A recent CIBC poll found just one-third of couples about to marry or enter a common-law relationship have had a serious talk about money. The vast majority of those who avoided such a talk (83%) said they didn't know either how or when to address the topic, or planned "to play it by ear."
Money problems are often cited as one of the main reasons for divorce. For example, 68% of respondents to a 2014 Bank of Montreal survey ranked conflict over finances as their top reason for divorce. "Playing it by ear" or avoiding the subject of money is not a smart strategy for a couple setting out to build a life together.
When and how should couples who have decided to marry or cohabit have a talk about their personal finances? And what exactly should they discuss?
Ideally, there should be an honest and open conversation about money soon after a couple decides to marry or cohabit. In the glow of love and new commitment, the subject may not be on their radar screen. One or both partners may not feel comfortable broaching the subject. There are milestones in a relationship that can provide convenient openings to a comprehensive discussion on managing finances as a couple.
Deciding on shared financial obligations such as co-signing a lease, buying a house together or joint purchase/lease of a vehicle provides an obvious opening to a detailed talk about money.
Another way to kick-start the money conversation is for both partners to read the same book on couples and money. We recommend Couples Money: What Every Couple Should Know about Money and Relationships by Marlow and Chris Felton or The Couple's Guide to Love and Money by Jonathan Rich.
Couples opting for a religious marriage ceremony may elect, or be required, to complete a course offered by their religion. The curriculum will likely include material on family finances. For example, the marriage-preparation program offered by the Catholic Family Services of Toronto includes a facilitated discussion to help a couple reach a common understanding of the financial aspects of their relationship.
Secular marriage-preparation courses may also touch on money issues. For instance, financial management is among the topics covered in the Beginnings – Marriage Preparation Course offered by Family Services of Central Alberta.
Marriage-prep courses are usually in person, but webinar versions are available. No matter the delivery format, the section on finances provides an excellent segue to a couple's talk about money.
Sussing out what money means to each partner is a good place to begin the money talk. Quizzes such as the Money Personality Quiz can help with this task. If partners have contrasting approaches to money e.g., spender vs. saver, risk averse vs. daring investor, discussing up front how to reconcile such differences will help avoid future stress in the relationship.
Each spouse should disclose his/her past and present financial status including:
- Assets: bank accounts, savings, investments, real estate, vehicles, life insurance policies, etc.;
- Debts: student debt, car loan, mortgage, etc.;
- Financial obligations such as alimony, child support or assisting parents;
- Current employment, income and benefits;
- Credit status;
- Any bankruptcies.
Once the financial cards are on the table, each partner may want to seek separate legal counsel regarding the financial implications of entering the relationship. Counsel may recommend that the couple sign a marriage contract or cohabitation agreement to define the rights and responsibilities of the partnership. Such a contract will prove its worth in the event of a divorce or break-up, and is essential if one or both partners own significant assets such as real estate or a business, have children from a previous relationship, or expect a significant inheritance.
Estate planning may be a remote thought to couples committing to life together, but it is an important part of the money conversation. Partners should review and update their wills and powers of attorney as well as the beneficiaries of any registered accounts, pension plans and life insurance policies. This task should not be delayed to avoid unintended consequences, such as a former spouse inheriting an estate because a will had not been updated.
Developing and agreeing on a realistic budget for the new household is essential. This should occur after partners have reached a common understanding of their aspirations and goals for their future together. Among the matters to consider:
- Are children in the future?
- What are each partner's career plans?
- Is home ownership important?
- How do you envision retirement?
- What lifestyle do you envision? Will it include travel abroad, a cottage, expensive hobbies and entertainment?
Early in the budget process, couples must decide if their finances will be pooled or kept separate. Pooling all resources and considering all expenses as common works for some couples. Others share common expenses such as mortgage payments, and make each partner responsible for personal expenses such as clothing. If one partner has debt or financial obligations such as child support, a decision must be made on whether this will be a household expense, or the separate and unique responsibility of the obligated partner.
Budgeting involves identifying and costing anticipated household expenses such as shelter, food, clothing, debt payments, recreation, vacation, transportation, insurance and retirement savings. There are numerous budgeting tools just a Google search away that can assist with this task. The budget calculator at the Financial Consumer Agency of Canada website is an excellent and free example.
To budget for insurance, risks must be identified, insurance requirements determined and insurance coverage arranged. These questions are a good place to start the process.
- What vehicle and home/tenant insurance will be needed?
- Does each spouse have enough disability insurance so the household will have adequate income if he is unable to work?
- How much life insurance will each partner need?
- What medical and dental insurance will family members need?
- Will workplace benefit plans of one or both spouses provide enough protection?
Finally, there are the more mundane aspects of household finances to address.
- If new bank accounts such as a joint chequing account are needed, who will open the account(s)?
- How many credit cards does the household need? Should there be one credit- card account for the household with a card for each spouse?
- Who will be responsible for tracking and paying the bills?
- How will significant spending decisions be made?
- Must both partners agree before a purchase above a set dollar value is made?
- How often will the family's financial status be reviewed and financial plans updated?
