When love is in the air it’s only expected that you’d want to avoid conversations about the legal consequences of signing a marriage contract. However, tying the knot can change your financial circumstances dramatically, especially where debt is involved.
Years down the line you may find that you’re shouldering the burden of your spouse’s repayments, or perhaps one of you is struggling to pull in an income. No matter your challenge, we want you to feel supported and empowered going forward. Here are some guidelines you can follow to help you flourish both financially and in love.
Develop financial literacy
It doesn’t take an accounting degree to become financially literate. In fact, becoming accountable for your own financial education and freedom is the most empowering asset you can acquire, and it’s free!
There are multiple sources available online that can teach you about managing money and debt. First, start with the basics and work your way up. The five key components of basic financial literacy include learning about: earning, spending, saving and investing, borrowing, and protecting. Understanding each element in more detail sets the tone for how you manage money in the long-term.
Set a strong foundation
Splurging on a big wedding, buying a new family car or a home to call your own sets the foundation for family life. This new chapter can bring excitement and a sense of achievement, but can be daunting to newlyweds who are navigating their way around loans, debt repayments and new contracts. So where do you start? Here are some points for you to consider:
- Start with full disclosure: This includes listing all liabilities, assets and credit ratings
- Write down a long-term vision and compare to short-term desires. See where you gain the most value.
- Learn to file your taxes as a couple, this can help you save in taxes.
Foster a financial dialogue
Words like insolvency, assets, divorce, debt, and death sound especially dreary, but these subjects need to be tended to early on in a marriage to ensure things remain uncomplicated in the long-run. Here are some questions you can work through with your spouse to ensure you’re on the same page.
- How will we sort through our finances if our relationship doesn’t work out?
- What types of insurance do we need?
- What types of shared accounts do we need or want?
- How will we protect our assets and estate?
- What happens if one of us gets sick or is unemployed?
- What are your financial goals in the next year, 10 years and in retirement?
Understand where your power REALLY lies.
It’s a common misconception that if we control our partner’s spending habits we’ll feel better. Or perhaps wishful thinking keeps us waiting for the debt to resolve itself. The reality is that we only really have control over the way we choose to think and act. Looking outside of ourselves for solutions can only heighten our anxiety and helplessness, especially during a pandemic. Focusing on your own needs, goals and spending habits will increase your sense of control, self-confidence and motivation – Psychologists call this ‘having a strong internal locus of control’. Attending to our own side of things before helping others is crucial for healthier relationships. However, if your partner is spending recklessly, hiding expenses or money, it may be best to approach your partner and a professional before things escalate.
Discuss the three regimes
The legal terminology around marriage can sound like another language in itself, but in our previous article Money and Marriage: The three regimes we clarify community of property and out of community of property with OR without accrual so that you can familiarise yourself with the terms.
- The benefits of community of property
Being liable for your partner’s debt can be difficult and problematic for your relationship, but in some cases a marriage in the community of property can be beneficial. In a healthier marriage, it could make you more accountable to yourself and your partner when it comes to spending habits. It also provides a sense of security and equality as you both have to sign and agree to certain contracts and major spending decisions. It can half the tax on your investment income, which could be substantial.
- The benefits of marriage out of community of property without accrual
Marriage out of community property means that each partner is able to maintain their financial independence throughout the marriage – as previously owned assets will remain in their name. This option also ensures that any debt incurred by a spouse before or during the marriage does not form part of the common estate. This option essentially provides added security should a couple decide to divorce in the future. The issue here is that if you and your partner take out a loan, the bank will require you to co-sign if one partner doesn’t have enough to their name. So either way, financial independence may be difficult when it comes to major expenses.
- The benefits of marriage out of community of property with accrual
This option allows for each spouse to keep their individual estates as their own throughout the marriage, however any growth accrued in the estates during the marriage will be divided if there is a divorce.
Every relationship is unique and there is no one-size-fits-all approach to working through finances as a couple. The best way to approach this tricky subject is to equip yourself with as much knowledge as possible and remember to reach out to us whenever you need a professional on your side.