Spring 2006
When it comes to money, any married couple who abides by the old adage that "opposites attract" is asking for trouble!
Experts estimate that 50-75 percent of divorced couples identify financial difficulties and disagreements as a major factor in their breakup.
A spender marrying a saver is akin to mixing oil and water for a salad dressing. But their different styles can blend well if they shake things up - through talking, planning and compromise.
Yet many couples - older couples as well as newlyweds - find it difficult to discuss money in a calm, rational manner. The following steps can help bring financial issues out of the closet and into the open for honest discussion.
Have a money talk. Talking is particularly helpful for newlyweds or as part of pre-marriage planning, but it is just as relevant to couples who have been together for a long time. Take turns sharing your personal experiences - how you viewed money as a child, how your parents handled money and how your family dealt with financial problems.
If things become heated or emotional during the money talk, some experts suggest that couples sit back to back and take turns repeating what their partner says. This removes body language and facial expressions from the equation and requires more careful listening, typically resulting in a calmer discussion.
List your goals. If you don't know where you want to go, it's hard to get there. Each partner should make a list of five to 10 financial goals, covering areas such as retirement, housing, children, college education and personal development. Then compare your lists and identify areas of agreement.
Discuss your goals, prioritize them and give a time frame and dollar amount for each one. Most couples find they share general areas of agreement once they actually take the time to write down their goals. These goals should provide the foundation for ongoing financial planning, including the decisions you make in terms of investments, insurance, taxes, spending and estate planning.
Merge your money. Next, merge your finances and budgeting to support your goals. This decision can prove especially difficult if one or both of you has been independent for a long time.
Some couples choose to put everything into a communal pot with joint checking, savings and investment accounts; others opt to keep separate accounts. Another option is to create accounts that are "yours," "mine" and "ours," where each spouse contributes the bulk of his or her income to a common account ("ours") from which most household bills are paid and investments are made.
Although there is no right or wrong way to merge finances, some experts say it's best to keep some autonomy over money and spending - even if it's only $50 or $100 a month - to cut down on money fights. Most experts also agree that it's smart to keep separate credit cards or other charge accounts to maintain an individual credit history.
Invest and save. Many of your financial goals require saving and investing. This is another area where differing money backgrounds can cause conflict. If one spouse likes to make risky stock investments and the other prefers the safety of bonds or CDs, it may prove difficult to find common ground. Avoid being too aggressive with short-term money and too conservative with long-term money.
Dance around debt. In this era of easy credit and identity theft, consider reviewing a copy of your prospective partner's credit report before you get married. First, you want to ensure that the credit report contains no errors. Second, you want to gain an understanding of how your partner treats credit and debt. This doesn't need to be a marriage deal breaker, but your partner's debts essentially will become your debts once you tie the knot. "Honey, can you show me a copy of your credit report?" isn't the most romantic line, but it is essential for self-protection.
If you already are married, you should get a copy of your credit report from the three major credit reporting agencies - Equifax, Experian and Trans Union - at least once a year. Thanks to a new federal law, you can receive a free copy of your report (without credit scores) from each of the three agencies by visiting www.annualcreditreport.com or calling 877-322-8228.
Talking about money can prove difficult and even scary, but not talking about it can lead to financial and marital disaster. Coming to agreement about money issues through planning and compromise can enhance long-term financial success. So don't delay - hold your financial summit today!
# # #
© 2006, Military Officers Association of America (MOAA). Former Army captain Phillip A. Dyer is a Certified Financial Planner and Deputy Director of Financial Planning at MOAA (www.moaa.org/financialcenter).