Till Debt do us part how to merge two financial lives

When wedding season comes into full swing, a new bride and groom have put a lot of thought into the perfect venue, guest list and honeymoon. Yet the venue, guest list and honeymoon are seldom cited as major reasons for divorce; finances, however, are.

Money is a major source of tension and stress in a marriage. A 2012 study published in the Family Relations journal examined the relationship between financial issues and divorce. The research concluded that arguments about money were “longer and usually more intense than other types of marital disagreements.”

Whether you are planning to walk down the aisle for the first time, or remarry after divorce, or simply planning to “marry” your life and assets with another without a formal ceremony, it is important to uncover your financial compatibility.

Financial Discussions before Marriage

We all have deeply held beliefs about money and its purpose. It is beneficial for couples to understand how money was used, discussed and perceived in the family that they grew up in. This discussion is the foundation for understanding why some view money as something good to be enjoyed and others see it as something scarce and to be feared. Major financial conflicts can arise when one partner uses money as a means to buy prestige and status, while the other feels the main function of money is to provide security. Uncovering these differences in belief systems can help mitigate misunderstandings about money and its purpose, and create a starting point to begin financial planning.

Financial Transparency

As a couple gets to know each other, they also need to get to know each other’s financial background. As unromantic as it may sound, both parties should be forthcoming about their income, debt, credit history and credit score. This information is the foundation needed to build a financial life together. It also aids in making decisions, like whether to begin their marriage with joint accounts, or some joint accounts but not all, or if the best strategy is to keep all assets separate.

Premarital Accounts, Assets and Inheritances

It is helpful to understand the laws of your state before co-mingling or adding an additional owner to certain assets. Some inherited accounts are intended to stay within family bloodlines, and therefore should not be placed in joint accounts. Also, any individually owned property should be appraised at the time of marriage.
Each party should have a folder with property appraisals, their last individually filed tax return, and bank, investment and 401k statements at the time of marriage regardless of whether everything is made joint, or stays in separate names This will help mitigate any disputes that could occur later down the road.

Consider an Advisor

A visit to a financial advisor prior to marriage is a great way to begin a financial lifetime together. The advisor will review all assets and debts and help create a financial plan. Not only does having a concrete plan assist in reaching financial goals, but it also creates an agreement that a new couple can follow. A complete plan should have strategies for paying off existing debts while building assets for the future. Scheduling an annual financial “State of the Union” address can also help the couple stay on track and halt any divergences from getting too off path. Parents or family members may want to consider giving paid time with an advisor as a shower or wedding gift. It may not come in a pretty package, but good financial behaviors from the onset of marriage will provide a lifetime return.

Financial Considerations for Re-marriage

All of the advice for preparing for a first marriage applies to second marriages as well. However, second marriages come with a more complicated to-do list.

Considering that most people enter a second marriage with more financial years under their belt, they also have more financial baggage. Credit reports and credit scores are recommended in order to safeguard yourself and your family from not necessarily your future partner, but the actions and behaviors of their ex spouse during their previous marriage. Financial obligations under a divorce decree need to be factored into the equation when deciding to what extent to co-mingle finances. For example, is there child support, alimony, higher education expenses, life, health, disability or long-term care expenses that must be kept in effect? These are just some of the potential items to consider when deciding how to handle debts and assets accumulated before re-marriage.

Even if you decide to keep separate all debts and assets accumulated in your past, any income and property acquired during your new marriage is generally deemed community property. Other things that need to be considered after a second marriage is obtaining new insurance, reviewing beneficiary information on existing assets and accounts, and updating any existing wills.

Protecting Assets

Commonly, a second marriage occurs when we are older, wealthier and more established. For this reason, a prenuptial agreement may be the best way to clearly state your legal intentions for all property and assets accumulated prior to marriage. Prenuptial agreements are also a good way to ensure that certain assets that you intend to pass to your children do so without dispute Another way of handling assets accumulated before marriage would be to have an estate attorney draw up a trust. This trust will direct all assets to pass where the owner deems appropriate. In order to legally waive their right to any pre marital assets that are set up in the trust, an estate attorney will make sure that any additional agreements are signed by the new spouse. Prenuptial agreements, trusts and wills are also often necessary to make clear exactly your intentions to financially care for your new spouse as well. Both prenuptial agreements and trusts are good ways to ensure that no ambiguity or disagreements occur after death.

Deciding to partner with someone for life is one of the most beautiful and important decisions you will ever make. When determining compatibility, don’t forget to address the biggest mine field in a successful union…financial compatibility. By taking the time to discover each other’s financial past and proclivities, as well as your partner’s hopes, fears, and goals, will put you well on your way to a more solid union. Also, by enlisting a neutral third party, like a financial advisor or estate attorney, you are adding increased ownership to your mutually agreed upon financial plan. You may not be able to buy love, but ongoing money disputes can sure bankrupt it.

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