Are you noticing the number of ads for diamond rings in the papers at the moment? ‘Tis apparently the season for proposals.
I have a message for those considering marriage: talk about money.
While I find engagements as romantic as the next person, experience tells me that it involves a lot more than being in love and deciding that you want to share the rest of your life with someone.
We all know to sort out whether or not we want children before getting married, but how many of us talk about finances at that time? I suspect few people do. And yet, money is one of the leading causes of marital breakdown.
Over the past four years, I have interviewed dozens of divorcees. Their stories are sobering. My own experience in dealing with divorced clients, both male and female, has lead me to formulate four key questions to ask before marriage.
Just to be clear, I’m not saying you should assume your marriage won’t last, but rather that you need to ask some “what if” questions in the event that something goes wrong.
Below, I address women and refer to their partners using the male pronoun, however these questions apply equally to people in same-sex relationships or for men considering marrying their female partner. Basically, everybody should be asking these questions.
1. PROTECTION: What assets are you bringing into the marriage and how will you protect them?
Five years ago, Elaine* met her husband while working abroad. They fell in love and decided to marry before moving to Canada to start a family. It made sense for Elaine to come back: Canada offered more employment opportunities, her family is here, as are her investment properties. Her husband Brendan* was supportive of the move, though he needed to go back to school in order to obtain better qualifications for employment. Fast forward a few years and their marriage has dissolved.
When I sat down with Elaine to find out how she’s doing financially, her answer surprised me. “It’s a big adjustment for sure, and I feel the weight of all the financial responsibilities falling on my shoulders, but I’m in pretty good shape. My income is solid and my properties are protected.” When asked how she had protected her assets, she replied with one word, “Pre-nup.”
For Elaine, the pre-nuptial agreement was not an option. While she loved Brendan very much, she had seen several friends experience financial devastation as a result of divorce. She knew better than to assume that hers would have a fairy-tale ending. “I went into it assuming that we would live happily ever after, but I protected myself just in case.” She set up a legal document ensuring that her assets would be off-limits in the event of divorce. Today, her net worth is mostly preserved, minus the usual legal fees, which they have both tried to minimize. It’s one less stress to deal with in an otherwise trying situation.
Elaine was smart to protect her assets. Think about this: what investments are you bringing into the union? What would happen if your relationship ended and your ex went after those assets – your house, a rental property, your savings, an inheritance? What impact would that have on you financially and emotionally? Pre-nuptial agreements are no longer just for the rich and famous, nor are they expensive to set up.
Protecting your assets is something that you can do throughout your marriage as well. I have close friends who keep all of their investments separate. When one of them received a substantial inheritance, the money was placed in a trust controlled solely by the recipient. The children are the beneficiaries. If ever the couple divorce, the inheritance is protected. This doesn’t diminish their marriage in any way. They are a great couple who have a strong union. They just treat their money in a business-like way and it works well for them.
2. TRANSPARENCY, PART I: Have you seen his credit bureau report complete with credit score?
I’m not kidding here. It’s not sexy or romantic, but it’s vitally important. After looking at more than a thousand credit reports over the last ten years, I can tell you that they are like a financial autobiography of the last seven years of your life. I have freaked people out with what I can tell them about their lives just by looking at their credit reports. They tell a story.
Here’s what you need to know:
- What’s his score? This is a measure of credit-worthiness or, put another way, of credit risk. If lenders would consider your prospective partner a financial risk, wouldn’t you want to know that?
- If the score is low, why? What happened? The clues are in the report – frequency and date of late payments, number of credit instruments, amounts owing, collections and judgments on file, etc.
- If you don’t know how a credit report works, read my blog post about it. Want more info? Leave a comment below and ask me for my free e-book on credit scores. I’ll email it to you.
3. TRANSPARENCY, PART II: What do his financial statements – Balance Sheet and Profit & Loss Statement – look like?
If your credit report is akin to a financial autobiography, your balance sheet is the cover photo of your financial life. It represents a snapshot of your net worth at a moment in time. What assets and savings do you have? What are your liabilities (i.e. what takes money out of your pocket)? Add the two up and you get your net worth.
The Profit and Loss statement shows what you earn, what you spend and what’s left over at the end of the year. This one tells you if you are living within your means and where your money is going.
OK, businesses have financial statements, people don’t. I get that. But what if we were to take a business-like approach and ask the same sorts of questions of our potential betrothed? It’s not about how much money he has or what he’s worth. My first husband and I didn’t have two dimes to rub together when we got married! Just because someone doesn’t have much net worth doesn’t mean that you shouldn’t marry him. However, you do want to figure out if there are any red flags. I’m talking about problems such as debts, particularly credit card debt or, frankly, all consumer debt. Does he owe a ton of money? Is he making sufficient money to cover his living costs? What are his spending habits? What are his employment habits? These questions matter a great deal.
Our lives are made and unmade by our habits.
If your partner has financial habits that are causing problems in his life, you will be affected by those habits when you marry. Are you OK with that? What are the potential consequences? As my business partner Claude Pilon says, if you can’t get over those hurdles today, before marriage, how do you think you’ll deal with them later on once you’re married with children? It doesn’t get any easier with time.
4. ACCOUNTABILITY: How does he respond to problems?
This is huge. I can tell you which of my clients will be successful in rebuilding their credit simply by the way that they respond to my question, “What happened?” It’s fine to say that you experienced circumstances beyond your control, but at some point, regardless of how the financial challenges happened, there has to be personal accountability in order to get to a successful outcome. If the problem is always billed as being someone/something else’s fault – my ex, the economy, my employer, the weather, our family, the government – then I’m willing to bet that the problems will persist.
If your partner has a lot of debt and is defensive about it, it behooves you to understand why. Again, it’s a lot easier to tackle these issues before you get married than afterwards. If there are financial difficulties before the proposal, they won’t necessarily get better once the ring is on your finger.
I realize how my suggestions are fraught with emotion. For many couples, money is hard to talk about at the best of times, let alone when they’re considering marriage.
If you’re considering getting engaged, bear this in mind: if you do the hard work now, at the beginning, you will save yourself a lot of potential heart-ache and strain later on. The more you know and understand each other with respect to this important dimension, the more you can focus on building a strong, lasting marriage.
*Not their real names
Also:how do you prioritize saving/spending/investing/philanthropy and how do you expect to meet those priorities?
Excellent questions Kathryn! Definitely worth discussing.