It is the time of year where families normally would gather for the holidays. This year, there will be fewer gatherings, but most years you may spend it with your in-laws, still questioning their holiday traditions, hoping your gift is adequate, and wondering what inappropriate comment will be made this year.
Perhaps you stopped going to your in-laws and decided to form your new family traditions.
Either way, choosing your spouse is one of the most important financial decisions you will make.
I am surprised by how few people treat it as such. I have seen people research a new car purchase more thoroughly than a marriage. A car is a big purchase, but in most cases, it is a $10k to $50 mistake.
A wrong marriage could be a multi-million dollar mistake.
And, the odds of divorce are high. The probability of a marriage ending in divorce is estimated at 40%-50%.
The odds of divorce are similar to flipping a coin.
If you are not married yet, let’s look at some of the conversations worth having before you tie the knot and the potential financial impact if you do not.
As a disclosure, I am not married, but in a committed relationship with plans to marry one day. I have also seen more than my fair share of divorces and the financial impact. Nothing in this post should be taken as legal or financial advice. I do not know anything about your individual situation, and I am not an attorney.
Choosing Your Spouse: Conversations You Should Have
Do you know the conversations you are supposed to avoid at the Thanksgiving dinner table? You should use those as a guide for the conversations you should have with your potential spouse!
The Knot has five good questions.
You want to hit on the big things in life: kids, money, family, values, religion, lifestyle, sex, and lifelong dreams.
This is not a time for a 50,000-foot level conversation. You can start there, but you want to get into the weeds.
For example, instead of asking if your spouse wants kids, you should ask how many kids, when, how will you raise them, how will you reconcile your differences in raising them, will you have childcare, will a spouse stop working, what happens if you cannot get pregnant, is adoption an option, where do you want to raise them, etc.
Even though you may have learned earlier on your potential spouse wants two kids, perhaps they planned to quit their job and raise the kids at home while you envisioned your parents helping with childcare. Those visions are very different and impact many areas of life: careers, money, grandparents, and more.
With each topic, you should spend time overturning every rock possible to discover both of your attitudes toward it. You may even be surprised by your own answers.
Below are a few topics and starter questions. This list is by no means comprehensive. What I find is once you start, it usually takes you down another path. That is okay – go with it, but do not forget to circle back.
If you are not sure how to start these conversations, I find having these conversations during dinner or near the end of dinner works well. You could say, “I am looking forward to our future together and want to have a discussion around a few big topics about how we will live life together. Do you mind if we go through some questions together?” Or, jump into the questions without any explanation. Sometimes, it is easier to rip off the band aid. Do what you think will work best for your relationship.
Kids:
- How many kids do you want?
- When do you want to have kids?
- What if we can’t have kids? Are you open to adoption? Surrogacy? Fertility treatments?
- How would you handle having a child with a physical or mental disability?
- Do you anticipate working after we have kids?
- What childcare arrangements do you envision?
- How do you wish to raise them?
Money
- What are your assets and debts?
- What are your financial goals?
- How do you spend money?
- How do you want to handle finances when married?
- Should we have separate or joint accounts?
- Are you a spender or saver?
- Do you have certain income or net worth goals?
- How do you see your income and career changing?
- Do you plan on going back to school?
- Do you plan on changing careers?
- How do you handle money?
- What was money like growing up?
- How do you feel about pre-nuptial agreements?
- Do you anticipate receiving an inheritance?
- Do you anticipate your parents or another loved one needing financial assistance from you?
Family:
- How involved will your family be in our lives?
- How often do you talk to your family?
- Do you have family traditions you want to maintain?
- What traditions do you want to create as a family?
- How do you feel our families get along?
Lifelong Dreams and Lifestyle:
- What is on your bucket list?
- What dreams do you have for your life?
- How do you see us spending time together vs. alone?
- Do you support my work?
- What do you envision for our retirement?
You should think about these conversations as an investment in your relationship. Making the right decision the first time helps avoid costly mistakes later.
The Financial Implications of Divorce
There are very few ways you can lose money as quickly and greatly as in divorce.
Overnight, you can lose 50% of your money.
If you had $50,000 as a couple, you could end up with $25,000 the next day. If you had planned a retirement on $3 million and then split, you could be forced to retire with $1.5 million.
In many cases, assets are split in half during a divoce. When you are planning on having a certain amount of money and your life is built around the current financial structure, losing 50% can require a dramatic adjustment. Sometimes, people cannot adjust.
One of the most difficult assets to split during a divorce is the primary home. Some couples sell the home and split the proceeds. Sometimes that is not possible or one person wishes to remain in the home. In those cases, they may retain the home, assuming they can afford the mortgage payment. Since many couples buy a home assuming two incomes, this can be unfeasible financially.
Something very few couples think about is their debts. Debts do not disappear during a divorce. If you have a mortgage with both your names, you are jointly responsible for the debt. Even if one spouse is awarded the house, if both of you remain on the mortgage, you are responsible for the debt if the other spouse does not pay.
