How to Have The Money Talk

January 30, 2017

Are you in a serious relationship, thinking about moving in together, engaged or even newly married?  If you are contemplating sharing a household together now or at some point in the future, there’s no better time than the present to discuss your finances.  “Your life partner can be your best financial friend or your worst financial enemy,” according to Financial Finesse CEO and author Liz Davidson.  Marriage is an emotional and spiritual partnership, but it’s also a legal financial relationship.  Money is the leading cause of stress in relationships, but it doesn’t have to be.  The foundation of any successful economic partnership, including living together or marriage, is strong communication with full financial disclosure.

Ground rules

The Money Talk can sometimes bring strong emotions to the surface, so choose a place to have your discussion that will be relaxing and free of distractions to both of you.  Choose a pleasant, neutral location where you have sufficient privacy.  Keep these ground rules in mind:

  • Make sure your discussion is scheduled for a time of day that works for both partners. My husband prefers to talk money and night and I prefer the morning. Over time, we’ve learned over time to bring up financial decisions during breaks in the work day, or on weekend days is best if we’ re going to have the most productive conversations.
  • No alcohol! While a glass of wine could give you courage to disclose your student loan balance, each partner should have their wits about them. It will much easier to listen compassionately without judgment if you are free of cocktails. Feel free to stash a bottle of champagne in the fridge for later to celebrate this milestone in your relationship.
  • Set a beginning and end time for your discussion. If you don’t finish everything, set up a follow up date.
  • Don’t judge. Your partner has a different money story and may have different values and financial priorities than you. Refrain from expressing opinions – think of this conversation as an exercise in  information-gathering.

What to discuss? Make sure that you’ve covered all your bases:

Tell each other your money stories

  • How did your parents handle money? What do you think of how they handled their finances? How did that impact you? If you’ve never thought through your money story, the book The Feel Rich Project, by Michael Kay, CFP® has some helpful chapters on how to assess your history.
  • How would you describe your financial personality? Are you a saver or a spender, or something in between? Do you like to plan carefully, or be more spontaneous? Do you collaborate, or prefer to decide independently? Are you more likely to be meet your own expectations or those of others? Consider using this framework for thinking about how you best create financial habits. If you want to dive deeper into the financial personality question, you can both take an online quiz here or here and compare notes.
  • What’s the biggest financial success you’ve had? What are the factors which contributed to it?
  • What’s the biggest financial failure you’ve had? What are the factors which contributed to it?
  • If you’ve been married or living together before, how did you handle money together? What worked, and what didn’t?

Take inventory – how much to you spend, what do you own and what do you owe?

Now that you’ve reviewed the emotional side of money, it’s time to get practical. Compare notes on your income and expenses:

Income

  • How much do you each make? Do you expect that to increase, decrease or stay the same in the short term?
  • Do you have other sources of income, such as rental property, business investments or trust income?

Expenses

  • How much and what are your “must pay” expenses every month – housing, transportation, insurance, child support, tuition, etc.
  • Do you track your expenses? What system do you use?

Assets

  • How much are you saving for retirement as a percentage of your income? How much have you saved so far in retirement accounts, such as 401(k) or 403(b), Roth and traditional IRAs?
  • If you own your home, what’s it worth approximately?
  • Do you have an emergency fund? How much do you have in cash reserves?
  • What other investments do you have?
  • Do you co-own any of your assets with someone else?

Debt

  • What is your mortgage balance, rate and remaining years to pay, if you have one?
  • How many credit cards do you have? Do any of them carry balances that don’t get paid off in full each month? How much?
  • Do you have outstanding student loans? Are they private or federal loans? Are you current on paying them?  Are you in a loan deferral or forbearance period?
  • If you have non-mortgage debt, do you have a plan for paying it off? By when?

Insurance

Financial wellness means that you are prepared for unexpected and expensive events, such as a major illness or car accident.

  • Do you have health insurance? What kind of health care benefits are available to you at work?
  • Do you have short and/or long term disability income insurance?
  • Discuss your auto insurance. Do you have the bare minimum coverage, or are more fully protected?

Show each other your credit reports

Now comes the hard part. Show each other your credit reports. For many couples, this is the most difficult part of the conversation. Remember, regardless of your credit history, transparency here is an act of love. If you are thinking about spending your lives together you’ll have an economic and financial partnership, not just a romantic one. Full disclosure is essential, especially for engaged and married couples, who will generally be held legally responsible for debts their spouse occurs during the marriage.

