Tuesday, July 27, 2010

Don't Neglect Financial Disclosure and Planning

Kathy M. Kristof writes about finance in the Los Angeles Times. Back around Valentine’s Day, she had a couple of columns about what couples need to discuss about their finances before getting too serious. Here's one.

Passion often blinds sweethearts to the fact that matrimony is, at bottom, a contract. Figuring out how that partnership can prosper is critical for a successful union.
This is a concept well understood by cultures with arranged marriages. Don't kid yourself. A legal marriage is very much a financial matter. Sure, it usually involves much more, too, but the financial aspect is there.

Yet financial differences rank among the greatest sources of marital misery, in part because talking about money before you tie the knot makes many couples uncomfortable.
If a couple can't talk honestly about finances with each other, then they don’t really have intimacy.

Some worry that prying into each other's finances might indicate a lack of trust, or that a prenuptial agreement is a self-fulfilling prophecy for splitting up.

In fact, experts say, just the opposite is true. Spouses who find themselves bickering about finances early in their marriage could well end up hashing out the same issues in divorce court, according to Tina Tessina, a licensed psychotherapist and author of "Money, Sex & Kids: Stop Fighting About the Three Things That Can Ruin Your Marriage."
A pre-nup will not cause divorce any more than car insurance causes accidents. Guys, if a woman questions whether or not you trust her, given that you want a pre-nup, ask her if she trusts that you'll want to stay married to her and vice-versa. If there is never a divorce, the pre-nup won't matter, will it? It is possible that a woman who objects to a pre-nup does not have confidence in her ability to keep a husband (or, perhaps she doesn’t plan on trying to) or wants to have the option of leaving you and treating you like a meal ticket long after she does. Ladies - if she doesn't want to reveal everything, he may be hiding something more than debt.

The tips in the article include knowing the history, airing the laundry (trading credit reports), setting your goals, deciding who does what, getting it in writing, and considering the kids.

Finances are a major reason for marital strife and divorce. My wife is generally great with money, but even in our case, there are things I wish I'd found out about before we married – I definitely still would have married her, but I would have sat down with her and made some different plans based on things she knew but I didn't.

There are many things I think should be part of "pre-marital discussions", when a couple is ready to set a wedding date. The financial considerations include (in no particular order):
1. Exchanging credit reports
2. Seeing the bills paid over the course of a year
3. Seeing the pay stubs
4. Disclosure of any debts or judgments
5. Details of accounts and significant assets
6. Goals and desires about roles, lifestyle, earning income, giving, saving and investing, and significant future purchases (including the wedding events)
7. Visiting a financial planner together
8. Discussing how much marital money can be spent on a purchase without consulting the spouse 9. Developing a pre-nup and wills/trusts

If you're still happy with each other and want to marry each other after that, then set the date. Setting a date before getting the pre-nup may invalidate the pre-nup, as someone can claim they were pressured into the pre-nup.

This stuff may not sound romantic, but getting this stuff out of the way frees up a couple to focus more on each other and less on money. People don't do enough financial planning in general, so these steps put a couple ahead of the game. If all of this sounds like too much of a hassle, then so should planning a wedding and maintaining a marriage. Marriage is optional and you can keep your finances to yourself by staying unmarried.

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