Congratulations! Your fiancé is everything you could ask for in a future spouse, and you couldn’t be more excited for your post-COVID wedding extravaganza. Your venue is booked for 2022 (but like everyone else, you’re getting legally married first!), and now it’s time to start planning for married life. While getting through 2020 in one piece was surely a feat in and of itself and a testament to your solid relationship, talking the nitty gritty about personal finances with your honey can be a whole other story.
Many of us don’t enjoy sitting down and making a budget, never mind sticking to them- especially when it comes to a wedding. And, let’s be real- after the endless quarantine of the last year, you plan to invite Every. Single. Person.
No pain, no gain!
The way you and your honey handle your finances can have a significant impact on the quality and success of your marriage. It is no secret that finances are the leading cause of divorce in the United States. Here are the top financial topics couples you should consider discussing with your future spouse before tying the knot:
Share and analyze your spending habits
That look they get when they are hangry. The way they eagerly say hi to every dog they pass by on the street. All of these little things are what you love about your partner (ok, maybe not the hanger). So, it follows that you probably have some insight into how they spend their money, too. Do they buy whatever they want, whenever they want? Do they make spontaneous big purchases? Do they carefully consider every single option ad nauseum, read every review on the internet, and ask friends and family before making a purchasing decision? Or, do they fall somewhere in between?
The question that should follow is, how do YOU spend your money? Do you fall into one of these categories, or somewhere in between?
And then, there is the ‘how do you spend your money together’ question. This may be the most important of all, because it assumes that if your spending habits are different, you have come up with some sort of system that helps moderate each others more extreme tendencies.
Communication in a long term relationship is the key to success, and communication about where to spend and where to save may be the most important conversation you have. After all, it is better to talk about any issues you have with each others spending habits before those grievances turn into a full-fledged argument. What do you do if your views on money and marriage differ?
Talk about debt
Debt is common among the millennial crowd – too common. Nearly 45% of millennials carry student loan debt[i], and as of 2018, the average 25 to 34 year old holds about $42,000 of debt, not including any home mortgages. Debt can be an overwhelming topic to discuss, for these very reasons. To make matters worse, 56% of millennials say their credit card debt has increased since the start of the pandemic last March, compared with 53% of Generation Xers according to a study by CreditCards.com.
Although debt can be hard to talk about, your soon-to-be spouse is someone that you should be able to confide in and rely on for emotional support. It pays to be honest about debt, because, well, it eventually has to be paid back. And, those debt payments will have an effect on your monthly budget, or whether you can afford that extravagant trip to Hawaii for your honeymoon.
Debt can be discussed in a prenuptial agreement, too. You and your fiancé can choose to list debt as Separate, meaning that each of you is responsible for your own debt. This is important to discuss when either of you have incurred debt prior to the marriage, but equally as important if either of you plans to go back to school after marriage. If this is the case, you need to answer a few questions. Who will pay for grad school loans (just an example) if your partner gets into that masters program? And, if they decide to attend and are not working while in school, who will pay for rent and other expenses? Once that spouse graduates their masters program and goes on to earn 3x their prior salary, should they effectively pay back some of this support to the supporting spouse?
The best policy is to discuss a few scenarios, consider what you are each comfortable with (in a respectful way!), and then come to a point of understanding. Meet in the middle. This is a long term partnership after all, and although you may need to make compromises, you should also feel heard. From there, you and your partner can hatch a plan to deal with debt, including paying off any loan balances in a way that makes the most sense to your situation.
How will you allocate income?
The annual salary of a millennial through age 34 is an estimated 20% lower than the average salary for a baby boomer at the same age, adjusted for inflation[ii]. And with the high cost of living today, salaries may stretch as far as they once did. Although millennials have benefited from a 67% rise in wages since the year 1970[iii], this increase has not kept up with the cost of living, including rent, the cost of purchasing a home, and the extremely high cost of college tuition.
You are making a promise to spend the rest of your days with your fiancé, and so it follows that disclosing your salary should not be a topic that is off limits. Income has a great affect on many aspects of your life, from where you live, to how you vacation, to how you pay bills as a couple. Discussions around how salary will be allocated is essential for a healthy relationship and to avoid any resentment down the road.
For example, you may choose to split up monthly expenses between yourselves based on a percentage of your income. Alternatively, you may choose to use one person’s income to household expenses, and the other to pay for the mortgage. Depending on how the numbers break down, you may consider each chipping into a joint account for “fun money,” or to save for that honeymoon in Hawaii.
