DEALING WITH MONEY TROUBLES WITHIN A MARRIAGE…
So you’ve met the man of your dreams and you’re finally gone from dating to “for richer or for poorer”. How do you ‘tie the knot’ without either of your financial futures feeling more like a noose around your neck?
They say that money can’t buy you love, but they forget to tell you that financial problems can cost you your relationship. Love may ‘lift you up where you belong’, make you feel as free as a bird. But while ‘love don’t cost a thing’, sadly, life does.
As prosaic as it is to admit, countless studies have revealed that money is the No. 1 reason why couples argue. Indeed, a large portion of those recently divorced will attribute the dissolution of their marriage to a battle over the cheque book.
At the heart of money problems is an incongruence of values. So while you may think you’re arguing about his high monthly car repayments for that sports car you don’t think he needs. Or he may be accusing you of purchasing yet another pair of Christian Louboutins – what you’re really arguing about is about your value system, what you see as important.
When you fall in love, the last thing you want to discuss is the everyday drudgery of finances. Joint accounts and individual investments isn’t exactly an aphrodisiac – and many believe that they have no place in the bedroom. But you can be sure, without the proper preparation, discussing and planning – you might just find yourself in the courtroom.
Just ask actors Reese Witherspoon and Ryan Phillippe, who divorced in 2005. They had to split their earnings in a divorce settlement, even though she was making almost 10 times more at the time. On the other hand, Sandra Bullock didn’t have to give her cheating ex a dime from her estate, thanks to a prenuptial agreement that kept their assets and properties separate.
If you have any assets you would like to preserve and protect in the event of a divorce, it makes huge sense to have a prenuptial agreement, though many of us still avoid the topic. Emotionally it doesn’t feel right to write up a contract and identify what’s his and hers in a divorce, but as we know our emotions don’t always lead us to the best decisions.
Therefore, in today’s ‘love session’, I’m sharing some good financial sense – so that YOUR dollars look after themselves.
The top 5 mistakes couples make and how to overcome them:
1. Combining the Finances
The Wrong Approach: United we stand, divided we bank.
The Right Approach: It’s yours, mine and ours.
Should you merge everything you have and earn into one joint account, or should you maintain individual accounts and open a joint one for household expenses?
Smart Money magazine’s survey found that the majority of couples (64%) put all of their money in joint accounts, while 14% kept everything in separate accounts, and 18% had both. “Married couples should try different ways of handling the money to see what works for them,” says Ginita Wall, CFP and co-founder of the Women’s institute for Financial Education.
For many newlyweds, the right choice may be somewhere in the middle. “You should have some autonomy money, I should have some autonomy money, and we need to learn how to practise being a couple together with our money,” says Ruth Hayden, author of ‘For Richer, Not Poorer’.
2. Dealing With Debt
The Wrong Approach: Your debt will ruin us; you must find a way to pay it off.
The Right Approach: It’s our debt: Let’s decide how to pay it off together.
Of all the issues that spark a fight, debt ranked No. 1 for most (37%) of Smart Money’s survey respondents. “That’s one of the places where couples have the most disagreement,” says Hayden. Couples often don’t see eye to eye on how much debt is too much and which kind of debt is bad. Compounding the problem: in many cases, one spouse enters the marriage with a lot more debt than the other.
What to do in situations like that? Like it or not, once you’re married, your spouse’s debts can become your problem. Granted, you’re not legally responsible for the credit-card balances ran up before you got married, or for any loans opened in your spouse’s name alone — provided you keep your finances completely separate.
For those couples not yet married, it may be worthwhile to think about a prenup just to make sure that assets that one spouse brings into a marriage will always be protected from the other spouse’s creditors. But those who’ve already tied the knot should find a way to pay down the debts as quickly as possible, and without any late payments, says Wall.
3. Keeping Spending in Check
The Wrong Approach: I’m a saver and you’re a spender. That’s the problem.
The Right Approach: We both spend, but on different things. Let’s budget.
Your husband keeps nagging that you spend too much — but then comes home one day with a huge smile and — surprise! — a 70-inch flat-screen plasma TV. He happily explains how he sealed the “terrific” deal. You’re definitely not impressed.
Sound familiar? Spending is the second most common reason why couples fight, according to Smart Money’s survey. What usually happens, explains Hayden, is that one spouse gets labelled the “spender” and is blamed for skimming all the money out the cheque book.
In most cases, however, that’s not accurate. “Studies show that men and women spend the same, they just spend differently,” she says. Women usually take care of most of the family’s daily expenses: the groceries, the bills, clothes for the family — while men spend on large purchases like plasma TVs, cars or computers. “If you counted up your money, you would be spending about the same,” Hayden says. “But because you spend so differently, the perception is different.”
The solution here is to identify the real problem, Hayden says — namely, that you’re both spending money on a tight budget. Then sit down and decide how much money you’ll allocate to the “dailyness” of life, and how much to save for the big purchases. “What we’re trying to do is get the ‘Surprise!’ out of it,” she says.
4. Investing Wisely
The Wrong Approach: You’re a risk-taker, I’m risk-averse. Hands off our retirement savings.
The Right Approach: Let’s think in time frames and take as much risk as our goals allow.
Smart Money’s survey showed that when it comes to investing, men are more willing to take financial risk than their wives (62% for men vs. 19% for women). But fighting about how much risk to take with your investments based on how you feel about risk doesn’t do much good. Rather, sit down and talk about your investment goals and time frames, says Christine Larson, co-author of “The Family CFO”. “You could be completely risk-averse with money you need for next year, but you can be a huge risk-taker with money you’re saving for retirement,” she says. If that doesn’t work for you, seek the help of a broker or a financial planner.
Whatever your investment choices, review your investments together at least once a year and make sure that, overall, your portfolios balance each other out, suggests Wall. “I have one couple — they’re in their 70s. She likes to take risks and it scares him to death, so they do invest themselves separately,” says Wall. “We let her take risk with part of the money, but not all of the money.”
5. Keeping Money Secrets
The Wrong Approach: What my spouse doesn’t know will never hurt him/her.
The Right Approach: Big financial secrets can ruin a marriage.
Among Hayden’s clients is a family that first came to see her when the wife found out that her husband had lost a lot of money trading commodities. The real problem? She didn’t know his little secret. “It got them in horrible trouble!” Hayden says. “He’s very steady, he’s a fabulous doctor, he’s a great dad … but he had this other part of him that’s pure gambler, and it almost brought the marriage down.”
Are you shocked to hear that most couples do keep money secrets from each other? While secret trading or gambling may not be that common, our survey saw 36% of men and 40% of women confess that they had at one time or another lied to their spouse about the price of something they bought. “It’s the most common secret,” says Wall.
Is it a big problem? Depends on how you deal with it. “Most people also lie to themselves about what they’re spending, just as they lie to themselves about how much they’re eating,” says “The Family CFO” author Mary Claire Allvine.
And let’s face it, if your wife saved up the extra $100 for her “only $30″ Givenchy scarf from her monthly mad money, it’s not that big a deal. But if your spouse has been squirreling away thousands of dollars, it may be time to seek the help of a family finance professional. “If this happened in a company,” Allvine says, “they’d call it embezzlement.”
Share the wealth…tell me what are your biggest Do’s and Don’t for mixing love and money?