Although you may want to take out a mortgage in one person’s name, it may not be possible to obtain a new mortgage on one income. Interest rates may have also risen, which would make the monthly payment increase if one person obtained a new mortgage.
Joint credit cards also pose a problem. It is usually a good idea to stop joint credit cards during a divorce and open cards in individual names.
If possible, it is normally best to pay off the debts as much as possible before divorce. You want to pull your most recent credit report to identify all your debts.
Besides your assets and debts, you could be liable for paying child support and/or alimony.
Divorce is easier if you do not have kids. If you have kids, you likely will be responsible for an ongoing child support payment until the child turns age 18 or graduates from high school. Each state calculates it differently, but generally, it is based on your income, child care costs, number of children, health care costs, and other factors.
For example, if each parent had $5,000 in monthly take home pay, resulting in $10,000 combined and had one child together, the monthly child support obligation would be approximately $726 per month in Washington state.
Alimony is financial support for another person. It can be decided between a couple or ordered by a court. It is usually awarded to the lower-earning spouse. If couples have similar earnings, alimony may not be rewarded.
It is meant to help a lower-earning spouse maintain the same lifestyle for a period of time that they were accustomed to during the marriage. For example, if they had quit their career to support the family, they may have less opportunity for future earnings. As a result, they may need money to help them train for another career or if late enough in life, support them through the end of life.
Unlike child support, which has fairly clear guidelines about how to calculate the amount, alimony does not. Courts have broad decision making ability to determine the amount and for how long it is paid.
Normally, alimony awarded for short marriages does not last for very long. It might be a few months worth of payments to help the other person get back on their feet. Marriages that last 3-20 years before divorce normally result in longer periods of alimony. Finally, marriages longer than 20 years may award alimony for life.
For example, if a couple divorced after 30 years and one person earned $12,000 per month and the other earned $2,000, the court may require the person earning $12,000 per month to pay $5,000 per month in alimony for life or until retirement. At that point, they may not have the time or money to retrain for another career, which is why the support may be for life.
If someone was only married for a year, they may not have alimony requirements or it may only last for a few months.
These are simple examples, and there are other factors that could affect the amount and length of payments.
Divorce is not an easy process. Splitting assets, deciding what to do with debt, and the possibility of paying child support and/or alimony can drastically change the future you envisioned.
Planning Before Marriage
Now that you know more about the financial implications of divorce, you should know more about how you can protect you and your spouse in the event of a divorce.
Though they have a bad reputation (unfairly, I might add) and carry a negative connotation, pre-nuptial (prenup) agreements can be very helpful.
Prenups are contracts created by two people prior to marriage specifying what happens with their assets in the event of divorce.
Said another way, a prenup is like an insurance policy you hope you never need to use, but it is there in case you do.
Prenups are not only for the rich. They are helpful for people with kids from prior marriages, help protect from the other spouse’s debts, and can help avoid arguments and costly divorces by spelling out in advance how property will divided. They can also be helpful if you expect to receive an inheritance in the future.
I am a huge fan of prenups. Why not agree on how assets will be split while you are still in love? If you can’t do it now, you likely won’t be able to do it later, which means you will likely end up paying for it later in attorney’s fees.
Prenups are not cheap. Most cost $2,500 at a minimum and can go above $10,000 if your finances are more complicated. However, this is a small price to pay to avoid a giant headache and costly divorce battle later. Since prenups are not inexpensive, if you both start a marriage with no assets, there may not be a point to a prenup.
While legal documents are helpful, having open and frequent conversations are another great way to plan before marriage. Make sure you know how your spouse approaches money. Be open about your views towards money, kids, and anything else life may throw at you.
Given that divorce rates go up for people who marry too young or too late in life, you could consider holding off on marriage until your late 20s or early 30s. This seems to be the sweet zone for the lowest rates of divorce.
Although a prenup is not for everyone, it can be extremely helpful creating conversations about finances and putting a plan in place while in love. Like insurance, hopefully you never have to use it!
Summary – Final Thoughts
Choosing your spouse is one of the most important financial decisions you will ever make. It’s one of the few financial decisions that could cause you to lose 50% of your money.
Like anything else in life, a marriage should not be rushed. Spend time creating intentional conversations about the big things in life. Consider marriage classes to help with the conversations.
If you do not have the conversations, you may pay for them later in the form of attorney’s costs, alimony, child support, and stress.
Though a prenup is not for everyone, if you are coming to a relationship with assets, you may want to talk to an attorney and your potential spouse about a prenup. They are helpful in laying out how to treat assets and debts during a divorce. It is much better to plan in advance with a clear mind than deal with how to split assets in the heat of a divorce.
Although many people do not treat marriage as a financial decision, it is easily one of the most impactful financial decisions you will make.
If you have a story you would like to share about money and marriage, please contact me. I would love to hear it.