Whatever you choose to do and however you decide to contribute financially to your relationship prior to or during your first years of marriage, income is a big factor in what type of life you live, and how your life will play out. This is never more accurate than if you choose to have or adopt children together. Will one of you be a stay-at-home parent? If so, what does life look like if you are to live off of one salary? If you both work, how much of your take home salaries would you spend on childcare? In terms of a prenuptial agreement, if you are to split in the future, will one party be given consideration for being the stay-at-home parent because they gave up their job, and curtailed years of earning potential in doing so? We have a lot to say on this topic, as the stay-at-home parent role has historically disproportionally affected women.
Share your savings goals.
It is no secret that millennials are less wealthy than prior generations were at the same age between 1989 and 2007, according to The Economist[iv]. In addition, the median household wealth for those aged 20-35 was about 25% lower in 2016 than it was in 2007 for the same age group. Savings and it’s tie to financial stability is important to discuss with your partner regularly.
To start, it is worthwhile to begin by discussing how much moolah each of you has socked away. This could include everything from a standard savings account, to investments, to bitcoin, to a 401K. If either yourself or your partner is living paycheck to paycheck, a discussion about savings and your goals associated may warrant a plan. For example, do you each have an emergency fund with 6 months of expenses in it?
Managing bank accounts as a couple is an important skill.
Marriage represents a union- of both yourselves and your finances. You may choose to open a joint bank account at some point, to pay expenses, to contribute to the dog’s health insurance, or to save for that post-covid vacation. Most couples tend to plan for a combination of separate bank accounts and joint accounts, and indicate in their prenuptial agreement how they plan to use these accounts, and what finances they plan to keep as Separate Property. Joint accounts can be useful for shared expenses like a mortgage, utilities for the home, groceries, and child related expenses.
The “Why” of your credit score matters just as much as the score.
Your credit score is an important factor in getting a mortgage, or a car loan, and your spouse’s credit score can greatly affect your interest rates if you are buying an asset together. In the unfortunate case that you have a high credit score and your spouse has a much lower score, it is important to discuss ways they can work to improve it over time. The “why” of how a credit score dropped so low is just as important as the plan to build the score back up. Do they need to pay off some debt? Make sure credit card payments are made on time? As part of this discussion, be honest with each other about what habits led either of you to a poor credit score, and discuss what needs to change.
Health Insurance + Life Insurance
There are two types of insurance we will cover here: health insurance and life insurance.
A major perk of marriage is health insurance. Once married, you may qualify for coverage under your spouse’s health insurance, or vice versa. Who has better health insurance, and at what cost? Plan to add yourselves to whomever has less expensive, better insurance. In fact, a prenuptial agreement can address who should retain health insurance for the other party upon a divorce. Want to decide this now? Include this health insurance provision in your prenuptial agreement.
While we are on the topic of insurance, let’s talk about life insurance. Once married, you may each consider getting life insurance, and can choose to make each other the beneficiaries of those policies. If you choose to add a life insurance clause to your prenuptial agreement, you can specify the amount that insurance should be for, and that you each should be listed as each other’s beneficiaries.
Financial Goals + Your Prenup
Your marriage will introduce changes to your financial situation that will affect all aspects of your life together. Various aspects of your premarital financial life, from credit card debt, student debt, to savings will bring new challenges to the relationship. Your new partnership means new ways of managing personal finances and learning how to navigate through these changes together. Understanding how to create and stick to a budget, in addition to discussing a prenuptial agreement isn’t guaranteed to be easy, but remaining open and honest about your goals and planning for them can help you build a strong financial foundation for your relationship.
HelloPrenup is designed with ease of use in mind. Our service provides many clauses that you may find useful, including alimony, sunset, and primary residence, dog clauses (who gets to keep Fluffy?), health insurance and life insurance clauses, lump sum payments, etc. Learn more about all of our prenuptial agreement clauses here.
You can also reach out to us directly at [email protected]. We created HelloPrenup for you. Let’s utilize you and your kids’ future together.
[i] Business Insider, https://www.businessinsider.com/average-american-millennial-net-worth-student-loan-debt-savings-habits-2019-6#and-the-typical-millennial-has-less-than-5000-in-their-savings-account-3
[ii] Smart Asset Survey, https://smartasset.com/retirement/the-average-salary-of-a-millennial
[iii] Business Inside, https://www.businessinsider.com/millennials-cost-of-living-compared-to-gen-x-baby-boomers-2018-5
[iv] The Economist, https://www.economist.com/graphic-detail/2019/04/22/american-millennials-think-they-will-be-rich
Julia Rodgers is HelloPrenup’s CEO and Co-Founder. She is a Massachusetts family law attorney and true believer in the value of prenuptial agreements. HelloPrenup was created with the goal of automating the prenup process, making it more collaborative, time efficient and cost effective. Julia believes that a healthy marriage is one in which couples can openly communicate about finances and life goals. You can read more about us here Questions? Reach out to Julia directly at [email protected].