Although the number of people wanting to get married today is far fewer than it was with the previous generation, there are still many people who cannot wait to have their special day. Whether it’s because of religious or moral reasons, many people want to make their relationship official. That means both parties sign a binding contract.
A marriage has financial ramifications and so do divorces. One shouldn’t go into a marriage preparing for it to fail, but statistics prove that is the likely outcome for fifty percent of couples. If you’re planning to get married, it’s wise to have an entry and exit strategy. But what about during the marriage? How should you handle your finances?
Work Together
As comedian Chris Rock said, “It’s much easier for two people to move a couch.” He was referring to working as a team to accomplish an objective. When one person does it, it’s much more difficult and could be self-defeating.
Finances are one of the biggest causes of divorce. That doesn’t mean only that you’re likely to have a failed marriage if you don’t have enough money for the household. It also could be because the two of you cannot agree on who should make the money and who should spend it.
Money is an important topic that you and your potential spouse need to discuss before you decide to get married. It’s vital that the two of you are on the same page financially. There isn’t a one-size-fits-all approach. Some couples choose to adopt traditional roles, where the husband works and the wife stays at home to look after the house and children. Other couples decide to split all payments.
Whatever works for you. But it’s important that it’s agreed upon before marriage and that each party fulfils their promise. That’s likely to reduce the number of financial fights during the marriage.
Planning Finances for Marriage
The same way you plan who’s going to be your bridesmaid and photographer for your wedding, you need to plan your finances together. Without a plan, you’re like a ship out at sea without a crew. The tides will sway you in every direction.
Step 1
Agree on who is going to earn the money.
That will require the two of you to determine how much money you’re going to need. Important aspects to consider will be your lifestyle choices and the number of children you plan to have. Do you want to send them to university?
You need to work out how much your lifestyle is going to cost for the rest of your lives. It’s difficult to get an exact figure, but rather overestimate than come up short. Include unforeseen expenses, and forecast that you will live until the age of 100. Remember, it’s better to overestimate.
Once you have a total figure needed to fund your entire family, work out how much income you need to make monthly until retirement. If the monthly expenses are bigger than one spouse’s salary, that means both of you will have to work, or you can choose a less extravagant lifestyle with possibly fewer children.
If both of you need to work, that will require you to add expenses such as child care to your cash flow statement and to increase the transportation costs.
But it’s important to be realistic about the income needed to fund the chosen lifestyle. Don’t assume that the business you plan to start will take off or that you’ll inherit money, so that should take care of the shortfall. Income isn’t guaranteed but expenses are.
Step 2
Determine how you’re going to fund expenses.
This is different from deciding if both of you need to work. Both of you may work, but you might decide that one of you will fund everything. That’s quite common these days. One spouse may believe, ‘His money is our money, and my money is mine.’
If both of you decide to fund expenses equally, you’ll likely have a joint account that you fund.
Step 3
Decide who’s going to spend the money.
Now that you know who’s going to work, you need to decide who’s going to spend the money. Even if one spouse earns the money, it doesn’t mean that they should be the ones to decide how it’s spent. They could be really bad with money.
I think it’s important that both spouses have a say in compiling the cash flow statement, but decisions need to be made rationally. Logic should be the order of the day and not emotion. If your spouse is being irrational and irresponsible financially, you need to make a strong case as to the reason that you should handle the finances. Make him or her know that it’s the best for the entire family.
This agreement is not set in stone. So, you need to prove that you’re an excellent money manager. If, after the first month, you don’t handle the finances well, the two of you need to come up with a better plan and determine who is actually the better money manager. You may need to consult a third party if both of you are poor at handling money.
Step 4
Track your expenses and make adjustments, if necessary.
Managing your finances is a continuous process. You need to compare your actual expenses to the ones that you forecasted to determine if you’re on track. If your expenses are lower than you forecasted, no need to spend more. Save, save, save.
Adjustments could be minor such as unsubscribing from a video streaming service to more extreme measures such as the stay-at-home spouse needing to find a job. Make the necessary sacrifices so that your income is more than enough to cover your entire household.
Remember, you’ve made a cash flow statement under the assumption that you’ll live until you’re 100 years old, so don’t be in a rush to splurge.
You Become One
Legally speaking, you and your spouse are considered as one entity under the law. You’re supposed to share everything in a marriage. During a divorce, you’re likely to share everything as well. Although, in many cases, the man will be required to provide child support and possibly even alimony.
Entry Plan
I can understand if a spouse is offended if you ask him/her for a prenuptial agreement. It suggests that you don’t want to share with them the possessions you acquired before marriage, and you’re planning for the worst case scenario. It’s uncomfortable to have that discussion. But it might be necessary, especially if you have a high net worth.
Let your spouse know that it’s nothing personal; it’s just personal finance. That actually sounds cheeky to say, but it’s the truth.
There have been certain cases where the prenuptial agreement was deemed void. It’s best to consult your lawyer to make sure that you abide by the law so that it’s enforceable if you choose that path.
Exit Plan
If you and your spouse decide to get a divorce, by that time, it’s probably too late to do anything to protect your assets. I’ve heard of spouses transferring their ownership to their mothers, but I don’t know how effective that strategy is. It might not even be legal. The last thing you want to do is break the law and then have your possessions taken away.
That’s one of the reasons that it’s important to compile all the necessary papers before marriage so that you’re protected if you choose that route.
Relationships
What if you’re in a relationship and are considering marriage? Should you follow the same financial path as a married couple? Legally speaking, your partner isn’t entitled to the same benefits as a spouse, especially if you don’t live together.
In some countries, your partner may be entitled to your assets after living with you for a certain period. It forms part of cohabitation rights. Look into those because you may be liable to share your assets if the relationship doesn’t work out.
A relationship is probably the best time to prepare your finances as a couple. It gives you an opportunity to see how the two of you would function if you were married. If the two of you don’t agree financially during your relationship, why would you during marriage? That period could serve as a trial so that you avoid going further down the road and possibly losing half of your assets.
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