Sep. 17, 2012 at 7:46 AM ET
You wouldn’t merge companies without combing through a potential business partner’s finances. In financial terms, the joint venture known as marriage is similar.
Sound unromantic? Consider this: the most commonly cited cause of divorce in the U.S. is unexpected financial stress. So it follows that one of the wisest ways to protect a marriage is honest financial openness and planning.
“Regardless of your attitudes about money, spouses must give full disclosure on their finances because each person is liable for the other,” said certified financial planner Dean Harman of Harman Wealth Management.
Want to be good at the business of marriage? Take a deep breath and put everything on the table.
The debt talk
For many couples, talking about debt is the most difficult, but most important, financial discussion to have. Past debts from either spouse can affect an individual's ability to buy a home, lease a car or even rent an apartment.
“Assess where you are today in terms of debt levels and you’ll avoid surprises down the line, when it may be too difficult to recover,” said Luke Vandermillen, vice president at Principal Financial Group. “You cannot determine whether you’re in a position to buy a home or save for retirement, if you aren’t aware of debt.”
Past debts show up clearly on an individual's personal credit history — a document each spouse should review. “The big ones are student loans and credit-card debt. We see this all the time. If one spouse has $100,000 worth of student loans, one way or another they both end up paying it back,” said Harman.
Past bankruptcies or foreclosures must also be discussed because their impact is long-term. (Experts say the standard is seven years for bankruptcy forgiveness). “You can’t just say, ‘Oh, by the way, I had a bankruptcy I didn’t tell you about, so now we can’t get the mortgage.’ That’s a disaster from a trust standpoint,” Harman said.
Once you’ve sifted through your financial pasts, long-married couples say the key to long-term financial planning is figuring out what to combine and what to keep separate. We’ve broken down the majors:
Mortgages and home ownership
Experts agree that, in general, married couples should buy houses together with both names on the title deed for the house and in the mortgage contract. First, they cite what’s called the "right of survivorship." That is, if one spouse dies, ownership automatically transfers to the surviving spouse.
“It’s also easier to qualify if both names are on a mortgage,” said Kelly Campbell, CEO of Campbell Wealth Management. “Many companies won’t lend to you unless you are joint on a house, because it protects the bank. If one spouse passes away, they still need to collect.”
Consensus on this says not to pay double for health-insurance coverage. “It’s typically less expensive for both spouses to be covered on one plan,” said Vandermillen of the Principal Financial Group. “But insurance varies from one employer to the next, so take a close look at what is covered.”
Determine which insurance package will pay for the best benefits at the lowest cost. This one takes legwork, but the savings may make it worthwhile.
“If both spouses have employer-based insurance, pick the best one,” said Harman, adding that the single insurance plan for couples can accommodate life changes. For instance, if one spouse is working part-time, or if one retires but is not yet eligible for Medicare, becoming insured as your spouse’s dependent makes sense.
Any investments you have that are not related to your 401(k) plan or IRAs should be owned and reviewed jointly, say financial planners.
“When it comes to investment accounts, I think they should be joint because it’s a commitment that both of you make to your goals,” said Campbell.
Whether it’s a brokerage account intended for a vacation home or a 529 Fund (these grow tax-free, if used to pay for college), committing to an end goal helps couples plan for the future.
“Ask yourselves how much you need to reach these goals, and when you’re going to use the money. Then, while there’s no easy answer, discuss your desired level of market risk,” said Vandermillen.
This one’s not optional. Uncle Sam considers married couples one household, so you can’t file your taxes as a single person. It’s a complex issue often requiring the services of a professional.