Couples headed for the altar, focused on wedding or partnership planning, may sidestep a less romantic topic, yet one that could play a vital role in their future – money!
This is especially true of any debts that one or both partners bring to the union.
Debts can weigh heavily on a relationship so it’s important for couples to share the unvarnished truth about their finances and figure out exactly how they’ll handle debt, ideally before they walk down the aisle.
Given that money problems are considered a major contributor to divorce, couples may be able to avoid issues by having frank discussions about their spending and saving habits, debts and their emotions surrounding money.
“Short of pulling a credit bureau report on your soul mate, which is probably not practical and may upset some people, the best thing to do is to start talking about it early,” said Mike Kinane, Head of Consumer Deposits, Products and Payments at TD Bank.
The results of TD Bank’s sixth annual Love and Money survey of couples across the U.S. in 2020 underscores the importance of healthy financial approaches to relationships. Among the findings, some that stuck out include:
- 86% of couples said they discuss money at least once a month, with a third reporting that they argue about finances once a month.
- Those who talk about money more often appear to be happier. More than half of couples talk about money every week, with only 10% of them arguing about finances that often.
- Couples expressed regret over not discussing money early and often, with 18% identifying the lack of money talk as their biggest relationship financial mistake and 13% citing having delayed those conversations.
- More than half of divorced people surveyed said they had talked about money with their former spouses only once a month.
Romantic partners need to discuss the amount and type of debt – college loans versus consumer debt – how long it will take to pay off and who will be responsible for paying, Kinane said. If one or both carry credit card debt, interest rates should be part of the conversation too.
“Having those conversations early on is important,” Kinane continued. “When you’re starting to really commit to a relationship and you’re engaged, you’re sharing your entire life with somebody and your entire life includes your financial life.”
Honesty is crucial
As in other areas of strong relationships, honesty is crucial. Ten percent of those surveyed by TD admitted to keeping a financial secret, with hidden credit card debt topping the list at 42%, followed by a secret bank account at 18%.
This kind of deception can ruin a relationship. A quarter of millennials in TD’s Love and Money survey said they’d consider breaking up if their partners kept financial secrets from them.
Finding out about hidden debt could be akin to learning a partner has cheated. “I think it is very accurate to think about financial infidelity that way because it carries that amount of emotion,” Kinane said.
In talking over debt, engaged couples need to consider how the burden came to be, he said. Many people incur debt because of an emergency, Kinane noted. Other times, “they’re just not very good at controlling their spending habits."
Couples also should come up with a plan for how to pay it off, Kinane said, explaining that there are two sides to the conversation. The first: “How are we going to pay this down, what’s the plan to get there?” And the second: “How are we going to prevent this from happening again?”
Couples need to agree on how they’ll handle splurges and how they’ll make sure they can pay for rent, mortgage, gas and other necessities, he explained.
While the one with no debt may be tempted to wait for the debt-laden partner to clear the decks before the wedding, doing so could indefinitely delay the marriage, Kinane said. Having the conversation and developing a plan is important, not necessarily waiting on the partner to pay off the debt.
“Couples will have different arrangements, different ways they can solve the problem,” he said. One spouse might pay off his or her debt alone, the couple might comingle their funds, or the higher earner might offer to pay it.
“I think the important part of that is to have that agreement,” he said. “This can work as long as both individuals are in the know.”
Once married, couples should maintain transparency and cooperation about their finances, including debt, Kinane said. If they have a conversation and decide to jointly take on debt, he said, “then that couple is miles ahead of everybody else” who doesn’t talk about it.
But if someone takes on debt to buy a motorcycle or another expensive item without consulting a spouse, “that is indeed a problem,” he said.
The formula for financial success for a couple boils down to four steps, Kinane closed:
- Talk about it.
- Figure out a plan and agree to it.
- Execute on the plan.
- Keep talking about it.