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When Combining Finances Gets Complicated: Marriage When There is a Financial History

By Laura Barry, CFP®, Principal & Director, Bronfman Rothschild Wealth Advisors

Adults considering marriage later in life – whether in a first marriage or a remarriage – often find that agreeing on how to handle finances can be the first hurdle to achieving marital bliss. Those who are financially established come into a marriage with a longer and potentially more complex financial history, and combining finances can get complicated.

The fact is, with more years come more biases, more baggage, more habits – good and bad – that have become engrained. Merging two financial lives is challenging and requires a thoughtful and transparent approach.

As money can be a significant source of stress in a relationship, starting off your mutual financial life right will contribute to the long-run health of a marriage.  To that end, here are a few suggestions for couples considering combining their financial life.

Gain an Understanding of your Partner’s Financial History and Views About Money

Understanding your own and your partner’s money personality is a first step.  Is he a spender and you are a saver?  Does she carry more debt than you are used to? The most common areas of difference are on spending and borrowing.

On a broader level, money often supports bigger goals. It is important to understand what your future spouse considers important and what each of you define as success. Be sure to spend more time on defining your financial goals than you do planning your honeymoon!

When you chose to unite your life, that union should support and honor both of your lives.  How will you prioritize your mutual and separate goals?  Occasionally, goals will conflict. How will you handle it? Will you or your spouse be willing to sacrifice in the short term for the other’s priority?

I encourage couples to complete a values exercise that includes separate questionnaires to gain an understanding of each other’s background, expectations, and assumptions.  It is important to identify where couples have common values as well as areas where they may differ.  These qualitative discussions can help both spouses better understand the experiences that have shaped the other’s views of money.

The challenge gets more difficult when money personalities conflict.  If your future spouse tends to be a ‘taker’ and you are a ‘giver’, there can be conflict.  Two ‘takers’ can also be problematic.  Establishing trust over time requires spouses to give and take.  Also consider the situation where one has more and one has less. This can create a variety of dynamics from power struggles to feeling taken advantage of.  Here again, having an understanding view of each other’s history and expectations can be a big help in understanding motivations and behavior.  Ultimately, if you aren’t sure, it is important to go slow. Be patient, transition a step at a time, then check in before deciding to take another step.  You’re in this for the long haul.

Lift the Curtain on Your Finances…and Lay it All Out

Before marriage and certainly before agreeing to combine your finances, it is critical to lay everything on the table and have an open, judgment-free discussion.  Here, it is important to share all the key documents – wage statements and tax returns, bank and investment statements, loan and credit card documents, and most importantly credit reports (some studies show that having good credit scores are an important indicator of marital success). Have the kind of detailed discussion that allows you both to go forward with eyes wide open. Unspoken assumptions get you into trouble. Both need to articulate their own needs and expectations.

Dealing with Debt/Bad Credit

One surprise that can come out of this discussion is discovering a partner’s bad credit history. What do you do if you discover someone has a lot more debt than you expected or a bad credit record?

Combining finances when there are two vastly different credit ratings is not a good idea.  Depending on your partner’s history and attitude about their situation, you may still decide to get married and keep your finances separate.  It’s important to work out serious issues before combining your finances to avoid stress and resentment.

One spouse may need to take time to pay down debt and improve his or her credit score.    An advisor can help to prioritize payments, set up a payoff schedule, and create a plan for going forward.  Some situations may also benefit from a psychologist trained in money issues. For people without ample means, Consumer Credit Counseling can be an effective resource to help change behaviors and restructure debt with lenders.

What About Children?

Let’s face it:  Kids are costly and lead to additional demands on your time, emotional energy, impacts on your professional life, and added expenses. While ideally you both try to share responsibilities 50/50, it doesn’t always make sense for both to sacrifice professionally.  Instead, sometimes it makes sense to trade off whose career takes precedence while the other’s goes on the back burner for a while. Or to increase expenses further – a food delivery or cleaning service – for the extra help that allows you to manage work, home and relationships effectively.  These can be difficult financial decisions.

Children add complexity to any financial relationship, but children from a prior marriage can create additional tension. Money can enable bad behavior, and resentment is often greater when it isn’t your own kids.  Just as money personalities differ, couples often have very different approaches and expectations when it comes to parenting, including spending money on children. These issues can become particularly problematic when parents continue to support adult children.  Even if you can cash flow the support, it means money is diverted from other things, like retirement or other mutual financial goals.

It helps to have a well-articulated plan so that you can make conscious choices based on your mutual financial goals and agreements.  When anxiety enters the picture, it is important to find out “what color are the monster’s eyes?” and really define what the worst-case scenario might be.  Fears left to fester without examination aren’t healthy for anyone – your relationship included.  While you or your spouse may initially think “we can do this,” laying out the full implications can help guide your decision making during stressful times.

Prenups: The Elephant in the Room

While it is almost always a good idea to create a prenuptial agreement for two people with established financial histories, it is particularly important to put a prenup in place if you are entering a relationship with vastly different credit records or with children from a prior marriage.

Prenuptial agreements address how assets will be divided in the event of a divorce.  But they also clearly identify the assets each spouse brings to the marriage. It is generally a good idea to create a prenuptial agreement several months before the actual marriage to allow time to work through any issues.  Finally, as with all estate planning, prenuptial agreements can be revisited over the course of time.  Choices made before marriage may not fit 20 years later.

Best Practices for Those Who Decide to Combine

If after a full and open discussion of your financial histories and goals you decide to combine your finances, consider these best practices:

  • Go slow. You don’t have to do it all at once. Start by combining one aspect of your finances and see how it goes.  It doesn’t have to be all or nothing.
  • Communicate regularly. Schedule time monthly or each quarter to talk about money. If one party is primarily responsible for managing the finances, it is particularly important to have a regular conversation looping in the other spouse. The goal is to make the information known and transparent.
  • Divide it up. Many couples find it helpful to create Mine, Yours, and Ours Start by creating joint accounts to cover household expenses or common goals with each spouse either contributing 50/50 or a pro rata amount based on income.  Each spouse then also maintains separate individual accounts. For some, it is healthy to keep a little money separate to honor what is personally important to that individual. And if there are things you disagree on as a couple, keep those expenses in your separate accounts. It is important to keep track at a high level, but not too closely – don’t micro manage each other.
  • Keep an eye on the big picture. Things won’t fit your plan perfectly every month, but over time, are your assets growing?  Is your debt going down?  Are you using your money to advance toward mutual financial goals like retirement? Updating a simple balance sheet annually, along with checking your credit reports, is a healthy practice to do together.
  • Balance out benefits. While workplace benefits like 401(k)s remain separate, make it part of your joint plan. One spouse may have a more generous match and it may pay to split things up to maximize one spouse’s benefits.  If you each have your own 401(k), honor your separate risk tolerances and investment preferences, but consider and share how your decisions impact your overall financial picture.
  • Don’t fail to see the forest for the trees. Stay committed. It is important to prioritize your mutual goals. Push yourselves to saving a set percent of gross total income together. Failing to prioritize can mean that day-to-day expenses or emergencies will get in the way and overtake more important goals.

Conclusion

Whether we like it or not, your marital partner can impact important aspects of your financial future such as how much you save, your credit score and access to credit.  When creating a plan to combine your finances, seek out advice. In some cases, it may even make sense to postpone marriage to allow one partner to clean up bad credit or reduce excessive debt.

Entering marriage with a plan for your finances means your money can serve the relationship versus detract from it.  A thoughtful plan can add to the value, joy, and significance of your life together and can be part of the mission of your marriage.

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild and Bronfman Rothschild Wealth Advisors). Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. 
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