written by A.T. "Al" Benelli, CFP, FIC
Money problems can overwhelm a relationship, particularly one on the verge of marriage or a live-in arrangement.
According to the Financial Planning Association, here are a few ways to avoid potential conflicts:
Agree to talk about money: The first discussion should deal with whether they can talk about it. Consider how each person’s parents dealt with money issues and whether those practices would be worth copying or avoiding. Most important, recognize that money problems will happen.
Swap credit reports: Individuals should check all three of their credit reports — from Experian, Trans Union and Equifax — on a staggered basis throughout the year to identify debt amounts and catch inaccuracies that might surface. Go to www.annualcreditreport.com for credit reports that are actually free.
Discuss past baggage: If boomer couples have been previously married or in other live-in relationships, there might be expenses or previous debts and bankruptcies. You’re not ready to handle money until you understand how both sides have handled it in the past. Talk about money priorities and how one or both of you will extinguish pre-existing debt.
Discuss your dreams: Money discussions can be stressful for couples if they focus only on problems. Include positive stuff – like how you’ll afford travel you both want to do, how and when you’ll be able to buy a house, future tuition dollars or how you’ll afford to start a family.
Build a first budget: If you’re moving in together, you need to create a budget. Track current income and spending data for at least three months making sure to note important expenses coming up in the future. A financial planning professional can help you get off to a good start.
Decide how — or whether — to merge your money: Talk about shared accounts and access to each other’s investments. This is particularly important if you’re planning to marry. Joint accounts have several advantages such as simplified record-keeping and greater transparency on what both sides are doing with money. Separate accounts allow for greater independence and individual responsibility over money.
Consider a prenuptial agreement: If one or both partners have sizable assets or particular priorities about money, a “pre-nup” might be in order. A financial planning professional can work with tax, estate and matrimonial attorneys to help work out an agreement advantageous to both sides.
Plan for the unexpected: Building a cash reserve fund of between three to six months living expenses should be a first goal. Then couples should develop estate plans as early as possible including wills, powers of attorney and specific plans to pass or dispose of assets. Discuss beneficiary designations on insurance policies, 401(k) plans and IRAs. While worst-case scenarios don’t make for the most enjoyable conversations, these discussions are better done before death, illness or a financial emergency makes such plans critical.
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