In this article:
>>1. Have a money talk
>>2. List your goals
>>3. Merge your finances and cash flow
>>4. Invest and save
>>5. Dance around debt
>>6. Be aware of property titles

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It’s not a romantic conversation, but discussing finances with your significant other can prevent headaches down the road. These six steps will get you started.

When it comes to money, the adage that “opposites attract” can lead to marital discord. A spender marrying a saver is akin to mixing oil and vinegar for a salad dressing. Their different styles can blend well as long as they shake things up a bit — through talking, planning, and compromise. Couples with different ideas about how to handle money who don’t communicate might be doomed to fail. Experts estimate 50 percent to 75 percent of divorced couples identify financial difficulties and disagreements as a major factor to the end of their marriage.

Despite the dangers of unresolved money issues, many couples find it extraordinarily difficult to discuss money in a calm and rational manner — a situation that proves true for older couples as well as newlyweds.

So why the difficulty? Money traditionally is a taboo or off-limits subject in many families. It is considered impolite to ask how much money someone makes, how much something costs, or how a household’s finances are handled. We all come from different financial backgrounds — with lessons learned from early childhood through young adulthood. Those lessons, combined with societal taboos surrounding the discussion of money, cause many couples to avoid talking about finances until problems of debt, spending, and budget priorities become overwhelming to one or both parties.

Whether you have been married for years or are a newlywed, the following six steps will help bring financial issues out of the closet and into the open for honest discussion.

1. Have a money talk

Talking is particularly helpful for newlyweds or as part of pre-marriage planning, but it is just as relevant to couples who have been together for a long time but still have difficulty communicating about finances. Take turns sharing your personal experiences — how you viewed money as a child, how money was perceived in your family, and how your parents handled money and dealt with financial problems. It also can help to share your most painful memory and your most joyous memory about money.

If things become heated or emotional during the money history talk, some experts suggest that couples sit back to back and take turns repeating what their partner says. Doing this removes body language and facial expressions from the equation and requires more careful listening, typically resulting in a calmer discussion.

2. List your goals

If you don’t know where you want to go, it’s hard to get there. Each partner should make a list of five to 10 financial goals, covering areas such as retirement, housing, children, college education, paying off debt, spending, and personal development. Once you’re done, compare your lists and identify areas of common agreement.

Discuss your goals, prioritize them, and give a time frame and dollar amount for each one. There doesn’t need to be agreement (or even buy-in) on each goal, but most couples find they have general areas of agreement once they take the time to actually write down their goals. These goals should provide the foundation for ongoing financial planning, because the financial decisions you make in terms of investments, insurance, and tax, estate, and education planning will be made in the context of supporting your goals.

3. Merge your finances and cash flow

Once you have established your goals, you should tackle merging your finances and cash flow and budgeting to support your goals. Deciding to completely merge your financial lives can be difficult, particularly if one or both of you has been independent for a long time or married before.

Some couples choose to put everything into a communal pot with joint checking, savings, and investment accounts; others opt to keep separate accounts. A third way to handle financial shares is by creating accounts that are “yours,” “mine,” and “ours.” With this method, each spouse contributes the bulk of his or her income to a common account from which most household bills are paid and investments are made. Each spouse also keeps a separate checking or savings account into which he or she puts a pre-agreed amount each month. Each spouse then can use his or her “allowance” to pay for small luxuries, to buy gifts for the other spouse (keeping the price secret), or to spend any other way he or she sees fit.

Although there is no right or wrong way to merge finances, some experts say keeping some autonomy over money and spending — even if it’s only $50 or $100 a month — can improve financial happiness and cut down on money fights. If you do choose to use joint accounts, have one person handle the checkbook or online bill paying to avoid confusion and mistakes. Most experts also agree that it is smart to keep separate credit cards or other charge accounts to maintain an individual credit history.

Cash flow and budgeting should support the prioritized list of goals created in step two. If you find there is not enough money, deciding where to tighten the belt should be a joint decision. Likewise, large expenditures should be discussed ahead of time and jointly agreed on to avoid hurt feelings and resentment about an impulse purchase. A good rule is that any expenditure greater than 3 percent to 5 percent of your monthly income should be discussed before you buy. Therefore, if you jointly earn $9,000 a month, you would discuss non-routine purchases in excess of $275. In addition, you might want to impose a waiting or “cooling off” period of a week or more on extremely large purchases (in excess of 10 percent of monthly income) to discourage impulse spending and help prevent buyer’s remorse.

