You meet. You fall in love. You get married.
Seems simple enough. Well, maybe back in the 1800's anyway. Today it is a bit more complicated. Finding a partner is the first hurdle and that can take some time. Conversely, my dad's parents had an arranged marriage and didn't meet each other until the ceremony. It must have worked for them as they had at least five children (some died young) and were married until my grandmother passed away after 50 odd years of marriage.
Okay, on to the world as we know it today. I think starting off in marriage is more difficult today. We have so much more complexity and financial issues than we had in the past. Crazy housing and college costs as well as high consumer debt for many don't necessarily get one off on solid ground.
When one goes into a marriage with a lot of financial baggage it can cause some additional stress. Everyone has some baggage. The question is, is it a small valise or is it a steamer trunk.
Now, I'm not saying that coming into a marriage with debt or financial baggage is a deal breaker. What I am saying is one needs to know what the picture is beforehand so they can formulate a plan. This additional debt needs to be factored into one's budget so no surprises pop up.
Let's look at the major issues I have seen over the years when advising couples.
Debt can consist of many different pieces. First we have credit card debt. This is generally on the top of the "bad debt" list as the interest rates are usually the highest. Having a plan to tackle this type of debt is key and equally important, an understanding of how it happened in the first place. Paying it off to only repeat the same behaviors is not a good strategy.
Was this debt due to an illness where one was out of work for example or was it due to bad lifestyle choices?
Getting a handle on how your partner views money is really important as it could set you up for a lifetime of much stress if one doesn’t understand how their partner thinks about money.
The next major debt I've seen is due to a college education. I've seen upwards of 400k between a couple in my practice. There are over 100 people in the U.S that owe more than $1,000,000 in student loans. Mind boggling.
If one has Federal student loans, there are some options and strategies that can be used to mitigate the impact. For example, the most common are:
- 10 or 20 year standard repayment loans
- Income Based Repayment loans
An income based repayment plan can be a good strategy for some but there are some caveats. One, you need to have the right type of loan. For example, a Revised-Pay-As-You- Earn loan looks at both spouse's income regardless of how you file your taxes. Conversely, a Pay-As-You-Earn or an Income-Based-Repayment loan looks at the income of only the individual whose loan it is if one files their taxes as an individual.
However, one must be really careful in making these types of decisions. Filing married individual could cause you to pay more in taxes so that needs to be weighed against the student loan savings.
If you are filing jointly and both of you have student loans, it can get more complicated. Depending which repayment plan you are each on, can affect these payments.
In the case of student loans, it is always best to look at every scenario possible before making a decision. For example, let's say your income is very low but what happens to your payment if you got a new high paying job?
If you have loans and your spouse doesn't, and filing as an individual saves you $5,000 a year, that seems like a great deal BUT we need to see the ramifications of not filing jointly is.
It is key to sit down with your CPA and financial advisor to map out a plan.
- Credit Score
It is also good to know what each of your credit scores are. Buying a house together can impact your ability to obtain a loan or what interest rate you may receive. We have had clients where one had a low credit score or went through a bankruptcy so we needed to work around those issues. You don't want any surprises here so it's best to have this info going in so you can plan around it.
- Not having a solid financial plan
The last point I want to bring up is when a couple has a financial plan that they have agreed to, it can take so much of the stress and anxiety out of a marriage.Since divorce rates are pretty high, and one key factor on why one gets divorced seems to be issues surrounding money, I feel it is important to do whatever you can to reduce that probability.
Having a good comprehensive financial plan is critical when getting married. If you or someone you know is about to get married or in a relationship and stressing about their finances, give us a call or drop us a line. We can put a plan in place to that works for both.
I'm here to help.
All the best.
Rick Fingerman, CFP®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.