It’s that time of year when diamond rings in small velvet boxes are being presented with a flourish. December is the No. 1 month for engagements, according to the wedding planning website The Knot, and a new wave of proposals may be right around the corner on Valentine’s Day.
[Read: For Richer or Poorer: How 5 People Co-Manage Money With a Significant Other.]
But newly engaged couples need to do more than pick out the dress, cake and caterer. They also need to figure out how they will merge their separate finances into a system that will keep them financially secure and blissfully wed until death do them part.
Fortunately, The Knot found 90 percent of engaged couples are discussing their finances prior to marriage. However, talking about finances is only helpful if you’re approaching the conversation from the right angle. Here’s how the financial experts say you should do it.
Know the right way to combine money. “Marriage is hard enough in the beginning, let alone trying to figure out how to mingle finances,” says Suzanne Wheeler, partner and senior wealth advisor with Mariner Wealth Advisors in Tulsa, Oklahoma. That’s why it’s important to sort out money management issues well in advance of saying “I do.”
Married couples use many methods to manage their money. Some keep their income separate and divvy up the bills as they would with a roommate. Others place all income into a shared account from which all expenses are paid. Meanwhile, a hybrid method involves using a joint account for household bills and setting up individual accounts for personal spending for each spouse.
James Córdova, professor and chair of the department of psychology at Clark University, says partners need to work out the system that is best for them. However, whatever that system may be, it is only right if it promotes trust and transparency.
“It’s a mistake to hide anything about how you are spending or saving money,” Córdova says. “That becomes a slippery slope.” In his opinion, having a shared pot of money for household expenses and separate accounts for personal spending can be an ideal way to promote independence and interdependence between spouses.
Discussions are just as important as the money-management method. Couples shouldn’t assume finding the right money management system means they are done talking about finances prior to marriage. Continued conversations are a necessary part of the engagement process. “No one likes surprises,” says John Piershale, a certified financial planner and wealth advisor at Piershale Financial Group in Crystal Lake, Illinois. Prior to the wedding, couples should be ready to share details about their budgeting, debt and spending priorities. “Communication is really a big deal,” Piershale says.
[Read: 7 Money Lies That Could Hurt Your Marriage.]
However, those conversations can be difficult. “It’s an emotionally vulnerable topic,” Córdova says. People may worry about bringing up a subject that could cause disagreements during a time that should be happy. “We want to avoid it and cross our fingers and hope for the best.”
To make talking about money easier, couples may want to bring in a third party. This could be a pastor, counselor or financial planner. Even if a couple isn’t already working with a finance professional, they can often make a one-time appointment to discuss how to manage their money together. “Some people will charge an hourly rate,” Wheeler says. “I myself offer it as a courtesy.” Among those who charge, rates can be as much as $250 to $500 an hour. That may sound pricey, but getting professional advice for an hour can be an inexpensive alternative to paying for a full financial plan which can cost upwards of $2,500.
In addition to agreeing on a money management system and creating a budget, couples should discuss their spending habits and savings goals. Córdova says couples’ attitudes toward money are often formed by their family’s financial situation growing up and so sharing details from childhood is also important. Other topics to cover include existing debt, credit scores and open lines of credit. If one partner is hesitant to share these details, it could be a warning flag and signal the need for counseling to improve communication and trust prior to marriage.
Determine how to handle premarital assets. Another consideration for engaged couples is how to handle premarital assets. “When they commingle them, they become marital assets,” Wheeler says. That means someone with significant assets or an inheritance may want to think twice before placing the money in a joint account.
Though not seen as romantic, prenuptial agreements are another way to address the issue of premarital assets. These agreements, which stipulate how assets should be divided in the event of a divorce, may be more common with second marriages or when older, established professionals get married. “It’s different when you’re young,” Piershale says. “You don’t have that much money.” However, older couples may want to protect their personal assets or insulate themselves from a future spouse’s debt, and a prenuptial agreement provides a means to do that.
[See: 7 Signs Your Romantic Partner Is Financially Unstable.]
As with managing money in marriage, partners should address the issue of premarital assets prior to their wedding day. While these conversations aren’t always pleasant, they are essential. By spending a few awkward hours discussing money early in an engagement, couples can set the stage for a marriage built on openness, honesty and financial harmony.
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How to Manage Money and Marriage the Right Way originally appeared on usnews.com
