It's February again, and lovebirds all over the United States are preparing to celebrate with flowers, candy, and maybe even a beautiful engagement ring. It's easy to get swept up in the romance of getting married, and planning a wedding can be one of the most fun and joyful times in a person's life. But before you light the unity candle, say “I do,” jump the broom, or break the glass - make sure you've done your financial homework together.
Communicate
If you go through any pre-marital counseling, you'll learn that one key to a healthy relationship is effective communication.
The sooner you learn to talk openly and honestly about money, the better.
Some couples struggle with where to start and how to structure the conversation. I find that learning about your intended's goals and priorities is a good jumping-off point. After that, you'll need to get into the nitty-gritty of what you each own, what you each owe, and your credit history.
Align
Start your conversation by asking a simple question of each other: “What financial goals are important for us to achieve in the next 3 years, 15 years, and 30 years?” Those goals might include buying a home, starting a family, paying off student loans or other debt, starting a business, saving for retirement, finishing a degree, or earning a certification. It's vital for you to know what matters to your spouse-to-be (and vice versa).
If you don't know where you're headed, how will you work as a team to get there?
You'll likely realize that you are not on the same page in all respects - and this is where loving, open, and honest communication will be important. Will you have to put a dream on hold so debt can be paid off? Will you need to adjust your ambitions for that huge house in the suburbs? Will it take longer to pay off your student loans than you anticipated? Is there a goal that really matters to him or her that wasn't even on your radar? Work as a team to narrow down your short-, medium-, and long-term goals to a list you both can agree on and work toward.
Disclose
When you marry, you'll share more than a life, home, family, or name. You'll also share each other's income, assets, debt burden, and (to some extent) credit scores. Now is the time to share with your intended what you own, what you owe and how creditworthy you are (or aren't).
The process of sharing information about assets generally doesn't lead to too many nasty surprises. Just make sure you tell your spouse-to-be the nature and value of anything you own, including bank accounts, retirement plans, real estate, and business interests.
We tend to find more unpleasant surprises on the debt side of the balance sheet.
Where there is debt, be prepared to disclose the identity of the creditor, the minimum monthly payment, the expected payoff date, and the interest rate. If either party's debt is significant, you'll need to work together to develop a plan for paying it off.
Lastly, discuss your credit scores. Most banks and credit cards now offer credit monitoring and will show you your credit score on demand. If you don't know your credit score, now is a good time to find out what it is. Why? Most major short-term goals for newlyweds (like buying a home or new car) require a decent credit score. If only one of you has a good score (or neither of you has a good score), find out now so you can plan to build up your credit over time. This is a good place to start.
Protect
Most of you will recoil at the suggestion I am about to make, but hear me out. Because first marriages are happening later in life and second marriages are common, you should at least consider a prenuptial agreement. Why? Because Texas is a community property state.
Upon your marriage, half of everything you accrue and earn going forward will belong to your spouse (and vice versa).
Any assets that may have been your separate property at one time can become community property if they are co-mingled (meaning separate and community assets are mixed in the same account or asset). Anything you owned before the marriage like a retirement account, business interest, or home is your separate property, and can remain so for the duration of the marriage if you mind your Ps and Qs.
But in the event that your marriage ends in divorce, it may be difficult to prove what (if any) property might be separate. For example, if you had a 401(k) worth $100,000 before the marriage and subsequently made new contributions (from community earnings), maybe did a rollover to an IRA, or rolled over to another 401(k) plan, you've co-mingled and muddied the water. Once co-mingled, it will take a tracing expert and hundreds of dollars in fees to tease out what was yours before the marriage. Debt works the same way.
It would be a shame to have to take on debt that was never yours because you failed to prove it was separate at the date of marriage.
A prenuptial agreement will define any separate property (or debts) at the date of marriage and may even address how assets (and liabilities) are to be divided upon divorce. You'll save yourself money, frustration, and heartache by putting an agreement in place now. And if you never need to use your prenuptial agreement, that's a great outcome too.
Most people cringe at the idea of talking about money - it's a taboo subject in our culture.
But if you're close enough to each other to share a life, you are close enough to each other to share your financial facts, warts and all. I've worked with enough couples in my career to know that open, honest communication about money will help you enjoy a happier, more secure marriage. You ignore the elephant in the room at your peril.
IF2020-1125