Aja and Kelvin McClanahan got married in 2004 knowing that each brought debt to the union. But they didn’t talk numbers before the wedding, and when they added it all up later, the Chicago newlyweds had a shock: Together they owed $60,000, most of it in the form of student loans.
Then, when the couple had a child within the first year of marriage and Aja wanted to stay home with their newborn, she launched her own business—a translation agency—using credit cards to finance start-up costs. The idea didn’t pan out, and she wound up with another $20,000 in debt. The couple later added $10,000 to their credit card balances and borrowed $30,000 to buy an SUV. “That was a bumpy start to our marriage,” says Aja, now a freelance writer who blogs about money issues.
Aja says it took years for her and Kelvin, a letter carrier, to chop away at the debt because they didn’t always agree about what to do with their money. But eventually, getting out of debt became their top priority, and by 2013 they were debt-free. (So many people asked the couple how they did it that Aja launched her blog not long afterward.)
The McClanahans discovered another benefit of working through their debt: Retiring their loans governed so many conversations, such as whether to go shopping or take a vacation, Aja says, that “it forced us to have those conversations every day. It did not develop into a perfect system, but it helped with our teamwork.”
Managing money is complicated and fraught with emotion, so it’s natural that conflicts will erupt. To find solutions, communication and teamwork are key. If more couples have regular conversations about money issues before and after walking down the aisle, more marriages may last, says Jamie Slaughter, a certified financial planner in Colorado Springs.
If you are married—or thinking about getting hitched—see whether you are at odds on any of these money issues. It will go a long way toward improving your relationship.
1. Different Money Styles
Opposites attract, and that’s especially true when it comes to dealing with money. Even if both partners start off their relationship with similar ways of handling money, over time they will become opposites, says Olivia Mellan, author of Money Harmony. For instance, if two spenders marry, eventually one will become a saver relative to the other, she says. “Otherwise, they end up bankrupt in four minutes.”
Mellan, a therapist for 42 years, has identified six categories of money opposites: The spender and the saver or hoarder. The money avoider and the money worrier. The risk taker and the risk avoider. The money merger (who wants to combine all the finances) and the money separatist. The planner (who digs into the nitty-gritty details) and the dreamer (who has a grand vision but no idea how to get there). The partner who thinks money is corrupting and the money amasser who believes that the person who dies with the most money wins.
Opposite styles often lead to friction, which is why money is consistently one of the top two causes of marital conflict, Mellan says. Spouses need to learn to empathize with each other by walking in the other person’s shoes. She recommends an exercise in which each spouse adopts the other’s money style for at least six weeks. So the spender, say, would save money while the hoarder would open the purse strings. This will move them closer to each other’s style—or at least give each a better understanding of the other’s viewpoint. They can repeat the exercise when they drift far apart in styles again, she says.
2. Not Being Transparent About Your Finances
To merge or not to merge accounts? That is the question many newlyweds face. Do you combine everything now that you’re a team, or do you maintain financial independence with separate accounts? There is no one-size-fits-all solution—although being transparent with each other about assets, liabilities, income and spending is crucial whether you merge accounts or not. The answer is often a combination of separate and merged accounts.
The benefits of merging are that both of you will feel as if you’re working as a team—and combining accounts makes finances simpler, says Michelle Smalenberger, a CFP in Deer Park, Ill. “If you don’t merge accounts, you have twice as many accounts to manage,” she says.
But for people who marry when they’re older, it may be difficult to give up their financial freedom, says Rand Spero, a CFP in Lexington, Mass. One option is to set up a joint account for household expenses, with each spouse keeping an individual bank or credit account, or both, for minor purchases without having to have a family discussion about them, he says. Or you can maintain independence after merging accounts by agreeing on a sum—say, $100 or $500—that each can spend without asking permission from the other.
The McClanahans, for instance, still have different spending priorities. Aja likes to travel; Kelvin is into cars. Their solution: Each has a separate account for saving and investing for personal goals without going into debt again. “It’s really a relationship saver,” Aja says.
Kelvin used his account to buy a 2005 Lexus ES for $8,000 last year. Unfortunately, he did so without her input, and she was angry—but not as angry as she would have been if they hadn’t had the savings to pay for it.
Couples should also keep accounts separate if one has a serious spending problem. Making a spouse a joint owner or authorized user on your credit card will make you liable for any debt he or she racks up. And if you establish a joint savings or checking account, he or she can withdraw the money.
3. His and Her Debt
As the McClanahans found out, newlyweds can be in for some unpleasant surprises if they don’t share detailed financial information before tying the knot. The risk of discord is especially high if a diligent saver discovers that a new spouse comes with a dowry of debt.
