Q: I got divorced about 10 years ago and had all but given up getting married again until about two years ago when I met my current girlfriend. Now that her youngest is graduating high school and we’re almost empty nesters, we’re talking about what our future will look like. One thing we need to work out is how we’ll manage our finances if we move in together. She’s self employed and seems financially stable but I really don’t know for sure. I’m not floating in extra cash but manage to get by. I own my home and have some savings for retirement. If something happened to me I want my kids to decide what to do with the house. Have you got any suggestions about how we should merge our money? ~Andy
A: It can be hard to talk about money with a romantic partner. For some, they are recovering from divorce debt or costly credit decisions. Others are worried about being judged for what they have or don’t have. There are also those who have habits that leave little room for a partner in their finances.
However, regardless of how each person’s previous experience has shaped their money management style, it’s important that when we plan to build a future with someone, that we find a way to manage our money in a way that supports our combined future goals. Here are some things to consider as you chart your course:
Communication is key
Coming together later in life means it will take patience, compromise, and communication to figure out what works best for you. Whether you exchange rings or not, wedded bliss will be easier to achieve if you ensure that your financial union is as successful as your personal one.
Keep in mind that you’ll never agree on everything and there are parts of your finances that may need to remain separate for practical and/or legal reasons. However, a stable financial future will need an agreed upon household budget.
Start by setting aside time to talk about where your finances currently stand, your goals, and how each of you envisions managing your finances together. Also let the other person know about any arrangements you have with your previous spouse concerning alimony or cost-sharing for your kids.
How you managed your finances with your previous partners will likely come into the discussion. This can help you identify what worked, what didn’t, and what you’d like to do this time. While talking about past relationships can be painful, it will give each of you a deeper understanding of where your partner is coming from.
Find common ground
When combining your finances, there are three methods that tend to help couples manage their day-to-day spending. It is unrealistic to expect that assets or debt obtained during a previous committed relationship will be shared, but going forward a system of mine, yours, and ours is needed. Do what works best for you and start with what you can agree on. If you’re not on board with your partner’s spending habits — such as too much spending or saving — ensure that you choose a money management method that both of you understand.
Method one combines every aspect of your finances into one joint system. This can be difficult for those who have been managing just fine on their own since their last relationship ended.
The second method creates a shared middle ground and allows each person to maintain a certain degree of financial independence. An agreed upon household budget is the key to making this arrangement work. It allows each person to contribute a set amount of money to the operations of the joint household based on their level of income. This can, however, lead to resentment if one partner earns more than the other or has significantly more debt obligations that need to be resolved.
The third method is based on going Dutch. Each expense is shared 50-50 and your spending is cut down the middle. This method tends to work best for couples who don’t want to talk about money. However, how you’ll work toward joint goals needs to be discussed and planned carefully ahead of time.
Update your personal affairs
When you’re going through a major transition in life, it’s a great time to review your insurance policies, health care directives, will and estate plans, and update your beneficiaries.
If you’re dealing with a lot of debt, seek help to get that on track so that it doesn’t become the elephant in the room as you make plans with your new partner and create the lifestyle you want.
Keep some credit separate
One area of your finances where you should maintain some separation is with your credit rating and credit score. Each of you should have your own credit card in your name only as opposed to having a joint card where the other partner is the primary card holder. A credit rating is unique to each person which is why you need to take steps to establish and then maintain a good credit rating in your own name.
Seek professional advice
With laws in Canada regarding common law spouses, you may each want to seek legal advice before making any moves. A lawyer can advise you how to protect what you have and ensure your children will be looked after, as well as how to safeguard yourself should your partner make any detrimental financial or business decisions.
No one looks forward to discussions about pre-nuptial agreements, and they’ve received a bad rap over the years. However, rather than viewing them as preparation for the end of a relationship, choose to use them as way to ensure that everyone is informed about what to expect and that your children are looked after.
The bottom line on managing money with a partner
There is no one right or best way to manage money as a couple. Choosing an effective system that works for you can lead to a stronger relationship and avoid the pitfalls that money problems often lead to. Respectful communication, honesty, and working together toward common goals will make it easier to stay the course. Ultimately, it’s not about being right or winning over the other person; it’s about winning together as a couple.
Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email, check nomoredebts.org or call 1-888-527-8999.