When you fall in love with someone, the state of their bank account is probably your least concern, but doing your homework sooner rather than later can save both parties some major distress down the road.
A wedding is a cause for celebrating the union of two individuals, but along with that union comes the prospect of another joining: that of your finances and those of your spouse. If one partner brings a great deal of debt into the marriage, it poses a problem for both, particularly in cases where a spouse has a poor credit history.
The pressures that financial concerns add to a marriage are significant. According to Ben Woolsey, the director of marketing and research for CreditCards.com, financial stress is the frequently cited as the primary cause of divorce.
"Couples should approach this potentially volatile area of their new lives with great respect."
For many couples, this respect translates to maintaining entirely separate asset pools. Marriage increasingly amounts to a business contract, and some business partners carry more inherent risk than others. By making a thorough evaluation of both parties’ finances, you can put yourself in position to make good strategic choices.
If one party enters into marriage with a great deal of debt, both parties can work together to pay it off, but commingling a strong credit history with a weak one hurts everyone, as the higher number will come down. Keeping the debts separate will allow the person with stronger credit can continue to leverage that credit to the benefit of both, as it may be easier to obtain a mortgage, car financing, or student loans based on that individual score.
If you have decided to commingle your incomes, Bill Schultheis, author of the "Coffee Investor," offers a simple piece of advice: "Have as much transparency as you can." Full disclosure will be as important at the beginning of a marriage as at any point in the future. All bank accounts and major purchases should be made in both names. This way, one hand will always be able to find out what the other is doing. Be prepared to make financial decisions as a team, and know how your partner likes to make those types of choices.
Schultheis believes that while couples should fully commit to cooperation if they choose to pool their resources, a 100% merger could have unpleasant consequences.
"Each [party] needs his or her own money [to] spend without criticism from the other spouse."
That said, it doesn’t hurt to keep your partner informed as to where your private funds are going.
Finances play as significant a role in the health of a shared life as it does in an individual’s. The growing recession makes it more and more vital for couples to maximize their financial muscle. Failing to do so can lead to troubles that spread beyond the pocketbook. For example, the loss of one spouse’s job leads to divorce within a year in 40% of cases, according to Rick Staszak, a financial adviser at Financial Investment Corp.
Many of those conflicts probably began with a happy couple who didn’t discuss the worst-case scenario before it sprung up right in front of them.
Source: Pittsburgh Post-Gazette