By FPA Member Joy Slabaugh, CFP®
Last Updated: July 12, 2010
The most common cause for divorce is debatable but nearly all studies rank financial stress among the top five contributing factors. In the second half of this two-part article, financial planners continue sharing how they help clients approach the financial transition that comes with a committed relationship.
Discuss the worst-case scenarios of death, disability and divorce. FPA member Samuel F. Slabaugh, Sr., CFP®, with EST Financial Group in Delmar, Del. offers a perspective that can make this conversation easier to start, “All unions are dissolved, either during your lifetime or at death. First, confront the reality that your union will dissolve at some point. There will likely be similarities between how you want to dispose of your assets at death and should the union dissolve while living.” FPA member DeVon Daniels, ChFC, CTFA™, managing partner with Daniels + Tansey in Wilmington, Del. encourages her clients to “talk about how things will be handled if things go perfectly and also if things do not go perfectly.” These conversations need to cover how finances will be handled in the event of these specific instances and can include discussing actions the couple will take to minimize worst case scenarios. Agreeing upon a safe way to bring up financial topics can resolve issues before they grow into deal breakers. Potential solutions may include periodic state-of-the-financial-union meetings with a financial planner who acts as a neutral third-party.
Once you reach an agreement on the financial aspect of these unfortunate events, write out your agreement. Use a pre-nuptial agreement to outline how you will divide assets in the event of a divorce. FPA member Eric D. Brotman, CFP®, president of Brotman Financial in Timonium, Md. thinks pre-nuptial agreements are probably not necessary for couples entering their first marriage with few assets but are essential for couples with more complicated relationships. “Couples who are entering a second marriage, who already have children, or who have significant wealth disparity need to consider a pre-nuptial agreement,” says Brotman. A pre-nuptial agreement requires complete financial disclosure, needs to be prepared by attorneys, and each partner needs to be represented by an attorney. If your situation does not require a formal pre-nuptial agreement, consider writing an informal agreement outlining the results of your conversation.
Use wills and trusts to make sure your assets are distributed at death in the manner you agreed. Every couple, regardless of wealth, needs to do estate planning and the less traditional the relationship, the more critical the need. “The intestate laws in most states tend to favor a married couple,” says Brotman. “If you are not married and don’t have children, the estate plan provided in most states is lousy. While these laws will not allow you to accidentally disinherit a spouse, you will likely disinherit a domestic partner unless you do special planning.” Using a qualified estate planning attorney is the best way to make sure that what you agreed upon will actually happen. Daniels recommends including your motives in your planning documents, “State your intent lovingly yet clearly so there can never be a misinterpretation by either family.”
Use advance medical directives, living wills, and powers of attorney to outline your agreement on financial control and care in the event of disability. Especially when a couple’s relationship does not include marriage, preparing these documents and giving them to the appropriate medical and banking institutions is critical. “Incapacity is becoming more and more of an issue; you must not only talk about what you want to happen but make sure that the intent is provided for,” says Daniels.
These conversations may be difficult to broach with your partner. Slabaugh says that for many, “Money is a very personal topic and discussing it is emotionally charged.” If conversations between you and your partner are not successful, consider meeting with your financial planner or a neutral financial counselor. Brotman reiterates, “These are the least romantic and the least enjoyable discussions you will ever have in your life, but there are critical reasons to do this; ask Paul McCartney.”
Read "For Love and Money: Divorce-Proofing Finances in a Domestic Union (Part 1)."
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.