Managing Money in Relationships
Recently there was a piece in the New York Times about how debt ruined a budding relationship. A couple in San Francisco broke up because one of them was shocked to learn that his fiancée had over $170,000 in debt, rather than $100,000, which was originally disclosed.
My sense is that the debt was a big contributing factor, but it wasn't the main event. The real reason could be trust, which is closely linked to financial matters.
It's often stated that money problems are a leading cause of break-ups and divorce. But I'm not so sure that it is and others agree. I think the breakdown of communication and trust are the real relationship busters. So opening the lines of communication and talking about the financial facts early on in a serious relationship, which can build trust, seems to be good advice.
The reality is that most couples talk about having children but they rarely talk about money before getting married. It may not be romantic, but it's no less important.
When two people become a couple - whether they just live together or get married - they form a new relationship with their money. They also confront a new set of financial decisions. Should they combine their finances? How much should each contribute to the couple's bills? Who will manage the couple's finances?
Here are some of the money issues that couples should talk about when the relationship is getting serious.
What You Own and Owe - Each person should write up a simple list of their assets and debts, including descriptions, amounts and monthly payments for each. Getting married does not necessarily require taking ownership of each other's assets and responsibility for each other's debts. In fact, the debt one partner brings into the relationship, such as student loans and credit card debt, is not the legal responsibility of the other.
Review Credit Scores and Reports - What is each person's credit score? Has either person filed for bankruptcy or had credit problems? It's a good idea to get this out in the open and resolve how to deal with it because it will come out later when you apply for a joint loan for a car or a home. One way to guide this discussion is to have each person get a current copy of their credit report and review it with each other.
Compare Tax Returns - Take a look at tax returns for the past two years. Ask if there are tax problems such as non-filing of tax returns, tax liens or wage garnishment for nonpayment of taxes owed. These problems could cause an unsuspecting partner grief when they file a joint tax return.
Sharing Bills and Expenses - If there are two incomes, discuss what each earns and how to apportion household bills and shared expenses. One way to do this is to divide your take home pay by the joint take home pay. Apply the resulting percentage to the household bills and pay that amount. While the partner who earns more will pay more, each will pay the same proportion of expenses as compared to their income.
Some couples assign expenses - you pay the rent, I'll pay for groceries, phone, cable/internet bills, etc. Others use one partner's income for all expenses and try to use the other income to build up savings for goals such as a down payment for a home.
Later this week, I'll write about what to consider when couples combine their finances.
Ray Martin
View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.
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