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Financial Stability and Marriage

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Marriage and finances. Why do these so often go together like oil and water? Why is money such a contentious topic in most households?

It’s because people go through life differently. Depending on how you were raised, what you learned, and what you personally experienced, your money philosophy will be different from that of your spouse.

Before we talk about that, however, I’d like to touch on financial stability and why the growing trend is being financially stable before committing to someone.

Financial Stability

It makes sense from a psychological perspective. Having financial stability makes you appear more mature and that you have your priorities straight. People who see that, probably see someone that’s ready for a commitment.

Additionally, getting married, and marriage in general, can be an expensive endeavor.

Obviously, it depends on the wedding you want, but the average price tag on a wedding nowadays is around $25,000 (source). Add onto that a honeymoon that could take you to another state, if not another country, and you’re spending a lot of money within the first month of being married.

What, historically, follows is a house and kids. Both, though worth every penny and minute, are expensive.

Because everyone has a different experience, and there are so many of them out there, I can’t go into detail about every one of them. Instead, I’ll speak generally about what they are trying to do.

Debt

People are trying to get out of or get a firm grasp on their debt. Whether it’s student loans, credit card debt, or medical bills, nobody wants to go into a committed relationship, let alone marriage, with a significant amount of debt.

Not only does debt hinder you from putting it towards future wants and needs, but when you get married, your debt becomes your spouse’s debt as well. You don’t want to burden them with that.

People want to be financially stable going into a marriage so they can afford the wants that often come with marriage, and they don’t want to be sacked with debt that brings down the family balance sheet.

Credit

Another piece of the financial puzzle that people try improving is their credit score. Your credit score plays a factor in almost every important life event. Where you live, where you work, and what you drive, your score could play a role.

Your financial philosophy is how you view money and how you use it.

Philosophy

Are you a saver or a spender? Do you view credit cards as a tool or a money sucker? When you do spend, do you prefer to buy stuff or experiences? Would you rather invest with the chance to earn more or put those dollars in a savings account for safekeeping?

As I mentioned before, your upbringing, what you’ve learned, and your personal experiences shaped the answers to these questions.

When you commit to a relationship, you’re going to have different answers. The key with any part of marriage, and money is no exception, are compromise and communication. You have to find some middle ground so each individual is getting their needs met, to an extent.

What you have to do is sit down with your significant other, dive deep into each other’s life experiences with regard to money, and what’s important to you, both now and in the future.

Once you have a good understanding of where you’re both coming from and what you want, you can work together to develop a plan, and once you have that plan, you can start executing

Related Reading:

5 Steps Before Tying the Knot

The Psychology of Money

How My Relationship with Money Changed

What Affects Your Credit Score?

How to Split an IRA or 401(k) in a Divorce

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Divorce is ugly.  Except under the most limited circumstances, no one wins in the divorce game.  Then, you add the complexity of money into the equation and it gets downright hideous.  In that emotional time, it’s easy to understand why so many people divide IRAs, 401(k)s, and other retirement accounts sub-optimally.

You can’t just “take the money out and give it to my spouse”  That would be a big mistake.  Let me count the ways:

Let’s assume you own a $250,000 401(k) balance.  The judge rules that you’re required to split that 50/50 with your spouse, so you decide it would be easiest to make a phone call and take the money out.  Ouch.  If you do that, you’ll be hit with a 10 percent early withdrawal penalty (yes you, not your spouse, and only if you’re under 59 1/2) and then the amount you removed is added to your taxable income for the year.  Now, for many reading this blog, you’ve just lost 35-45%.

So how do you give $125,000 to someone?  Oh that’s easy – you gift that to them.  But in your haste, you didn’t do this correctly either. To gift it, you either need to reduce your lifetime exemption by filing a form 706 with your income taxes next April, or pay a gift tax of 50%.

Long story short: “taking it out” could be a massive financial mistake.

Instead, consider asking for a QDRO, or Qualified Domestic Relations Order (pronounced quad-row).  A QDRO put together by a competent attorney and signed off on by the judge makes this transfer a ton easier.

First, it directs your retirement plan company to establish another qualified plan in the name of your spouse.  Then, it directs a tax-free transfer to that newly established account.  No taxes, no penalties.  Easy as pie.

Once you’ve begun working on that, you’ll want to make sure the QDRO says that your soon-to-be ex-spouse can’t make any loans or transfers from the account until it’s been split; or you could just pick a date to make the transfer effective on (retroactive) and put a fixed dollar amount based on that date’s plan balance.  This would protect the new beneficiary from being bamboozled by his or her ex.

Finally, don’t forget about pension plans.  A lot of those can be “QDROed” too.  For example, let’s assume your spouse earned a pension at his job of $4,000 during the 30 years he worked.  He was married to you for 20 of those 30 years – making you the owner of 2/3 of his $4,000 per month.  By putting the QDRO in place before he retires, she can have her own pension plan – quite the deal!

At the end of the day, divorce planning with money is just as important as married couple planning.  If you don’t do it, you’ll regret it.  Take the time to review everything – hire a professional and don’t try to cut corners.  The costs are too severe.


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