Mo Vidwans
By Mo Vidwans
Most marriages have loving and devoted relationships, no doubt, but there can still be some aspects that could be contentious if not handled properly. Money can be one of those in a marriage, or any relationship. According to a 2021 Fidelity Investment survey of individuals ages 25 or older in a married or long-term relationship, one in five identify money as their biggest challenge in that relationship.
It’s not surprising if you think about it. These days most men and women get into a relationship with some property of their own, have already lived a life where they had to make some decisions about their own money (how much to spend, how much and where to invest to mention a few) and then they find someone to love and spend the rest of their lives with. The question of money management stands out like a sore thumb. When they are dating or in a serious relationship, they are talking and questioning about a lot of things, but how the money gets handled is rarely one of those.
In my opinion, it should be front and center even though perhaps not immediately but soon after they get serious; because it could be a key consideration in such a relationship, as it should be. Now I admit this is a Financial Planner talking; but I must say it is hardly ever an exigent matter, generally not even on the distant horizon for many couples.
Because different people bring different backgrounds of upbringing with them as well as variety of experiences and then they are trying to mix these embedded ideas and attitudes into a common finance philosophy. It is hard to find a golden mean agreeable to both parties. Sometimes the challenge is about who spends too much or who does not save enough but perhaps the most difficult issue is more basic than that, which is how to combine the two finances (asset bases) and the two different ways of spending and saving.
It will not be surprising to you, especially to those who have gone through this, that there is no simple answer. There is also no right or wrong way of doing it either. Actually, it depends primarily on the skills and decision-making ability the two parties bring to a union of this sort. If that understanding is created at the beginning of dating and each other’s skills evaluated, then it gets a lot easier. But then we are usually so enamored with the other party that I do not know anyone who would ask those kinds of questions on the first date (or on the second one or later, for that matter) unless we wish to kill the potential of the relationship. Therein lies the dilemma. One thing is for sure; when they become inseparable, then they should, perhaps, focus on their individual strengths. One person may be good at managing the day-to-day budgets and bills and the other could be looking at the big picture with a long- term focus.
Here is what I have seen so far as to how these things get handled.
My Money and Your Money
The individuals in a relationship do not combine their finances. Of course, the common expenses like groceries, rent/mortgage, utilities and others are to be shared. Often a common budget is created and spent accordingly but otherwise the finances, respective investments and even insurance stay separate. Many details need to be worked out here and usually couples with some mutual understanding can figure all that out. Some unusual expenses like house renovations, car repairs or medical expenses especially when one party or children get sick need to be worked out. The key understanding here is that common expenses are to be shared equally.
Different buckets can also be created following the same philosophy if that helps the partners to understand the concept of how much to save and how much to spend.
All Joint Accounts
Here both partners bring all their assets together and share expenses. Generally, at the beginning of the relationship some common understanding is created about such matters and then they can stick with it. If there is a ‘prenuptial agreement’ then it will be in writing but most of the time that is not necessary. In such an arrangement all incomes and expenses are shared including investments which means also that there must be much common understanding between the partners about the long-term plans. This strongly suggests that along with just romancing each other, the partners are seriously talking about financial matters somewhere during the dating phase. This is always a smart thing to do, but if it really happens is another issue. Here, depending on the strengths of each partner, the responsibilities can still be split between them, and a monthly meeting to talk about issues is a good idea.
The retirement accounts will, however, remain separate because of the nature of the beast.
Let the Individual Expertise Decide
Let us admit that none of us is good at everything (for some that is a hard pill to swallow). In a partnership it almost behooves us to find out who is good at what and then decide how and who would make key decisions, not only in financial matters even though that is where it starts but does not have to end there. In such arrangements, creating a bucket philosophy (as mentioned earlier) helps a lot because then both partners know where their limits are before a serious discussion needs to happen. Many couples seem to follow this philosophy.
Regardless of what you decide, we all need to understand the following.
In most cases a ‘prenuptial agreement’ should be seriously considered.
Joint accounts are usually not a good idea. It should be one person’s account with the other person as a full beneficiary.
In case of a divorce (I do not wish that on anyone, but practicality prevails), courts usually split the property evenly no matter who owned what. For the nine Community Property States, that is the case for the property created jointly while married.
For newlyweds, this discussion is a must, in my point of view, long before they get serious, and should happen as soon as possible. Whoever said wedded life is all roses was probably perennially single.
Mo Vidwans is an independent, board certified financial planner. For details visit, vidwansfinancial.com, call 734-476-0579 or write to: [email protected]
