Last Updated: February 1, 2010
Very few couples reach across the table on Valentine's Day, look deeply into each other's eyes and swap credit reports. Yet, it would be fascinating to know how many relationships would be saved — or mercifully curtailed — with a thorough knowledge of each other's finances.
Even if marriage or a civil union is in the distant future, it's never too early for a serious couple to start discussing money issues. It's worthwhile for two reasons. First, it allows couples to plan for the long haul. Second, it helps both parties identify ideological and behavioral differences that can sink a relationship if they're not properly addressed.
Here's a checklist that potential live-in couples should review before they set up housekeeping. Find some time to sit down at the kitchen table and discuss the results, and if you're not sure where to go from there, enlist the help of a financial expert such as a financial planner.
Discuss how household expenses will be split. Since your relationship isn't legal, the first logical step in the money discussion is how you'll handle household expenses in light of your respective incomes. Creating a joint budget is critical. If you're setting a lifetime plan, it's definitely appropriate to discuss your respective salaries and how to budget those household expenses so you'll have savings to play with separately or jointly.
Talk about debt. The best gift a couple can give each other before they move in together is full disclosure on their respective finances. If you plan to rent an apartment or buy a home together, a poor credit history can alter plans suddenly. If one or both partners has significant student, credit, business, mortgage or other debt, those amounts need to be disclosed and both sides should address a repayment plan. Start by obtaining your most current credit reports — for your free annual series of reports, go to www.annualcreditreport.com — and not only share that information, but address how any problems or inaccuracies will be fixed.
Talk about the kids. If one or the both of you are bringing children into the relationship, you'll need to cover all the emotional, logistical and money issues associated with blended families. You'll need to know how your partner's obligations will affect the household budget, and looking ahead, how they will affect your joint finances and retirement plans if you tie the knot in the future. Also, if you're both childless, have you fully discussed your plans for a family at a later date?
Discuss long-term housing plans. For now, one of you might be moving into the other's home or apartment, but is that the long-term plan? If one partner wants to live in a mansion and the other is content with a three-bedroom ranch, that's a critical difference in financial goals. Consider setting a "spending trigger" — a dollar amount over which partners need to agree on what's being spent for housing expenses.
Review each other's spending habits. They say opposites attract, but if one of you is a spender and the other's a saver — or worse, if both of you are spenders —you need to have a tough discussion about money behavior.
Check each other's bankruptcy record. You really need to know your partner's bankruptcy or default record. This will show up on your credit report if the filing was made within the last 7-10 years, but if he or she filed earlier, you really need to know when, and most important, why.
What about retirement? At whatever point in life you're entering a relationship, you need to discuss not only how set you are for retirement but what you hope your retirement will be like. Talk about assets in your 401(k) plan, Individual Retirement Account (IRA) and other investment accounts. If one or the both of you haven't taken any steps to plan for retirement, you're going to need to change that. If you vary widely in age, it's wise to ask for advice since one spouse will be retired long before the other.
What is your estate plan? It's never too early to think about the possibility that one of you might die suddenly or be incapacitated. Many people wait until they're married to get wills, durable powers of attorney, health care directives and life insurance/retirement plan beneficiaries in order. If you have a specific desire for a non-legal partner to gain custody of your children, your assets or the direction of your business, you should meet with an experienced estate attorney and tax professional now, not later and plan to discuss those goals fully with your partner.
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