It is time to reassess our traditional views of the "the American family" given the relatively new and still evolving conditions that now determine whether people marry, stay single, or break-up. These changes mean that couples today have different expectations about the benefits of both forming a union and formalizing that union through marriage. The married couples of today look quite different from those of a few decades ago, and the risk of divorce among young couples is high.
Today, some 39 percent of marriages in the United States are ending in divorce - this data comes from the most recent census. Though overall divorce rates are on the decline, the reality is that many marriages just won’t make it. And now divorce rates have spiked in the U.S. during the coronavirus pandemic as couples have been stuck at home for months. The combination of stress, unemployment, financial strain, death of loved ones, illness, homeschooling children, mental illnesses, and more has put a significant strain on relationships.
Many times, couples do not have financial discussions before they get married — however, arguing about money is one of the predictor of divorce. Typically, financial matters are not a topic of discussion for a couple in the midst of wedding planning — but they should be.
For those on the verge of exchanging “I dos”, there are several important things to discuss with the future spouse to help protect the marriage from conflict down the road.
Talk about your perspectives on money and wealth
Learning about your future spouse’s attitude toward saving or spending can prepare you for how he or she will manage finances after the wedding. Understanding your fiancé’s connection to money is an important first step in managing your finances as a married couple. Did he/she come from a family that struggled to make ends meet, or did his/her family always live comfortably with no spending uncertainties? When thinking about money, does it evoke feelings of anxiety or opportunity?
Have an open discussion about your current financial situation
How much does your future spouse earn? What about student loan debt, credit card or mortgage debt and credit scores? Does he/she spend more than he/she earns? These are all important areas to discuss with your future spouse. Make an effort to start having healthy, honest conversations about your finances now so you can carry those habits over into married life.
Create a cash flow statement
Before the wedding, outline all of your income sources and expenses, and ask your future spouse to do the same. This will give you a better understanding of where each of you is spending your money. You will know up front whether your future spouse enjoys spending money on clothes or cool, tech gadgets, so you’ll be less likely to face conflict over those expenses when you’re married. This exercise can also give you an idea of how much each of you can comfortably contribute when it is time to combine your finances.
Discuss your future goals
When do you want to start a family? How many children do you want to have? Children are more expensive than most people realize — approximately $245,340 up until age 18, according to the USDA — and could put a strain on your finances if your income cannot support the extra expenses.3
Does your future spouse dream of owning a huge vacation home on the beach, while you would rather have a small cabin in the mountains? This may seem like a shallow difference in opinions — but when both of you move forward in your careers and decide to start saving for a vacation home, it can magnify into a large conflict, unless you are able to make a compromise. Spend time talking with your fiancé about your plans for the future, and set common goals that you can work toward together.
Make a decision about money management
Will you maintain separate accounts, as well as contribute to a joint account? Who will pay the bills? Sit down and make a decision about how the two of you will share finances and who will be in charge of financial decision-making and management. It’s important to have these critical conversations before the wedding to ensure you’re both on the same page.
Protect your Assets – Prenuptial Agreement
A prenuptial agreement ("prenup") is a written contract created by two people before they are married. A prenup typically lists all of the property each person owns (as well as any debts) and specifies what each person's property rights will be after the marriage.
While the topic can be uncomfortable and unromantic, a prenuptial agreement is extremely beneficial in helping you making financial decisions in case of divorce — especially if both of you are bringing assets into the marriage. Prenuptial agreements can also be helpful in maintaining expectations about financial responsibilities after the divorce is final, instead of making those decisions in a contentious court setting. When drafting your agreement, consult with an attorney who can help you plan appropriately, based on your state’s laws.
Suze Orman says the best way to protect yourself and your finances later on in life is a prenup. “Contrary to popular belief,” Orman says “having these conversations won’t ruin your relationship — in fact, it could actually make it stronger. A side benefit to getting a prenup is that it forces couples to get into the nitty-gritty details of their finances and how they think about money.”
Prenups are not just for the rich. While prenups are often used to protect the assets of a wealthy fiancé, couples of more modest means are increasingly turning to them for their own purposes.
Here are some reasons for a prenup:
- Establish what happens to your assets after you die. If your family is worried about your future inheritance, a prenup can help ease their minds. (And so can estate planning, even if you don’t get a prenup.) You can also use it to make sure your spouse, as well as your extended family, is financially covered.
- Pass separate property to children from prior marriages. A marrying couple with children from prior marriages may use a prenup to spell out what will happen to their property when they die, so that they can pass on separate property to their children and still provide for each other, if necessary. Without a prenup, a surviving spouse might have the right to claim a large portion of the other spouse's property, leaving much less for the kids.
- Clarify financial rights. Couples with or without children, wealthy or not, may simply want to clarify their financial rights and responsibilities during marriage.
- Avoid arguments in case of divorce by specifying in advance how common property will be divided, and whether or not either spouse will receive alimony.
- Get protection from debts. Prenups can also be used to protect spouses from each other's debts, and they may address a multitude of other issues as well.
If you don't make a prenuptial agreement, your state's laws determine the disposition of debts and who owns the property that you acquire during your marriage, as well as what happens to that property at divorce or death and disposition of debts. State law may even have a say in what happens to some of the property you owned before you were married. Because courts still look carefully at prenups, it is important that you have an agreement that is clear, understandable, and legally sound.
Meet with a financial planner
A financial planner can help you communicate with each other to develop joint financial goals, understand your cash flow and protect yourselves from risk — all important areas to focus on when you are just starting out in your life together. If both of you already have a relationship with a financial planner, you may want to discuss which person you both trust so you can work together to develop one coordinated financial plan. If you and your future spouse are not in the position to hire a financial planner, there are also pre-marriage financial education classes that can help you address several of the issues mentioned above.