other works away from the house.
We fall into roles with our finances too. One is the budgeter while the other is a spender. One might be good with the investments while the other is a spender. One might be good with organization while the other is a spender.
Be honest with yourself if you are someone who needs to assume more roles on your path to financial freedom. No one should do all the work. If you are the budgeter, investment person, and organizer let go of some of the control and involve your partner. It is easy to feel overwhelmed when you take on all the finances alone. Both parties in a relationship need to be aware of the household finances. Avoid ending up in a situation where you are clueless about your accounts and bills that are due. Take responsibility together.
Do you see the repeated message here? Avoid making assumptions and having too many expectations for each other. Talk about your perceptions and viewpoints. Never assume someone else thinks like you. You will set yourself up for an argument this way and possibly disaster if done too often. Talk to each other!
There will be times in life when your partner is struggling with money, and you may not be. Usually, this is work related or it may be an emotional time for them. If they have made a money mistake remember to have compassion for your partner. Try to understand why they made the decisions they made and respond lovingly to resolve any issue.
You are a team, and you can work through issues together. Support and compassion always leads to relationship success!
You avoid too much debt, you live on a budget, you live below your means, you save regularly, and you have no deep resentment for one another about your spending. Let go now and have faith that your methods will lead you to success. Avoid falling into the trap of always needing to be in control and worried about money. Money is vital to our life, but if you are acting responsibly, it’s time to have faith.
Enjoy the journey as partners and relax together.
Wow, that all sounds easy doesn’t it? It’s not and what if after all that effort things don’t work out? Here are some things you should know before you find yourself in a bad break up.
Couples who are dating, living together, or engaged should consider keeping all assets separate. This includes cash accounts, such as a checking or savings account, and personal property, such as a car or home. Avoid commingling funds especially when it comes to inheritance. When we mix or commingle assets as a couple without the legal structure of marriage, it becomes very challenging to get back what you believe to be yours should the relationship not work out. It’s one word against another’s.
As mentioned above, communication about a budget is important for a healthy relationship. A great segway into budgeting together is through having common goals — a popular one among couples is a wedding.
Engagements, weddings, honeymoons, new homes together, possibly moving, the list could go on for expenses specific to a long-term commitment together. Start a journal on your phone to share with your partner. Use it to brainstorm for these big life events, so that you can be sure expenses are planned for and you can avoid surprises that will dip into your savings or increase credit card debt. Here are some articles that can help you budget for that special life event:
- Wedding: Wedding Budget 101
- Engagement Ring: How Much You Should Spend on an Engagement Ring?
- Honeymoon: 25 Ways to Honeymoon for Less
- Moving: 5 Budgeting Tips to Make Your Move Affordable
- Buying Your First Home: A Budgeting Checklist for Buying Your First Home
If you decide to share assets of any kind, it is good to discuss what happens “if” things don’t work out. Decide who will receive the asset or if you will sell it and split the proceeds?
Many people think that if you commingle assets, you will become common law married. You will not. There is also no timeframe that would make you common law married either.
Eight states within the U.S. observe common law marriage. There are simple requirements to be considered common law or married without formalities, and it is a legal way to marry in these states. These requirements include:
- You are over the age of 18
- You are not legally married to another individual
- You present yourself to the public as married.
If the conditions can be proven, there is a declaration of marriage that is signed by the county clerk to make it legal.
This brings us to the idea of community property. Whether you are dating, living together, or engaged, you do not have the right to community property — it only kicks in once you've been legally married.
Nine states follow community property laws. These laws state that any property obtained during the marriage is split 50/50, regardless of whose name is listed as the owner of the asset or what percent of the asset you think you may own. The only items that would not be considered community property are those assets that were inherited, owned before marriage (including debts held previously) or assets owned after legal separation.
Non-community property states follow laws that protect the listed owner as the sole owner of the property. Even though non-married couples are not included in community property laws, they can sue one another if there is a disagreement about rightful ownership. Ownership would have to be proven primarily through the source of funds used to either purchase the item in question or pay for expenses related to it. It can be difficult to prove, but a partner can be sued for up to three years after a relationship ends. You should seek legal advice to be sure of the laws in your state.
To avoid a lot of unnecessary stress in life, keep things simple. As mentioned above, keep assets separate unless you are willing to get legally married. Honesty is vital in a relationship, but it is ok to keep the value of your assets private.
Once you are engaged, it is essential to have a good financial start to your marriage and consider creating a financial plan together that would give you the opportunity to discuss all assets coming into the marriage and how you feel about those assets staying your personal property or becoming jointly owned.
Communicate your wishes and be open to discussing them.
If you have created a significant source of wealth before a relationship and you want to get married, consider a prenuptial agreement or a prenup. This contract will list assets brought into a marriage and define who is the rightful owner of those assets.
It is smart to protect yourself and any hard work you have done before a marriage. You should consider a prenup when there is a significant difference in asset worth between you and a potential spouse.
To avoid offending your partner about this topic, it is recommended that you talk about a prenup long before the topic of marriage comes up. This makes it a little less about the individual and more about a professional recommendation. You can always use a tax or business excuse to bring up the topic of preparing a prenup. If needed, you can use a trusted professional (like a financial advisor) as a neutral third party to discuss the idea.
Couples get divorced, and AARP (American Association of Retired Persons) states that more couples are divorcing after 50. By age 50, couples have often accumulated a lot of assets, and it brings us to the topic of what to do when someone is divorcing. If you are preparing for divorce consider the following action items:
- Open new bank accounts in your name only
- Establish credit in your name only
- Take an inventory of assets and debts
- Make copies of statements
- Bank accounts
- Credit cards or loans
- Investment accounts
- Business accts
- Property deeds
- Work retirement accounts at work
- Insurance policies - health, life, disability, long-term care, auto, home
- Past 3 years of tax returns
- Put a freeze on cash and credit accounts
- Update your will
Once a divorce or separation is legal, change your tax withholding from your paycheck. Complete a new Form W-4 within ten days to update your exemptions and provide it to your employer. The marriage status you have on the last day of the year is how you may file for that tax year. If your divorce was legal on December 31, 2017, you may file as an individual for 2017. You will still be liable for a joint audit for previous years though, and are responsible for any tax, interest or penalties you owe in those years.
It can be costly to get a divorce. For a simple divorce, using attorneys, it can cost $10,000 to $15,000, and the more complex divorces can well exceed $35,000. It is in a couple’s best interest to attempt to agree to terms without an attorney; using mediator is a good alternative. Legal fees cannot be deducted from your taxes, but fees for tax advice from an accountant can.
When it comes time to divide property, the laws will be based on the state where you live. A community property state will typically not allow alimony or spousal support. Alimony payments are deductible through December 31, 2018, and the receiver of those payments must include alimony as income on their tax return.
New laws state that beginning 2019 alimony payments will no longer be deductible and they will not have to be included as income. Child support will continue to be non-deductible and will not need to be claimed as income. When property is transferred in a divorce, no gain or loss is recognized; even with cash or debts.
At the end of the day we all are sensitive when it comes to our money. As with all money decisions, it pays off to make smart choices now to avoid disaster later. Remember, communicating with your loved one is vital to a strong relationship and even if the relationship doesn’t last, mutual respect goes a long way.