Money is a common cause of marital disputes sometimes even leading to divorce. With people marrying later in life, they have existing income, assets and debt they need to manage. Understanding each other’s finances and values is crucial. The following tips can help couples discuss financial issues effectively, so they avoid conflicts during marriage as well as in the event of divorce.
1. Communicate before and during marriage. Seems obvious, but when you are in love, discussing bank accounts, credit card debt, and other financial matters doesn’t seem romantic. However, it is necessary that both parties know how much they each make, what they spend and where, the amount of debt they have, and how they envision handling joint and separate expenses. In addition, couples should discuss their life plans. For example: Do they want to buy a home and when? Are they considering going back to school, changing careers or starting a business? Do they want children and how will they handle child care? Will one parent stay home or work part-time? It’s also important to discuss financial values. Are they savers or spenders; risky investors or very conservative? What kind of lifestyle do they expect to have during marriage? For some good tips, read Managing Money as a Couple.
2. Use a prenuptial (or postnuptial) agreement. Many couples refuse to consider a prenup because they think they don’t have enough wealth to need such an agreement or they believe it shows they think the marriage will fail. The reality is that a prenuptial agreement is beneficial before and during marriage and regardless of what happens in the marriage. And, utilizing the Collaborative Process to create the couples prenuptial (or postnuptial agreement) is an excellent process to use. The premarital approach compels parties to disclose their finances and discuss how they will deal with financial matters during and after marriage. Even if couples don’t have much money, typically they have some income and expenses, including debts prior to marriage. The agreement can set out how the parties will treat assets and debt both during marriage and in the event of a divorce. These issues are particularly important if there is a big income/debt disparity or one parent stops working to raise children.
A prenup/postnup also allows the parties to establish how they will leave their assets in the event of death. This is especially beneficial if there are children from a prior marriage and the parent wants to protect their inheritance, while also ensuring the surviving spouse is supported.
3. Engage financial neutrals through a collaborative divorce process. In the event of separation or divorce, couples often face significant financial issues. If the parties have a prenuptial or postnuptial agreement, resolution of these matters is easier. If they don’t have an agreement, finances typically become a battleground in divorce. Financial experts can help the couple value assets and determine the parties’ financial needs and the impact of support payments. During the litigation process, couples will typically bring in their own individual experts to fight each other. In the collaborative process, however, the parties engage a financial neutral to analyze and report on financial options for both parties. The financial neutral provides detailed financial planning, organizes documents and explains current and projected income, assets and liabilities. By explaining the options available to the parties, spouses can come to an informed and amicable financial settlement.
A collaborative divorce can help the spouses understand the consequences of their financial decisions and prepare for a new economic reality. It can also reduce the costs and stress of getting a divorce. Although it is not right for every person, couples should investigate whether it would work for them.
If you are thinking about divorce or are interested in a prenuptial or postnuptial agreement, contact me for a consultation.