While money may not be the most romantic topic, most of us will readily agree that handling it responsibly is a basic requirement of life, whether single or married.
In a previous article, we offered some financial tips and advice for young couples who are embarking on their lives together. But no matter if you’re still planning the wedding or you’ve been married for years, being on the same page about finances is one of the keys to a satisfying, respectful, and nurturing relationship.
Communication: The Indispensable Factor
As already suggested, talking about money may not be anyone’s “love language,” but it’s certain that poor communication around money can suck all the vitality out of what may have once been a loving relationship. Especially for two-income couples and those with more complex financial situations, it’s important to communicate clearly, particularly concerning matters like marital property vs. separate property, debt and the responsibility for paying it, joint tax liability, and other financial issues that arise in many marriages.
Statistically, Millennials have the lead in this important skill: 39% of them reported daily (!) money discussions with their partners. On the flipside, though Baby Boomers’ parents may have been the “Silent Generation,” Boomers, at only 13%, are keeping pretty quiet with their spouses on the topic of money. On the other hand, a majority of both Millennials (58%) and GenZers (57%) report occasional arguments over money with their partners, while only 30% of Boomers do so.
So, does that mean it’s a good relationship idea to avoid discussing financial topics? Not really. Financial infidelity (hiding purchases or concealing debt from a partner) and uncontrolled credit card debt were cited as reasons for the dissolution of the marriage by about a third of divorced persons surveyed recently by Debt.com. Clearly, romance and finance are related, and not just because they rhyme.
So, what’s the key to finding the right balance for money conversations between partners? First of all, both individuals are unlikely to be equally interested in or conversant with financial matters, and that’s perfectly normal. It is common for one or the other partner in a marriage to be the “money person.” Nevertheless, both partners need to have, at minimum, a working knowledge of household finances, bank accounts, etc.. Furthermore, for those with more significant assets, both partners should be clued in on at least the basics of the various investment accounts, retirement accounts, and other important assets.
Furthermore, it’s pretty common for two partners to have different “money personalities.” For example, one will often be the “saver,” and the other will be the “spender.” While the former individual gets a legitimate endorphin rush when making a bank deposit, the latter gets the same spark when scoring a coveted item on sale. This doesn’t mean that either orientation is bad; it just means that the two need to understand this about each other and set reasonable, mutually agreed boundaries and expectations for their respective behaviors.
Separate Property vs. Community Property
Especially for those who have either accumulated sizeable estates during marriage or those who bring appreciable assets to the marriage, it is vital for both partners to understand what property is community property—belonging to both—and what is separate—belonging only to one or the other. And perhaps just as important, both need to understand why these divisions exist.
Even if you don’t live in a community property state, it’s important to be clear on the difference between joint marital property and separate property. Most assets acquired during a marriage are legally considered to be equally owned by both spouses, even if one spouse earns a disproportionate amount of the household income. On the flipside, debt accumulated during a marriage is generally considered to be the joint responsibility of both spouses. For these reasons, if no other, couples owe it to each other to practice open communication about household income and expenses.
Separate property, on the other hand, encompasses assets that are owned by only one spouse. Typically these would be assets acquired before the marriage or an inheritance received during the marriage. Often, those going into a marriage with significant assets are well advised to use a pre-nuptial agreement that specifies the understanding of both partners that certain property held by one spouse is not joint or community property. Particularly in blended families, where both partners have children from previous marriages, it can be very important to maintain separation of property that may have been acquired prior to the current marriage that was intended for the upkeep and/or education of children.
All that said, there are advantages and disadvantages to both commingling property and maintaining certain assets as separate property. Commingling offers the benefit of emphasizing goals you share as a couple. It can make budgeting and recordkeeping easier. When children come along, the communal aspect of sharing finances can contribute to the family’s focus on nurturing and providing for the next generation. Commingled assets can also reduce feelings of inequality that can arise when one partner feels as if they are “carrying all the weight” or, on the other side of the coin, feels as if they aren’t contributing meaningfully. When all the assets are “ours,” it can promote everyone’s sense of ownership and belonging.
On the other hand, keeping some assets separate can also be a good idea. Sometimes, it’s important to a partner’s sense of independence to have assets that can be utilized without consultation or permission (this can especially be the case when both partners are producing substantial incomes). Partners who are otherwise well-suited for each other may differ significantly over investment strategy, in which case having “my money” and “your money” can be a good solution for keeping the peace.
For those who decide to maintain separate property, it’s important to maintain true separation between those assets and marital assets. Let’s say that one spouse inherits an investment account that pays interest and dividends. The earnings from the account should be deposited in a separate account rather than one owned jointly by both spouses in order to avoid creating the appearance of commingling of the assets, which could potentially lead to the inherited funds being declared community property. Another way that separation of property can be compromised is if separate assets are used to maintain or provide for property that belongs to both partners. For example, if one partner has inherited a sum of money, that would be considered separate property. But if the person uses funds from that inheritance to pay the mortgage on a family home co-owned by their spouse, that could be considered commingling and potentially allow the inherited funds to be considered community property.
Making a Plan
Bottom line: creating and maintaining an efficient family financial plan is not as easy as saying “I do.” It takes work, careful planning, and above all, transparent communication. The process can also be assisted by the guidance of a professional, fiduciary financial advisor. The advisor can serve as a sounding board for both spouses and can also contribute professional expertise to help create a plan that takes into consideration the needs of everyone involved.
To learn more about financial planning and its implications for marriage, why not watch our free webinar, “Marriage: Financial Planning Aspects to Consider”? We’ll provide discussion of the points raised in this article, plus much more. And as always, if you have questions or would like additional information on financial planning for your family, you can always contact your advisor at The Planning Center.
