BERLIN – According to a 2006 Money magazine survey of 1,000 spouses nationwide, 84 percent of respondents cited finances as a cause of tension in their marriage. Yet engaged or newly married couples too often ignore or postpone discussions about important financial issues. It’s a mistake, albeit an understandable one.
In all the excitement surrounding wedding and honeymoon planning, most couples are not focused on discussing spending, budgeting and saving for the future. Doing so, however, can lay the groundwork for a more secure financial life and reduce the stress money related matters can cause in a marriage. In addition, significant financial commitments related to the wedding may occur. It is important that short term spending is viewed in the context of broader-term goals.
The first hurdle for many couples is deciding whether to combine certain assets within joint accounts. Marriage does not automatically require a merger of investment, credit and checking accounts. The amount of assets each person has individually may play a role in the discussion. For example, if one spouse enters the union with significantly greater assets than the other, or when one spouse brings in an income and the other doesn’t, marital discord around money can be heightened. This may lead one partner to feel more entitled to make all financial decisions and the other to feel like a dependent.
Overall, it’s important to address two distinct questions – the investment objective of the assets and the ownership of the assets.
From an ownership perspective, joint financial accounts help ensure convenient accessibility to the assets by both spouses for day to day needs. On the other hand, individual accounts help categorize different assets within the relationship.
Now that you’ve made the long-term commitment with your marriage, from an investment objective perspective, spouses should review their long-term financial objectives, discuss each person’s comfort with financial risk and understand how their investment strategies support these goals. While it is common and appropriate that different accounts may be invested differently, it’s important that the overall investment strategy is aligned with defined goals.
The next issue to consider is each partners’ attitudes around spending and saving.
Once you’ve decided how and when you are going to save, you must then tackle how much to save. Each partner may have a different view of the percentage of income that should be put away for a rainy day or retirement, and it is essential that you compromise and work together to determine a plan that will satisfy both of you.
This disparity isn’t surprising, considering that marriage unites two different people with personal experiences — including implicit and explicit lessons from parents — that have shaped their attitudes toward money.
An equally important decision is where to invest your savings. It’s likely that a percentage of your savings will be in tax-deferred accounts. Generally, tax deferred accounts provide you with tax-free growth of assets until assets are withdrawn – which can result in significant savings over the long term. As part of this process, you both need to decide who to name as beneficiary of your individual retirement accounts (IRA), your 401(k) plans or life insurance policies.
Communication is often the deciding factor in whether common disagreements lead to serious fissures around money or, alternatively, a healthy understanding of a spouse’s perspective and the right types of compromises. Before the wedding or early in a marriage is a great time to sit down as a couple and list short and long-term financial goals. Some items to complete may include:
– Establishing a budget that outlines how much income is being generated versus what is being spent on expenses.
– Reviewing expenses to determine those that are non-discretionary (mortgage, utilities) versus discretionary (travel, entertainment).
– Identifying any major life events that may occur in the future. For example: Are you planning to start a family? Do you want to buy a house?
– Reviewing your existing investments and overall investment strategy. As part of this process, determine how future savings should be invested.
Listing your financial goals is also an opportune time to put the subject of money into a larger perspective, which can go a long way toward ensuring good communication around finances and minimizing the chance for stress down the road. After all, money is just one of many variables that affect the success of a marriage. Sitting down, discussing and identifying these factors is a way to acknowledge that each spouse is making equally important contributions.
With all of these issues, an experienced financial advisor can help you understand what it will take to successfully merge your money both before and after the big day.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)