10 Financial Discussions Couples Should Have Before Marriage
Posted By Terri Williams on June 1, 2017 at 7:34 am
On the big day, couples agree to say, “I do,” to each other. But before then, they should agree whether they do or they don’t want to merge their income and bills, as well as other financial discussions that have the potential to make or break even the strongest marriage bond.
Last year, the American Institute of CPAs conducted a survey of young adults (ages 25 to 34) who were either married or living with a partner. The results include the following insight on financial discussions and the lack thereof:
- 42 percent have discussed their long-term financial goals as a couple;
- 33 percent have developed a joint retirement strategy;
- 50 percent say that combining finances with a partner who saves differently gets in the way of saving more;
- 56 percent have discussed their individual savings and spending habits with one another;
- 51 percent have established a household monthly budget;
- 47 percent say all of their expenses are shared equally.
In response to the survey’s results, the AICPA this year developed a list of 10 topics for financial discussions that couples should have before they decide to get married.
#1: Paint the whole (financial) picture
Most wedding vows include the phrase, “for better or for worse.” However, each individual has the right to know what they’re getting into. A healthy relationship must be based on honesty, and this includes full disclosure in terms of debt and any bad financial decisions.
“Financial decision points come up quickly from a variety of angles as couples begin their life together,” according to Neal Stern, CPA and a member of the AICPA Financial Literacy Commission. Stern tells GoodCall®, “Knowing your resources, priorities, and goals as a couple will help you make decisions that work for both of you, keep you on course, and avoid some tense financial discussions.”
#2: Yours, mine or ours?
Will all of the debts and expenses be combined, or will some – or all – of them be kept separate? “If there are step-kids involved, discuss before marriage how expenses for the kids will be handled,” Stern recommends. “Does that come out of the joint money? Does it come out of one spouse’s money?”
If all of the money is going to be combined, decide if there should be ground rules regarding purchases that must be discussed beforehand. “That $800 watch or $1,200 bike on the joint credit card bill, if not discussed in advance, can be the source of some tense conversations,” Stern warns.
#3: Discuss the wedding ceremony ROI
The wedding is the first major financial commitment, and Stern says making smart decisions can pay big dividends. “Planning for a wedding can be stressful, but taking the time to get the money part right along with all the other aspects of your milestone day will help you go home from the party with a lifetime of wonderful memories rather than a source of possible future tensions.”
Stern recommends performing a cost-benefit analysis to understand the final price tag, and if necessary, manage expectations. “As a couple, you need to decide if the resources earmarked for the big day could be better utilized for the down payment on the purchase of a new home or the reduction of student loan debt.”
It’s understood that wedding are typically overpriced, but the couple must decide how much they’re willing to reasonably overpay. “Destination weddings often provide the couple a lower cost option, by naturally eliminating prospective attendees unwilling to pay the cost to travel.”
#4: Your place or mine?
“Your first home as a new family can be a source of joyous memories or relentless tensions, so take the time to discuss candidly and choose well,” Stern says. One partner’s residence may be more convenient or spacious than the other, but making a fresh start eliminates the “my house” attitude. “Talk about what you can comfortably afford that is convenient to work for both of you and fit for the lifestyle you want to have together.”
#5: Rent or own?
Should your first place as a couple be a rental, or are you ready to buy your first home? Stern explains that some couples may prefer to stay put and save money for a while, and others may decide to purchase another home. Also, will you purchase regardless of whether it’s a buyer’s or seller’s market? “If you decide together to sign a mortgage, talk about your credit histories and scores since a blemish on the part of either partner can cause a last-minute disappointment.”
#6: Getting around
If both partners have a car, are they new enough to be trouble free or is one in constant need of repair? “Should you purchase a new car with the peace of mind that a warranty brings, or is that going to be too much of a strain on the newlywed budget?” Other decisions include whether it is best to purchase or lease a car, and whether the car should be bought outright or financed. “Discussing the alternatives now will avoid tension later when the car payments (or repair bills) roll in,” Stern advises.
#7: Health insurance
Does each partner have individual employer-sponsored coverage? “Talk about whether you can save money by combining coverage under one policy and giving up the other – and get the facts on which coverage is better,” according to Stern.
While each partner will have savings, investments and a 401k plan, should they be combined, and if so, ask your financial advisor what type of strategies should be utilized, Stern advises. “Your shared risk tolerances and investment comfort levels will help avoid stress when you run into those inevitable market ups and downs.”
#9: Life insurance
Stern says this is the area least likely to be one of the financial discussions before marriage. “No one wants to think about, or talk about, their risk of mortality, and young couples are almost always right in thinking this is an issue for the far distant future.”
However, he also warns that it’s impossible to know for sure. “Discuss whether there is adequate life insurance on each partner to replace their income, at least temporarily, if the worst happens.” He also recommends discussing disability insurance. “If you’re disabled by an accident, your income may stop but the family bills won’t — they may grow if you need special help.”
#10: Got student loans?
Most young adults are saddled with student loan debt. “Will each partner contribute toward repaying the loan of one spouse, or will it be up to the person who incurred the debt to repay it?” Stern asks.
The importance of financial discussions and literacy cannot be overstated. Marlow and Chris Felton, authors of the book Couples Money, tell GoodCall® that it is very important to a sound relationship and happy marriage. “Even what seems like the most compatible couples in every sense can be on opposite ends of the spectrum when it comes to money, and it can ruin your relationship.”
They explain that financial literacy leads to having a healthy relationship with money. “Money is such a stressor for so many people, and if people weren’t constantly living where they have to make ends meet or just getting by, they’d be so much better off, and they could focus on their relationships.”