3 smart ways to protect your money in a marriage (and a divorce)

Pop quiz: what do couples argue about most often?

You guessed it: money makes the short list! That is not surprising: combining two independent lives into one is complex. The best-prepared couples spend time in conversation about what’s mine, yours, and ours – before they merge their lives and finances. That prep can also pay dividends in the event of a divorce. Going into a marriage with a backup financial plan “just in case of divorce” is no one’s first preference, but a plan and good money decisions during the marriage can make a difference. Here are three smart steps for building a financial life together – and finding your footing should you have to fend for yourself.

1. Make a combined list of assets, debts and resources on both sides

Financial transparency is a prerequisite for eliminating money surprises in a marriage. You do not want to find out that your spouse has a large tax debt to the IRS after the balance in your joint bank account gets cleared out by a sweep!

I get it. Talking about things like credit card debt, credit ratings and salaries is tough. Few of us have had constructive modeling around money conversations from our parents, so we have to figure it out as we go and make mistakes along the way. Do it anyway. Talk through your combined list of assets and debts with a focus on the future – judgment or criticism at this point is not helpful. We have all made mistakes with money. The important thing is what you choose to do next as a couple.

2. Agree on a joint budget

A joint budget is meant to cover the expenses of living and making decisions together. For most couples and families, it will likely include the cost of rent or mortgage, transportation, groceries, insurance and children’s expenses. Talk about the logistics of contributing to the expenses that fall into the joint budget. Some couples create a joint account that receives periodic deposits from each spouse. Others split the bills directly: he pays the cable bill while she buys groceries. Consider what will work best for your situation and plan accordingly.

Beyond the basics, every couple structures things differently. Some cover weekly pedicures for her and cigars for him out of the “shared” budget, others continue to pay for those out of each person’s separate bank accounts. There is no right or wrong way to do this, as long as you are both comfortable and clear about the expectations.

If debt is in your financial picture, your budget should make room for paying it down. Talk about the mechanics of making payments on her old credit card balance and his student loans. Will the payments come out of the joint account or individual accounts? How will debt repayment be prioritized related to other expenses? Ignoring this point can lead to accumulating penalties and disagreements.

Get educated on the consequences of opening joint credit cards or applying for joint debt. Many people don’t realize that these decisions affect both individuals’ credit histories. If your spouse fails to make a payment, passes away or files for divorce, the jointly accumulated debt balance remains your responsibility as far as the bank is concerned.

3. Keep some of the finances separate

No matter what your personal situation is, it is usually a good idea to keep some of the bank accounts and credit cards in your own name. That approach allows you to maintain your own credit history and keep some financial reserves aside.

Keep in mind that different financial situations call for different approaches to commingling money. For example, if considerable debt or bankruptcy predates the marriage, you may want to consult with an experienced financial planner or CPA.

Protecting your money

The three recommendations above will apply to virtually any couple. If your situation is more complex than “plain vanilla”, you will be well-served by taking a few extra steps.

If you are entering a marriage with a considerable balance in your retirement account, a business ownership interest or real estate properties, spend some time talking to a financial planner. Chances are he or she will recommend that you get and keep a statement that shows the value in your retirement accounts at the time of the marriage. A valuation of the business may be a good idea, as well. These documents will make it easier to potentially carve off the pre-marital piece of the assets in a divorce property division. While a prenuptial agreement is common path to accomplish the same goal, it is not the only way to protect your financial interests!