By FPA member Joy Slabaugh, CFP®
Last Updated: July 6, 2010
The most common cause for divorce is debatable but nearly all studies rank financial stress among the top five contributing factors. Couples who are entering a union that they hope will last, whether a common-law marriage, legal marriage or civil union, will be wise to plan the financial merger just as carefully as the ceremony. Financial planners discuss how they help clients approach the financial transition that comes with a committed relationship.
“Start by talking,” says FPA member Samuel F. Slabaugh, Sr., CFP®, with EST Financial Group in Delmar, Del. FPA member Eric D. Brotman, CFP®, president of Brotman Financial in Timonium, Md. recommends, “The time to broach the difficult topics and reach an agreement is early on, when you are getting along with each other.” Slabaugh agrees, “It is critical to begin these discussions before you combine households. These conversations will reveal individual preconceptions and expectations that, when talked through, may deepen your relationship.”
Discuss your individual goals for your union and make sure these goals are complimentary. “Couples planning to merge two separate lives deal with different financial issues than couples planning to raise a family” says Slabaugh. “Each objective has its own sets of financial issues, regardless of the type of union.” Determining the objective of your union at the beginning of financial discussions will determine which set of issues need to be addressed.
Financial transparency is critical. “You must make sure both parties have a clear understanding of the assets and debts of the other,” says FPA member DeVon Daniels, ChFC, CFDA™, managing partner with Daniels + Tansey in Wilmington, Del. Slabaugh agrees and elaborates, “Each partner should provide complete disclosure of the assets and liabilities they are bringing to the union.” Financial transparency before a union not only prevents future feelings of betrayal and miscommunication but creates a starting point for financial planning as a couple.
Discuss future ownership of debts and assets. “Once you have full disclosure, it is time to begin discussing which assets will remain individually owned and which assets will be jointly owned,” says Slabaugh. Brotman suggests a compromise, “It is important to have his, hers and theirs; it helps create a merger without total loss of self.” Slabaugh notes that individual comfort with joint accounts differs depending on personalities. “For some people, combining accounts would be giving up their independence,” says Slabaugh. Daniels agrees that every situation invariably differs and for that reason “generally, I recommend creating a joint account for paying joint expenses, even if you are keeping most other accounts individual.”
Discuss financial contributions to the union. Planning is straight forward when a couple starts with nothing or has similar amounts of assets, debts and income. But according to Daniels, “Generally, that is not the case and planning is more difficult.” Especially when there is financial disparity between a couple, Daniels encourages clients to discuss how they will split income, expenses and debt maintenance. Slabaugh points out that such a division need not be 50/50 to be an equal split. “One partner may be the major income earner and the other may be providing quality of life," says Slabaugh. "This is different for each couple; the important thing is that you agree going into the union.”
Discuss the day-to-day finances. Who will make sure bills are paid on time, keep track of tax information, and monitor savings and investments? Slabaugh encourages couples to approach this conversation by discussing comfort level and interest. “I see couples where one partner is very skilled in money management and the other partner has no interest in being involved,” says Slabaugh. “This works well for some but there are other couples who enjoy paying their own bills and keeping everything separate.” Whether accounts will remain primarily individual or be completely combined, this discussion should be held before you begin any financial changes.
This article will continue next week.
FPA member Joy Slabaugh, CFP®, is a speaker, writer, and financial planner practicing in Delmar, Del. Securities and investment advisory services offered through H. Beck Inc. H. Beck, Inc. and EST Financial Group are not affiliated.