The following is a guest post from Mike Bowman. Mike writes for TheQuarterRoll.com, a website that makes personal finance fun and entertaining through the stories of real people.
Have you ever been in a relationship where you and your partner shared many interests and were deeply in love with each other, but were polar opposites when it came to personal finances? If you have, you are not alone. Without compatible views on how to save, spend, and invest their combined income and assets, couples often find themselves heading down the road to divorce. Conflicts over money are often named as the primary reason partnerships fail.
Conflicts over how to manage income and debt are as old as marriage itself, and a common misperception is that it is more prevalent among the poor. In her book “Love, Lucy” iconic comedienne Lucille Ball describes her husband Desi Arnez as “highly extravagant” and herself as a “careful spender”. Even when she was making an excellent Hollywood salary she was very conservative with her money, and realized the potential dangers of mismatched financial goals in a marriage. On the other hand Desi never worried about saving money, but rather spent his money on golf trips, boats, and other big ticket luxury items.
In one example of their different views on money Lucy explained what happened when they both won money while gambling. Lucy won $18,000.00 and immediately asked for a cashier’s check which she sent to her business manager to invest on her behalf. Desi also won $18,000.00; however, he bought another boat. Lucy and Desi recognized their differences in managing their money and chose to keep their incomes separate, each contributing equally to the household expenses. Lucy claimed that even though this arrangement protected her money from Desi’s reckless spending, it still put a heavy strain on their marriage.
Keeping your finances separate, yet equally contributing to household expenses, may seem equitable and fair. However, when one partner in the relationship financially falters it can affect the other even when the finances are separate. At one point Desi owed the IRS $30,000 in back taxes and did not have enough cash to pay the bill. Even though their finances were separate, what kind of stress did that debt add to his marriage to Lucy? Considering the degree to which personal finances can affect the happiness and longevity of your partnership, it is important to talk about these issues up front.
Here are 3 ways to get the process started.
1) Interview your partner. Prior to entering into a committed relationship have a serious discussion about money with your partner. Be thorough and ask both general and specific questions. What is important to you? Is staying out of debt altogether extremely important to you or are you ok with home and car loans? How do you feel about a partner who recently filed for bankruptcy? How would that affect your finances or your combined finances? Be clear and honest with your partner and yourself about what issues you are ok with and the ones that are deal breakers.
2) Ask to see a credit report and share yours. Many employers and other entities use a credit report as a predictor of future financial behavior. You should to! In fact a credit report serves as an unbiased third party that gives you an excellent view into someone’s financial past, allowing you to see how they’ve managed their credit and obligations many years.
3) Put it in writing. Constructing and writing a budget together puts a degree of formality to how your combined income will be spent and saved. It is important that both of you have equal input regardless of who makes more and that you agree on where the money will go. Then put that agreement, in the form of your budget, in writing. Putting it in writing and having everyone’s input and agreement finalizes each party’s commitment to stick to it.
Editor’s Question: Readers – what are your thoughts on these tips? Do you have an opinion on keeping separate finances versustrying to merge finances?