Tough conversations for couples can vary depending on their specific circumstances, but one theme that we hear about regularly is MONEY. Over 50% of couples do not communicate anything about finances. According to AICPA research, nearly three in four (73%) married or cohabitating Americans say financial decisions are a source of tension in their relationship.
Let’s get real….hashing out finances, including budgeting, spending habits, debts, and long-term financial goals, can be very challenging. These discussions may include decisions about joint bank accounts, saving for the future, or managing financial disparities between partners, among other things.
At Linx, we see this is as a heavily recurring theme in our couples and have taken the initiative to recruit a top SF Bay Area-based financial professional to answer some questions and provide general guidance on navigating potential landmines. Our expert works in private wealth management and brings deep experience and a broad perspective to relationships with a select group of families, individuals, and entrepreneurs of all backgrounds, ages, and stages in their lives.
Q: Do you recommend that newly married couples merge their finances or keep them separate?
A: I personally recommend a combo. Assuming, from Part 1 of this series, that you both “know your numbers,” then when you start living together, whether it’s pre-marriage or upon being married, there should be a healthy discussion about the household budget. It should list all the expenses, and how and who will finance them. A good step forward might be keeping your finances as is, but also opening a joint account, the so-called household account, where each person deposits a portion of the monthly expenses (rent/mortgage, food, dining out, utilities, car, insurance, etc.). This division should reflect what each person can realistically afford and should include a discussion about what types of expenses require a joint decision (e.g. buying a car, getting a pet). This allows everyone to keep their autonomy, credit history, etc. but allows each party to contribute to the household budget in a prudent manner.
Keep in mind, this process can also flesh out all kinds of emotional issues around money – for example, maybe one partner feels strongly about bearing more financial burden whereas the other handles other household responsibilities. But no matter what, the idea is to open the lines of communication, early on, about any issues around finances to avoid trouble down the road.
Q: Can you explain what prenup and postnup agreements are and what the potential benefits might be?
Prenup
Using a definition from the dictionary, a prenup is an agreement made by a couple before they marry concerning the ownership of their respective assets should the marriage fail. Here is the legal explanation courtesy of Wikipedia
A prenup is used to provide clarity to couples as to what would happen to their assets if the marriage fails. There are many reasons for a prenup. Some people are required to have prenups because of the legal structures of their family or work situations (e.g. trusts, partnerships, etc.) That said, I think everyone should have a prenup no matter your asset level because it provides clarity as to what will happen if you do decide to separate. Money does strange things to people and the time to think through and decide such matters is at the beginning of the relationship when both parties tend to be calm and rational vs. at the end, when hurt or seeking revenge.
Postnup
Again, courtesy of Wikipedia
Postnups are usually used because the financial situation of the couple has changed drastically since marriage, even if they have a prenup in place. Examples could be that one of the spouses decides to stay home with the children to allow the other spouse to achieve their career objectives, or a spouse is invited into a work partnership and the existing partners of that entity seek assurance that the Partnership will not have to be dissolved in order to ‘cash out’ a Partner who is divorcing. We often hear about postnups from celebrities… even one surrounding an ex-President and his wife. It’s all about providing clarity ahead of time in case of the dissolution of the marriage.
Bigger picture, I honestly believe in prenups and even postnups as they increase transparency and reduce uncertainty which, even if awkward in any way, can pay huge dividends down the road financially and emotionally. The wealthier the couple either individually or collectively, the more detailed a prenup agreement should be. You can look to qualified legal counsel and financial advisors for ideas. Postnups become necessary if, say, one partner decides to stay home with the kids and is no longer contributing financially. This does not diminish their worth because usually they contribute in every other way to make sure that their spouse is able to be successful – e.g. their time, volunteering, showing really well as a partner at work events, looking after children, the dogs, etc.)