It used to be that marriage meant merging everything—lives, religious beliefs, cultures, and money.
Not so much anymore.
While some couples still share everything from their checking account to their credit card, more than half the respondents in a recent poll maintained some separate bank accounts—with almost a quarter keeping completely separate finances after tying the knot.
But which approach is best?
According M & R Capital Management, there is no one right way to handle marital finances—only the best financial foundation a couple can build before they get married.
Here’s how to build that foundation.
Step 1 – Get Real About Joint Accounts
Suze Orman, personal money guru and former Oprah Winfrey Show icon, “I would never, ever have just one joint account. Never, ever, ever.”
Orman is an advocate for financial independence, and cautions couples against putting all their eggs in the same basket. Author and financial educator Tori Dunlap agrees: “You need your [own] money.”
Associate professor of management communication at the SC Johnson Graduate School of Management, Emily Garbinsky, disagrees—and she has the research to prove it.
Her study shows that pooling a couple’s finances leads to increased “satisfaction, harmony, and commitment in your serious relationship.”
Long before the I Do’s are exchanged, couples need to talk frankly about how they see the finances being shared.
Will they maintain their own accounts?
Will they have one or two shared accounts, or pool everything?
Will they contribute equally to an account for shared expenses, or will the split be based as a percentage of income?
Step 2 – Be Honest About Personal Debt
The best relationships are built on trust—and trust is vital when it comes to personal finances and debt.
For many, facing up to personal debt liabilities is nerve-wracking. It may be something one partner is still in denial over but creating an approach to debt management together—or separately—is crucial to future financial success as a couple.
Pro Tip:
If a partner has a low credit score, consolidating debts into a joint account can negatively impact the other person, making it more difficult to buy property or take out a loan in the future.
Step 3 – Learn How to Calculate a Debt to Income Ratio
As part of the journey to address personal debt, it is crucial that couples understand their debt-to-income ratio—and how this impacts their financial plan for the future.
Debt to income ratio is used by lenders and financial institutions to evaluate how well an individual or couple manages their finances. Generally, it needs to be below 36% to demonstrate one’s ability to service loan repayments.
Calculate debt to income ratio here.
Step 4 – Talk About a Prenup
Not all couples require a prenuptial agreement.
For some, though, it is necessary to protect other family members, premarital assets, and inherited funds. Likewise, a prenup can be used to protect one spouse against the other’s debt, where the debt is considerably high going into the marriage.
While the prenuptial agreement itself will be drafted by an attorney, discussing it as a couple can encourage improved financial communication, honesty, and problem solving in the relationship.
Step 5 – Future-Proof the Finances
With the average cost of a US wedding sitting at over $30,000, it pays to have a plan in place to pay for it.
Will they utilize savings to keep the debt down and—in many cases—reduce the overall costs? Research has shown that when a couple spends their own money on a wedding, they spend less. At the same time, couples who spend less on their wedding tend to stay together longer.
Future-proofing a life together raises questions that every couple should be able to answer with confidence—or at least in a way where they are comfortable asking the questions.
Those questions—and the financial implications that come with them—can make or break a couple in the coming years:
-Will they have children? Will someone give up their job to stay home with those children?
-Will they travel?
-When will they buy a home? Where will they live?
– Will either of them be looking to change careers, to return to study, to start a business? Can they afford to do that?
-What is their retirement plan?
Disclosure: M&R Investment Management, Inc. (“M&R”) is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration with the SEC as an investment adviser should not be construed to imply that the SEC has approved or endorsed qualifications or the services M&R offers, or that or its personnel possess a particular level of skill, expertise or training.
M&R mainly provides investment advice to individual investors. All information provided herein is subject to change. Investment advice and financial planning services are provided by M&R. M&R is not affiliated with any of its custodians including:
Schwab Advisor Services or Pershing Advisor Services