Navigating finances for new couples

Part 2: Separate accounts can bring marriage bliss and why prenups can be “incredibly romantic”

Neil Jonatan 18 December, 2019 | 1:06AM
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Newlyweds may have chosen each other out of love but discounting financial compatibility may be at their peril. Arguments about money are one of the leading causes of divorce, according to a survey of divorce professionals and are worth defusing before they become divisive.

By the time couples tie the knot, they should be comfortable talking about finances together. Open dialogue will improve their chances of achieving shared goals for the future, as we discussed in stages 1 and 2 of the financial journey of new couples here.

Stage 3 – Getting married
With marriage comes the tradition of a matrimonial home. Married couples also often move into the same bank by combining accounts. But sometimes this latter financial fusion isn’t the right commitment.

“Every couple has to decide what feels right,” says Chicago-based Sarah Newcomb, Morningstar’s Director of Behavioral Science on the combining of bank accounts. The first concern is if one person has bad credit, which will negatively affect a partner, she points out. “Another issue is if one person has a lot of debt and the other does not. Combining finances, in that case, may feel very unfair.”

Some people have a joint account for shared bills and pay for personal items from individual accounts, says Newcomb. For example, “If I have a car in my name, I pay for that.” The good news, she adds, is that if couples prefer to manage their own money, “there are plenty of ways you can combine your life without combining your finances.”

A hybrid method is often most attractive because it can be adjusted to the couple’s needs.

“If you have to account for every penny and it's really restrictive, you're not going to stick to it,” says Jeanette Brox, a senior financial consultant with IG Wealth Management in Toronto. “Have one joint account to manage the household expenses, the vacations, the joint goals. Have a separate account where you each have a little bit of ‘mad money’ in there.”

Brox defines ‘mad money’ as cash intended for personal desires that you may not want your partner to know about or vet. “One of my clients refers to it as the sneaky account, for if I want to buy a pair of shoes.”

Another upside to separate accounts is that it helps with buying gifts for your partner, notes Brox. It may be easier and more exciting to spring a surprise on your spouse than to use money from a shared account.

Charming prenups
“I've actually come to believe that prenups are incredibly romantic,” says Newcomb, “and here's why: If you structure that agreement in a way that both people are set up to be financially stable in the event of a separation, then rather than feeling scared about [separation], they could walk away at any time. I think it's romantic to know that if they stay, they're not staying because of the money. Having the freedom to walk away means you have the freedom to stay for the right reasons...both people are there for the relationship and not for financial stability.”

Some couples feel that privacy is not as important as sharing important parts of their lives. Combining accounts may be viewed as a significant gesture of trust.

On the other hand, combining all your accounts “is a real risk,” says Newcomb. In fact, “one of the things that financial advisors see a lot of the time as a hint that one of their clients is getting ready to divorce is when they start to move money out of a shared account into an account for themselves, often unbeknown to the other partner,” she observes.

People want marriage to be based on love and not on finances, “but the reality is that money matters a lot,” says Newcomb. She describes a hypothetical couple: one a spender and the other a saver. “Savers tend to think about money as security and peace of mind. That's why they want to hold on to it,” she says, while “spenders think about money in terms of the experiences and freedom that it can buy and that's why they're willing to spend it. Those two people can get into a lot of arguments.”

An advisor to divorce from financial friction
Newcomb suggests that “working with a financial advisor is just like working with a couples counsellor. It’s something that not nearly enough couples use. You don't have to be rich. You don't have to have financial problems. Financial advice isn't always expensive. Creating a financial plan with a fee-only financial advisor can be a one-time visit that just sets your financial life on the right track.”

People in relationships need to be honest with each other when working towards shared goals –and especially when they are thinking of starting a family.

Couples have ended marriages over less, says Brox. “Here’s a classic example: a couple got married and wanted to buy a house. The only place that they could afford was the north of Toronto. After buying the home, the husband was in “heaven” but the wife “was miserable”, notes Brox, since she was a downtown person who didn’t enjoy the stress of a three-hour round-trip commute each day. They accomplished their goal of buying a house but it ended their marriage because of the home’s location. “She wasn’t honest,” says Brox, “which would have meant staying in Toronto, living in a condo and building up some equity, as opposed to moving north.”

Stage 4 – Having kids
If a couple wants to expand the family, the first decision is when to have children, says Brox.

Newcomb says planning the when involves asking yourself what “your dreams” are for your children, from where you'd like to get them to grow up to the opportunities you want them to have. “Do you want them to have music lessons? Are public schools or private schools your thing? All of those things have financial implications,” she notes.

“As always, you want to start with the goal and then figure out how you as a team are going to financially accomplish [it],” Newcomb adds.

Take a look at the “opportunity cost,” Brox recommends. “Children bring a lot of joy, don’t get me wrong, but your lifestyle is going to change. Those dinners, those trips to Europe, it isn’t going to happen for a while unless you’re a multimillionaire.”

Down the line, teaching children how to be responsible with money becomes a priority.

“It starts at a very young age,” says Brox. Teaching children about money can be as simple as setting up bank accounts for them and providing a small allowance. It’s a smart move, Brox adds, “because you're going to empower these children.”

“There's an expression: children mirror what they see at home,” says Brox. If you make smart, responsible choices with your money, chances are higher that they will too.

The financial journey of new couples comes with high risks and high rewards. If it is navigated with care, it can take families a long way down the road to personal success.


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About Author

Neil Jonatan

Neil Jonatan  Neil Jonatan is a Toronto-based financial writer specializing in student finance, currently enrolled in the Journalism program at Ryerson University.

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