Headed to the altar? Discuss these money issues first
Savers don't only marry savers. Sometimes they marry spenders.
But that's OK, as long as the savers understand that they're hitching themselves to partners who'd rather spend their paychecks than stash them in a certificate of deposit.
"Spenders and savers are often attracted to each other. And that's great. It's not a deal-breaker," says Elle Kaplan, founding partner and chief executive officer of LexION Capital Management in New York City. "It's OK to not be on the same page financially. People get married all the time when they don't share the same beliefs on religion or politics. They can get married when they think differently about finances too."
But there is a caveat: Couples should talk about their finances and their money goals before they walk down the aisle.
An essential discussion
Money issues are a common source of stress in relationships, and couples who don't learn about their future partners' finances might discover some unpleasant surprises once the honeymoon ends. Open communication can help prevent those future shocks.
"When they're dating, people may exaggerate when it comes to the number of past partners or relationships they had," Kaplan says. "They may do the same when it comes to the amount of income they have coming in each month or their credit card debt. It's important for couples to talk honestly about their finances once their relationships get serious."
What should couples talk about when it's time to have a financial discussion? Leslie Tayne, a financial attorney and debt specialist with Tayne Law Group, P.C. in Long Island, N.Y., said future spouses should share how much debt each of them carries and how much they each earn on a monthly basis.
The type of debt is important too. You should know if your future spouse is paying off thousands of dollars in student-loan debt or facing $15,000 or more in credit card bills.
Past financial miscues should also be part of the discussion. A partner who, say, lost a lawsuit and is now paying damages because of it, should share this information. Partners should be open if they've suffered a bankruptcy or foreclosure in their past. Depending on how long ago these financial mistakes happened, they can leave one partner with a terrible credit score and an inability to qualify for mortgage loans or credit cards.
Reviewing the documents
To avoid such credit surprises, Tayne says that couples should each obtain their three-digit credit score. Credit scores cost about $15 when consumers order them from any of the three national credit bureaus: Experian, Equifax or TransUnion.
This credit score can show whether consumers have paid their bills on time or suffered any serious financial disasters, such as a bankruptcy or foreclosure. Consumers with money problems will have a lower score. Consumers who've paid their bills on time and not run up too much credit card debt will have higher scores. In general, lenders today consider credit scores of 740 or higher to be excellent. Scores under 640 are considered weak, and consumers with such scores might struggle to qualify for home or car loans at reasonable interest rates -- or at all.
Future spouses should talk about financial goals too, Tayne says. One spouse might want to immediately start saving for a home. Another might prefer spending money on a big vacation or two before kids come into the picture. Others might want to focus on saving early for retirement, while others might want to allocate money to pay down debt.
An ongoing dialogue
The financial talk shouldn't end here. Couples need to also talk about how they'll handle important financial matters once the wedding is over, Tayne says. Who will pay the bills on a regular basis? What type of investment vehicles does each partner feel most comfortable using? Will each partner contact the other before making purchases of $300 or more? Will partners open a joint checking account once they get married or maintain separate accounts?
The goal, Tayne says, is for partners to be "on the same page and working toward the same goal."
These issues at hand can also differ between couples. The questions that future spouses ask each other can change depending upon how old they are when they are getting married and whether a marriage is their first, second or third, says Jerry Love, a certified public accountant and personal financial specialist based in Abilene, Texas.
Couples who are in their early 20s will have different questions than those who are in their late 40s or early 50s. Young couples might want to focus on student-loan debt and credit-card debts, while older couples might have to discuss such matters as child-support or alimony payments.
The problem is, most couples don't talk much about finances at all, Love says. The danger here is obvious. What if one spouse wants to retire at 50 and the other thinks they'll both work into their 70s? What if one spouse expects a big, expensive house and the other is content with renting a modest apartment for the early years of the marriage?
Couples who don't talk about finances will struggle to reach compromises on these issues, Love says.
"I believe that all couples who want to get married would benefit from both premarital counseling and from going to a financial planner and having a series of premarital financial discussions," Love says. "That way they can talk through their financial issues. Everyone has a financial statement. It might not be written down on paper, but everyone should know what they own and what they owe. That's information that couples need to share with each other."