  • Access your free credit reports from the three major credit bureaus at annualcreditreport.com or share your report from any online credit monitoring service you use, such as Credit Karma or Credit Sesame.
  • Review and discuss any major items, such as bankruptcy, short sales, and a history of significant late payments or charged off accounts. Do you see evidence that your partner has good financial habits, or is working to develop them after a financial mishap?
  • If one partner has significantly better credit than the other, how will this impact how you manage money together?

What are your financial priorities and long term goals?

Once you’ve tackled the rough part of the conversation, you can head to the fun part!  A successful marriage begins with a shared vision. Ask each other:

  • If everything worked out exactly the way you wanted it to financially for us, what would that look like?
  • Where do you see us living now? In five years? In retirement?
  • If we plan to have children, do you think one of us should take a career break to raise them? For how long?
  • When would you like to be financially independent enough to have the option to retire?
  • Can you define “financial independence” for me?
  • What would happen if one of us got sick or laid off? How do you think we should handle it?
  • If one of you has children from a previous relationship, how do you plan to handle the costs of raising them, including sending them to college? See Financial Planning Tips for New Stepparents for ideas.
  • If one of you has significant debt, such as credit card balances or student loans, what is your target time to have them paid off completely?

Not a one-time event

Congratulations on getting through your first “Money Talk!” We hope this will be the first of many ongoing conversations about your joint finances. Marriage can teach you a lot about money.  Now that you’ve established a foundation of transparency, full disclosure and sharing your visions, set up regular “money meetings” to talk through ongoing financial business.  You’ll have a better personal – and financial – relationship for doing that.

Do You Need a Cohabitation Agreement?

January 25, 2017

As more and more couples choose to live together without going through the formality of getting married, a new term has cropped up in the legal world: the cohabitation agreement. Similar to a prenuptial agreement, the cohabitation agreement is a legal document that both partners sign clarifying things like how bills will be paid and other logistics of the relationship, along with the division of any assets and custody of any children should the relationship end. Many couples who move in together do so as a sort of test to their compatibility – before taking the legal plunge into marriage, they want to make sure they can actually live together peacefully.

I can relate. After my first marriage went down in flames for reasons that would have been sniffed out had we lived together prior to the wedding, I knew that I would move in with any future prospective husband before he put a ring on it. These situations don’t always call for a cohabitation agreement, but some couples may still choose to have one just in case the experiment fails.

Couples who, for whatever reason, decide to forgo marriage altogether and simply make a life together may choose to sign a cohabitation agreement in order to provide a level of protection should things turn sour down the road or one partner passes away. Each state’s divorce laws provide this protection when a legal marriage exists. The cohabitation agreement serves as sort of a replacement for this protection.

For example, let’s say a couple purchases a home together then breaks up. If they were married, the judge presiding over their divorce case would see that the home was fairly split between them according to their state’s laws. When there is no marital law to apply, it can lead to costly legal battles even if the home was jointly owned. A cohabitation agreement helps to clarify and hopefully avoid such battles by stating ahead of time what would happen to the home should the couple split up or one person die.

Cohabitation agreements also served as a sort of prenuptial agreement for same sex couples before they were legally allowed to marry, but there are still instances where a same sex couple who is married may still need the protection of a cohabitation agreement or similar document: for example, when they have a child in a state that doesn’t allow adoption by same sex parents. I have friends who had to consider this when each of them gave birth to a daughter from the same sperm donor, making their daughters half-sisters with different mothers who are married to each other. One of the reasons they chose to live where they do is that their state of residence allowed the other mom to adopt her non-biological daughter so that if something happens to the biological mom, there would be no concerns about the surviving mom retaining custody of both girls.

Here are the aspects of your life that a cohabitation agreement could cover:

  • Distribution of property (both individually and jointly owned ) should you break up or one person die. For couples with large income and/or wealth disparities, this can help avoid conflicts during and after the relationship about who pays what and who gets what.
  • Financial support during or after the relationship. For example, many romantic partnerships are forged out of business partnerships or vice versa. This can get very messy should the relationship end, so a cohabitation agreement provides a level of clarity and protection for both parties in that case.
  • Support, custody, etc of minor children. Family courts can override these agreements if it’s in the best interest of the child, but having an agreement ahead of time can provide peace of mind, especially if the child is not a biological child of both partners.
  • Health insurance responsibility. Many employers allow coverage of domestic partners, so a breakup could lead to loss of coverage for one of the partners.

