You've met someone great and you really think this person could be the one you'll spend the rest of your life with. You both have similar morals, ethics and life goals. You've even answered the NY Times questions to answer before marriage. First, congratulations on meeting someone special. Feels great, doesn't it? Now, wouldn't you want to make sure you have the best possible chance of making it? Well, I'm no John Gottman and I can't predict the likelihood your marriage will succeed, but I do know that some pre-marital financial planning can go a long way to ensure a happy marriage.
Remember, marriage is a legal contract and you are uniting assets, not just families. That means that you need pre-marital financial planning. Yes, even if you're in love. Truly.
I suspect many people avoid this topic for a number of reasons. It's not “romantic.” Or it doesn't feel that way at first.
I actually think it is romantic to talk finances. You are establishing a deeper layer of trust that happens when you fully disclose finances to each other. By making financial goals together as a couple, you envision the future together.
Let's talk about something truly unromantic. Imagine being that woman or man who is ill-prepared to deal with the financial consequences if things go south. Being stuck in a marriage where one party is spending everything, leaving the other to salvage whatever money is left. Perhaps, it even comes down to one person hiding assets. That is truly unromantic.
I will not be discussing prenups (but if you need a refresher, click here!) in this post, but these discussions are the foundation of creating one.
Question 2 of the aforementioned NY Times Questions is the focus:
Do we have a clear idea of each other’s financial obligations and goals, and do our ideas about spending and saving mesh?
Let's break it down further:
1. Money history
What did money mean to you growing up?
If you don't know how your partner grew up financially, this is a good time to find out. For example – did they ever have to worry about whether there was enough money for dinner? What money lessons, if any did they learn growing up? This is also a good time to start learning about each other's parents' and other family member finances that can affect you. This will be further delved into below.
2. Income
How much do you earn? Is this job stable? What are you career goals?
3. Financial obligations: Liabilities and Debt
Do you have debt – how much and what kind? How do you feel about having debt (debt tolerance)? What is your credit score? Have you ever filed for bankruptcy? If one of you owns a business – find out if you/your partner can be personally liable if sued. What are the business' assets and liabilities? If this is a second marriage and/or if there are children from a previous marriage or relationship:
Do you pay alimony? How much is left?
Do you pay child support? How much? When does this obligation end?
What is your financial obligation for funding their college and more?
If there is an ex-wife/husband: Any concerns that s/he will ask for more financial support?
I strongly recommend reading their divorce decree and parenting agreement.
4. Assets
Do you own property? What retirement and other accounts do you have and what are the current balances? How much do you contribute to these accounts yearly? What is your net worth?
5. Spending
How do you decide to make a large purchase? Do you budget? Do you have credit card debt?
6. Goals
What are your financial goals and by when?
This is a good time to really find out if you and your partner have even thought about “retirement” goals, or as I prefer to call it reaching financial independence.
7. Practical matters going forward
How will we handle finances together? Joint and/or separate checking accounts? Over what amount should we discuss making a large purchase? Will we jointly own future purchases of homes and other investments? How are we going to handle pre-marital assets and liabilities? Will they be jointly shared or remain separate?
8. Finances of parents
Are our parents (insert siblings and other potential family members here) financially stable? Is there a possibility they may need our help in the future? How do we feel about that?
As if it wasn't enough to discuss each other's finances, you need to know what the financial state of their parents and siblings are. This is semi-addressed in question 11 of the NY Times questions:
Do we value and respect each other’s parents, and is either of us concerned about whether the parents will interfere with the relationship?
Financially ill-prepared parents and family members are common. Not being on the same page on this topic can wreck havoc on a marriage. It's tough to be prepared for this, but having a conversation in advance can help.
So, did my partner and I go through a checklist? Not this systematically, but, I did ask him most of the above questions before we got engaged. I am fully aware of his assets and liabilities. I have read his divorce decree and parenting agreement. We did all of this to make sure that our relationship is on the same financial page.
Continuing Your Pre-Martial Financial Planning
If you're a female breadwinner, I highly suggest this book. You can also work with different counselors or therapists. Some people think that having an outside perspective can keep the emotions at bay, allowing you to better focus on your goals and dreams. No matter how you proceed with your pre-marital financial planning, it is important to start conversations and ask questions now. You might not think it's romantic, but it's a great way to say how much you love your partner.
What do you think? Comment below. ]]>
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