Love & Money: How to financially divorce-proof your marriage

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Love & Money is a new MarketWatch series looking at how our relationship with money impacts our relationships with significant others, friends and family.

When Maggie, an administrative associate in South Carolina, married her husband eight years ago, she opted to co-mingle their finances. She was a traveling actor at the time and he was working in the IT department at a public university, so neither of them were very financially stable, but they felt they would be more stable together.

“We are both old-school,” she said. “It wasn’t a his-and-hers type deal.”

Before they made the decision, they discussed how much debt they each had and Maggie took over managing the family finances including medical bills, the mortgage, and debt payments. Still, they don’t discuss daily purchases because they are “pretty much on the same page,” Maggie said.

This most sacred of unions is built on the promise of ‘until death do us part,’ but financial problems bring many marriages to a premature end.

“We try to pay everything ahead of time and we don’t hide from each other financially,” she said.

They appear to be avoiding one of the biggest pitfalls of marriage. This most sacred of unions is built on the promise of “until death do us part,” but financial problems bring many marriages to a premature end.

Some 59% of couples cite financial problems as playing “somewhat” of a role in their divorce, a 2017 study from Experian found. Another 20% said financial problems played a “big” role in the divorce, and 26% said their spouse’s credit score specifically was a source of stress in the marriage. The divorce rate in the U.S. is 40% to 50%, experts say.

If you haven’t discussed finances before the wedding day, you have waited too long, said Meredith Golden, an online dating coach. “The dating phase is the time to discuss future plans for spending and saving,” she said. “Marriage can be challenging but hopefully a couple will be aligned financially from the beginning to help avoid financial turbulence in the marriage.”

Seek advice from others. Couples can meet with a certified financial planner, a therapist, or even a financial therapist before marriage to discuss their financial goals. Some churches that offer pre-marriage counseling even touch on financial matters.

Also see: Millennials are killing marriage—here’s why that’s a good thing

“It’s always helpful to have a third party that can make rational, unemotional decisions about your money and help you guys navigate those conversations,” said Erin Lowry, 28, personal-finance expert and author of the Broke Millennial blog.

Discuss a prenuptial agreement

Prenuptial agreements are exceedingly rare: Just 2% of married Americans have them, according to research from legal site Avvo.

But they are on the rise, especially for millennials, according to the American Academy of Matrimonial Lawyers. It found the number of prenups clients requested from lawyers has increased five-fold in the last 20 years.

‘For couples remarrying, forgetting to update beneficiary designations is the most common mistake.’

—Alan Plevy, co-founder and attorney at SmolenPlevy in Vienna, Va.

Not only will a prenup protect you in the case of a divorce, it also allows couples to hash out all aspects of their marriage before the big wedding day, Lowry said. “The prenup has a reputation for being a ‘divorce contract,’ because you only see it in action in the case of a divorce,” she said. “But it’s actually a really great way for you and your partner to sit down and talk through all the financial details in your relationship before getting married.”

It’s better for debt and other financial problems to come to the surface before the marriage begins. Prenuptial agreements are uncommon for first marriages, but are even more rare for second marriages — and that’s a big mistake, said Alan Plevy, co-founder and attorney at SmolenPlevy in Vienna, Va.

“For couples remarrying, forgetting to update beneficiary designations is the most common mistake,” he said. “Designations will overrule whatever instruction you have included in your will, so even a well-thought-out estate plan can be destroyed by an incorrect beneficiary designation. In short, you don’t want your insurance money going to a past spouse.”

Don’t be afraid to get ‘financially naked’

Prenup or not, it’s important to be completely transparent with your future spouse — and achieve “full-frontal financial nudity,” Lowry said. “The single best way to divorce-proof your marriage is to be as open and honest as possible with money,” she said. “A lot of people do not talk about finances before marriage, especially debt.”

Some sticky topics couples often avoid until it’s too late include debt, financial obligations like child support and spousal support, and your credit rating. It’s better to discuss this before marriage than find out when you purchase your first home that your spouse cannot be on the mortgage due to a low credit score.

“The person you are marrying is going to want to plan a life with you — they should have an idea of what the parameters of that life will be,” Plevy said.

Establish your financial system in advance

A joint bank account can be the subject of headaches and betrayal, but in most cases it’s recommended, Lowry said.

“I’m a big advocate for considering yourself a team and keeping your money accordingly,” she said. “But for some people it’s best for their mental health and finances if you keep your money separate.” (This couple are a prime example.)

Whether you plan to combine your finances with your spouse or keep your incomes separate, it’s important to establish a system before your marriage and be ready to adjust it as your life and goals develop. Communication is extremely important, and even more so if your finances are separate, she said.

“If you are not sharing, and the left hand doesn’t know what the right hand is doing, you could end up racking up a lot of debt, unbeknownst to each other,” she said.

Set joint goals and priorities for building a future

Couples should create joint financial goals and discuss what mechanisms can be put into place to reach them to help work together as a financial team, Plevy said. Technology is making this easier than ever: Couples can decide to use one bank or budgeting system to create joint accounts or budgets.

“Consider how you can establish complete transparency of your finances in your marriage — like agreeing to only use one institution, having passwords to both parties’ accounts, and having quarterly meetings regarding the finances and the goals of the marriage,” he said.

Sharing passwords with one another is important even if you don’t anticipate combining accounts: In case of death or other tragedies, a partner should be able to locate money to handle it in case of emergency.

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