Wills and powers of attorney can be used to cover most of these topics in the case of death, so cohabitating partners should still take those steps as well. In fact, it could be even more important to establish an estate plan when you’re NOT married as your partner may not be entitled to anything should you pass.

There are mixed opinions in the legal community about the enforceability of cohabitation agreements. This article is not meant to serve as a substitute for paid legal advice from an attorney. Should you decide that you and your partner need a cohabitation agreement, I strongly recommend you hire an attorney to draft it to maximize its effectiveness should you need it down the road.

 

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What To Do Before You Say “I Do”

February 23, 2016

I am at a stage in my life where I can look back at my choices and say to myself, “What on earth was I thinking?” This is especially true when I think about past relationships. As I was talking to a group of young women who were recently engaged, I saw glimmers of my past relationships in their stories and thought to myself: what do I wish someone would had the courage to say to me that would had saved me from future pain? Continue reading “What To Do Before You Say “I Do””

The Number One Reason Couples Fight About Money and How to Stop

February 10, 2016

70% of fights within couples are about money according to a Money magazine poll, which really doesn’t surprise me. That’s one of the reasons our new book, What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money, dedicates a whole chapter to love and money. What surprises me is that so many people I talk to about this are unaware of the underlying issues that lead to these fights. Very rarely is it actually about the money. In my experience, it’s usually more about a difference in values relating to money.

Continue reading “The Number One Reason Couples Fight About Money and How to Stop”

Are You Lip Syncing Through Your Financial Life?

February 05, 2016

I’ve recently become a huge fan of the show Lip Sync Battle. Seeing celebrities “sing” the hits of their favorite artists while doing some very entertaining dances is absolutely hilarious. While it’s one of my guilty pleasures and has led to some world class laughter (“The Rock” as Taylor Swift, Anne Hathaway as Miley Cyrus, Channing Tatum vs. Jenna Dewan Tatum), in one of my odd “connect the dots” moments, I realized that I was having a conversation with someone who was lip syncing her life. Continue reading “Are You Lip Syncing Through Your Financial Life?”

Why Every Couple Needs A Joint Account

June 16, 2015

I was recently talking to a couple that I initially thought was talking to me about their debate over getting a joint account. But as each of them spoke, they may had been looking at me but what they were saying was clearly directed at the other person until they forgot I was in the room and they just started arguing. I then remembered some guidance my buddy Kelley, a fellow financial planner, wrote about joint accounts and shared the following guidance from her: Continue reading “Why Every Couple Needs A Joint Account”

Slaying the Three Headed Debt Monster

May 11, 2015

I recently met with a couple (let’s call them James and Julia) in their early-40’s with two young children. I could feel the stress and tension enter the room before they even took a seat in my office. If you’ve ever been around friends that were obviously not getting along, you probably recognize that feeling as all positive energy exits the room the moment the couple in distress enters. This couple’s debt-related stress was not just affecting their relationship, it was starting to impact their friends. Even more potentially devastating, debt-related stress was starting to take a toll on their physical health and well-being. Continue reading “Slaying the Three Headed Debt Monster”

Being Married to the “Money Doc”

December 16, 2013

This week, I will begin a series of blog posts about money and relationships. My wife, Heather (and the real brains of our family), had the idea to start off this series by exposing some lessons that we have learned along the way. Heather is self-employed full-time as an occupational therapist and specializes in working with incredible children who have developmental challenges. Despite occasionally minimizing the role she plays in managing our household finances, the reality is that Heather is also a co-financial planner in our household. Continue reading “Being Married to the “Money Doc””

A Valentine’s Day Investment

February 11, 2013

Valentine’s Day is coming up this week and for many instead of feeling excited about a romantic evening, they feel pressure!  Feeling trepidations about a highly publicized day of romance is definitely understandable.  But on the other hand, Valentine’s Day is an opportunity for couples to strengthen their relationship. That in and of itself is valuable but from a financial planner’s point of view, it’s also an investment. Continue reading “A Valentine’s Day Investment”