If you are planning to get married or have recently wed and haven’t discussed finances, consider exchanging your credit reports. These include information such as open lines of credit, overdue debt, wage garnishments and any bankruptcy in the past several years. “It’s not going to be the most comfortable thing,” says Matt Schulz, senior industry analyst at CreditCards.com. “The truth is, you are a team pulling in the same direction, and one person’s debt has a significant impact on the household finances.”
If one of you has a lot of debt, it’s important to find out the reason. Student loans taken out while earning an MBA are less of a problem than credit cards maxed out during periodic spending binges.
A spouse often wants to help a mate pay off debt, although he or she may be unwilling to forfeit years of savings to do so. One option is to have the entire paycheck of the person with the loans go toward paying off the debt, while the other spouse picks up the household expenses, says Smalenberger. That gives the debtor a sense of accomplishment as the debt disappears, while the other sees the family’s net worth go up without forfeiting savings.
4. Different Risk Tolerances
One of you likes to invest in aggressive-growth stocks for the chance of higher returns, but the other would rather play it safe than sorry in case the market plunges. This is not unusual, says Spero, who gives a separate risk assessment to each married client. About half the time, the difference in spouses’ stomach for risk will be significant enough that they need to discuss it.
Spouses also need to consider their overall portfolio when deciding how much to hold in stocks, bonds and cash. If they have different risk tolerances but similar amounts in their retirement accounts, it can work to have each invest the way he or she is most comfortable, says Spero. But if one has substantially more than the other, that approach can cause their overall retirement portfolio to be too aggressive or too conservative.
Another option is to compromise on the asset allocation. Instead of investing, say, 80% of their entire portfolio in stocks, the couple might reduce that to 65% to 70%, Spero says—aggressive enough for one spouse, but not so risky that the other would sell in a panic during a market correction.
5. Trouble Blending Families and Finances
A second marriage can cause sore feelings about money, even across generations. Adult children may worry their inheritance will be diminished after a parent’s remarriage. And a new spouse may feel cheated if his or her partner must pay thousands of dollars monthly in alimony or child care payments.
A prenuptial agreement—or a postnup if you’re already married—can help plan how to financially blend families, including how to deal with debt that one or both spouses bring to the marriage, says Emily Bouchard, managing partner of Wealth Legacy Group in San Rafael, Calif. “It’s a way to make really explicit what the expectations are and who is responsible for what,” she says.
A revocable living trust or a trust set up under a will can also be used to make sure children aren’t disinherited when a parent remarries, says Michael Davis, an estate planning lawyer in Columbia, Md. When the first spouse dies, for instance, the surviving spouse will receive income from the assets in the trust and, in some cases, can tap the principal. When the second spouse dies, the assets then go to the children of the first spouse. Some parents also leave bequests in wills to children or name them as beneficiaries of a life insurance policy so they can receive some of their inheritance before the second spouse dies, he says.
For the new spouse, Smalenberger recommends naming him or her as a beneficiary on accounts when possible. You can also buy another life insurance policy, making your new spouse the beneficiary.
6. Supporting an Adult Child
It’s not uncommon—in first marriages or blended families—for one parent to want to help an adult child financially while the other wants to cut the strings or worries whether the couple can afford to keep up the support.
First of all, make sure you are on track to save enough for retirement and meet your other goals before deciding to help an adult child. A financial planner can run projections for you.
If your retirement won’t be derailed by helping out an adult child, then both spouses need to agree on how much support they’re willing to give. You can set a limit on the amount or set a deadline for when the assistance is cut off. If a son or daughter has boomeranged home, parents can require the child to contribute to the family by paying rent, taking on more of the household chores or helping in other ways.
7. Out-of-Sync Retirement
Even husbands and wives who have been in sync financially for years might be at odds as retirement approaches. One who is ready to retire might have assumed that both would leave the workforce at the same time, while the other may be at a career peak and unwilling to leave the job anytime soon. Or they may have very different views about how they will spend their time in retirement. “It’s not coincidental that the divorce rate for those over the age of 65 is significantly increasing while divorce rates among other age groups have plateaued or dropped,” says Chad Hamilton, a CFP in Denver.
Differences about when to retire often occur when spouses are about 10 years apart in age, says Rand Spero, a CFP in Lexington, Mass. The solution may be for the younger spouse to retire early with the understanding that there will be trade-offs, such as less money to spend in retirement. Sometimes the person eager to retire is just tired of his or her job. In those cases, Spero suggests becoming a consultant to reduce work hours or moving to a new, more enjoyable job or field.
To avoid finding out too late that you have different visions of what life will be like in retirement, it’s best to begin regular discussions about it years before you quit work, says Katie Keary, a CFP in St. Louis. Sometimes couples are so focused on accumulating assets for retirement “that they haven’t taken a step back and said, ‘Okay, what does that look like, and what do we want to do individually and as a couple?’ ” she says.