4. Invest and save

Many of the goals developed in step two will require saving and investing money. This is another area where differing money backgrounds can cause conflict. If one spouse likes to make risky stock investments and the other prefers the safety and guarantee of less-risky bonds or CDs, finding common ground can be difficult. Consider the following priorities:

Emergency fund. A couple’s first plan of action should be to build an adequate emergency fund of three to six months’ worth of living expenses. If one spouse is anticipating a job change, starting a small business, or temporarily leaving the workforce to care for a child, increasing the emergency reserves to nine or even 12 months of living expenses is vital. Emergency funds belong in low-risk investments such as money market accounts, high-yield deposit accounts, and short-term CDs (36 months or less).

10 percent retirement savings. A fundamental building block of long-term financial success is committing 10 percent of your pre-tax income to retirement savings. Therefore, each spouse should put 10 percent of his or her income into a 401(k), Thrift Savings Plan, 403(b), simplified employee pension (sep), traditional or Roth IRA, or other retirement plan. This money should be invested in a well-diversified mix of stocks, bonds, and cash (or their mutual fund equivalents) based on a couple’s age, time frame toward retirement, and risk tolerance.

Other investments. Other investments will vary based on goals and priorities. College funds, a “fun”-money account, a house down payment, and auto replacement funds all should be invested with an eye toward risk tolerance and time frame. Avoid being too aggressive with short-term money and too conservative with long-term money.

Investing is one area where it pays to get professional assistance, particularly if one or both spouses lacks investment experience or if you are having difficulty agreeing on appropriate investment vehicles. MOAA’s sponsored financial planning service, Garrett Planning Network (GPN), a national organization of hourly fee-only financial planners, can provide MOAA members with reliable financial advice at a 20-percent discount. Call (866) MOAA-GPN (662-2476) or visit GPN’s Web site for more information.

5. Dance around debt

In this era of easy credit, runaway debt, and identity theft, consider getting a copy of your prospective partner’s credit report before you get married. First, you want to ensure there are no errors on the credit report. Second, you want to gain an understanding of how your partner treats credit and debt. Substantial debt doesn’t need to be a marriage deal breaker, but your partner’s debts essentially will become your debts once you tie the knot, so you should proceed with accurate information. Saying “Honey, can you show me a copy of your credit report?” isn’t the most romantic line, but it is essential for self-protection.

If you already are married, you should get a copy of your credit report from all three credit reporting agencies at least once a year to check for mistakes and “hidden” debt (secret spending binges on behalf of one or both spouses). Thanks to a new federal law, as of Sept. 1, you can receive a free copy of your credit report from each of the three major credit reporting agencies — Experian, Trans Union, and Equifax — by visiting online or calling (877) 322-8228.

6. Be aware of property titles

Many people think there are only two ways to own or title property such as homes, automobiles, bank accounts, and brokerage accounts — individual and joint tenancy, also known as joint tenancy with rights of survivorship (JTWROS). However, there are several other forms of property ownership spouses should be aware of, including:

Tenants by the entirety. Similar to JTWROS, it only applies to married couples. With tenants by the entirety, each spouse must get the consent of the other to sell or mortgage the property in most states. Should one spouse die, the entire interest in the property goes to the surviving spouse. This form of ownership can offer significant creditor protection in a situation where just one spouse is sued and should be considered where one or both spouses are at risk for large lawsuits (such as physicians). Most states limit this form of ownership to real estate, but Arkansas, Delaware, the District of Columbia, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, Oklahoma, Pennsylvania, Tennessee, and Vermont recognize it for other forms of property (such as bank or brokerage accounts).

Community property. Eight states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington — have special rules governing property ownership by married couples. They divide assets into two categories, separate and community. Separate property includes real and personal property owned by each spouse prior to marriage or after a legal separation or property acquired during the marriage through gifts or inheritance. To remain separate property, it must not be commingled with community property, which essentially is all other property (income, homes, brokerage accounts, etcetera) acquired during the marriage. Each spouse is considered to own half of community property. Understanding these rules is critical if you live in a community property state — particularly if you’ve been married before and each spouse has assets he or she wants to pass to children from a previous marriage.

Talking about money can be difficult and even scary, but not talking about money can lead to financial and marital disaster. Coming to agreement about money issues through planning and compromise can pay huge dividends and enhance long-term financial success. So don’t delay — hold your financial summit today!