If marriage is on the horizon, you probably at least have an idea of your fiancé’s income, financial obligations, and spending habits based on what you have observed and what has come up naturally in conversation. But, that information is only a small piece of the big picture. Before the proposal, you had better learn about your significant other’s full financial picture and their attitudes toward money so you do not get caught off guard after you’re married.
Financial compatibility with your fiancé
“It doesn’t make sense to move forward with a partner who has different values and goals, and a good way to evaluate those values and goals is to look at how they spend money,” said April Davis, owner and founder of LUMA, a luxury matchmaking service, in an interview.
If you think it is fine to charge a vacation to a credit card and pay it off over the next year and your fiancé has never carried a credit card balance before, get on the same page about how you will handle such decisions moving forward.
Taking a financial-compatibility quiz together can be a way to start the marriage and finances discussion, said Rhett Wood, an investment professional with Retirement Solutions in Oklahoma City, Oklahoma. “There aren’t any right or wrong answers, but it will help you navigate important topics like debt, financial goals, and responsibilities.” (Calculator: Setting financial goals)
So, what financial information should you discuss before you become engaged?
Before the proposal: Reveal your assets and debts
First, both parties should make a list of all of their assets — bank accounts, investment accounts, and properties — as well as any debt they may have from credit cards, student loans, car loans, or mortgages, and share it with their significant other, said financial planner Melinda Kibler, a portfolio manager with Palisades Hudson Financial Group in Fort Lauderdale, Florida. “Full financial disclosure ahead of marriage will avoid any surprises down the road that might jeopardize the relationship.”
What if you have a large trust fund or inheritance that you are uncomfortable revealing because of the imbalance it might create in the relationship or because of your partner’s spending habits?
“Though every relationship is different, if you are at the point of being engaged, you should probably be comfortable enough to divulge important information such as a large inheritance or trust fund,” Kibler said in an interview. “However, large sums of money should be protected from the other spouse if there is concern over their spending habits. This can be done through trust documents, as well as prenuptial agreements, when appropriate.”
“If your partner’s behavior changes significantly once he or she discovers that you have significant assets, this may be a red flag to delay proceeding with the marriage,” Kibler said.
If revealing assets before becoming engaged can be uncomfortable, revealing debts can be even more so. Sharing how much you owe can bring up embarrassment over past spending mistakes or incurring a huge debt for a college degree that current earnings are not making worthwhile.
“Couples really need to be as honest as possible about things like debt,” Wood said in an interview. “Things that are a little uncomfortable to talk about now could snowball into a big problem down the road.”
In a best-case scenario, you will learn that you are both debt free and have been saving 15 percent of your incomes every year for retirement, but a more realistic situation is that one or both of you will have significant credit card debt, student loan debt, or both and lagging retirement savings. One partner might wonder why their sweetie took out a $30,000 loan to buy a new truck when he or she paid $10,000 cash for a used car. These are important things to learn about each other and talk through well ahead of your wedding day. (Related: Understanding good debt and bad debt)
“For better or worse, once you’re married, your partner’s debt becomes your debt,” Wood said. “Better to make a plan now to attack it together.”
The engagement: Gathering proof
So, do you take your partner at their word in a conversation about assets and debts, or do you ask them to prove it by sharing their bank statements, loan bills, and credit reports?
“When suggesting that you would like to have a financial discussion, be sure to specifically mention that you would like to gather all of your bank statements and bills so you can go over them together,” Kibler said. “This will lay the groundwork that your partner should also collect his or her statements and bills, so you have the opportunity for transparency. If your partner does not want to take the time to pull together these items, you can make a judgment call on whether or not you are comfortable taking him or her at their word.”
“It is also helpful for each person to discuss how finances were handled in their households growing up,” Kibler said. What each partner observed in their household may be what they now deem normal. And if one or both partners have been married previously, that previous relationship may have created additional sensitivities.
Ask the tough questions
Mel O, a financial planner with Hot Moon Financial in Las Vegas, Nevada, volunteered some important questions that mates should ask each other about marriage and finances before getting engaged.
For starters, ask your partner to provide a payment history report via ChexSystems, a company that tells banks whether a prospective customer has a history of bounced checks, overdrawn accounts, unpaid fees, or other problems (similar to a credit report). You can each order your report for free from chexsystems.com . If he or she has a problematic financial history, you might be prohibited from opening a joint account together, O said.
Does your partner owe back taxes? If they do, you could end up with a tax lien on a joint account.
What about child support? “Too many times I have seen one spouse’s finances get washed away in a tide of back child support,” O said in an interview. “The bank gets a notification to pledge the account. They take everything in the account as determined by the court and then the other spouse has to fight to get their share of the money back.” Unpaid child support can also result in passport denial, driver’s license suspension, wage garnishment, or property liens. Laws vary by state.
Finally, ask your partner if he or she has ever declared bankruptcy and check his or her credit report to verify the response. Completed Chapter 7 bankruptcies remain on consumer credit reports for 10 years and completed Chapter 13 bankruptcies remain there for 7 years.
Such questions, of course, can be sensitive, but O said it does not imply a lack of trust.
“I always prefer the direct approach when speaking about money, but I think the best way to approach it would be something to the effect of ‘Do you have anything on your credit we need to fix before we get married?’ or ‘Do you have anything on your credit that would prohibit us from getting a house?’” O said.
Deciding how to handle ongoing financial matters
Assuming you both decide to move forward with an engagement after sharing your financial background with each other, you will need to agree on how to handle your joint finances once you are married, and possibly even sooner if you are planning to buy a house together before marriage or pay for the wedding yourselves.
Relationship coach Norva Semoy Abiona, author of the book “Time to Go” and founder of The Wise Wife Community, suggests asking whether your partner has any long-term financial commitments that he or she feels are compulsory, such as tithing, giving to parents, or giving to charity. It is also important to find out how your partner feels about investing, what his or her risk tolerance is, what the plan is for combining finances (or not), and whether he or she would prefer to save or borrow to make large purchases. Abiona recommends thinking about your own answers to each question ahead of time so you can have a frank discussion.
Other matters to discuss include who will pay the bills after you are married, and if one person will be handling all the finances, how the other person will be kept in the loop. Kibler suggested doing a review together at least four times a year. (Related: Setting a family budget)
“Also, any major decisions should still be made together as a couple,” she said, and you should establish a dollar limit that requires joint consent for new purchases discussion — should your spouse clear it with you before purchasing a $100 shirt? A $500 television? A $2,000 couch?
Kibler also recommended discussing short-, intermediate-, and long-term financial goals such as taking a vacation, buying a house, and saving for retirement; setting up a budget based on your anticipated expenses and income; looking for ways to reduce spending; establishing a plan to pay down any debt; and deciding how much to allocate toward savings each month.
“Handling your finances is an ongoing responsibility that you and your spouse need to be willing to take on together as a team,” Kibler said.
Considering engagement deal-breakers
When is a past money problem or financial disagreement so big that you should walk away despite all the time you have invested in the relationship?
“Almost anything can be worked out if you’re honest about it up front,” Wood said. “If the two of you can’t solve a financial issue together, get a professional’s opinion. Hire a financial advisor and have him or her come up with a plan that works for you both.”
The biggest red flag is if your partner is not willing to budge on any of his or her views, Abiona said.
Money can be a major source of arguments among married couples, even leading to divorce. If you are in a happy relationship and are close to getting engaged, it can be impossible to imagine a time when you might become so fed up with your significant other that you would want to part ways. The best way to prevent that is to share everything about your finances, good and bad, and work out any problems before you commit to each other for life.
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