The must-have money conversation before ‘I do’
Did you know that more than half of marriage proposals happen on Valentine’s day?
Yes, it’s true. And did you know that financial issues can contribute to the breakdown of a relationship?
So, if you’re thinking about popping the big question this Valentine’s day, give your relationship the best chance of success by having an open discussion with your partner about your finances.
“When you get married it is not just your hearts that become one but also your money. Even where ‘his is his’ and ‘hers is hers’, when you start to build a family, there is an inevitable merging of finances that you need to be prepared for,” says Faeeza Khan – Legal Marketing Specialist at Liberty.
These are some of the topics that you and your partner need to discuss before marriage:
Have an honest discussion about your debt
Debt is one of the biggest financial challenges couples need to deal with. It could be worse for new couples planning to commit to a long-term relationship if one person brings in a lot of debt into the relationship, which the other partner may need to help settle before they start building their wealth.
Debt situation could be a legal problem for both if you marry in community of property.
“In community of property is the default marriage contract in South Africa and under this regime, both spouses will be jointly liable for any debt. So before you get married, you may need to settle your debt or consider which marital regime will best suit you and your partner,” says Khan.
Discuss how household finances will be managed
On a practical, day-to-day level, you need to figure out how you are going to pay for all those joint expenses – should you have a joint bank account or each contribute to expenses individually?
If you decide to run your finances separately, then you need to have an agreement as part of your monthly budget as to who covers which expenses. For example, one spouse could pay the mortgage/rent and household insurance while the other pays for groceries and utility bills. This arrangement only really works if you have worked out a proper budget.
Khan adds: “It is not uncommon to hear arguments between spouses about their expensive food or drink tastes, as such, in order to successfully manage your household finances, you need to know realistically what your expenses are each month and what you expect to pay for electricity and water and apportion these expenses fairly among yourselves.”
If you decide to have a joint account to manage your household expenses, you then need to look into the pros and cons and implications of this on each of you as joint account holders.
What personal and financial risks do we need to cover in our marriage?
As soon as you say, “I do”, your lifestyle and responsibilities change. Your spouse becomes your responsibility both personally and financially. It also means that the risks you faced as a single person will change significantly. If something happens to you, your spouse will be left to deal with the financial risks. So make sure that from day one you have a Last Will and Testament in place that clearly outlines what must happen to your money in the event of your death or disability. Speak to a financial adviser to implement the right risk cover that will replace your income and cover the financial needs of your family if tragedy strikes.
How will you build wealth together?
The start of a marriage is a good time to meet with a financial adviser to discuss your retirement plans and to make sure your risks are covered. “Oftentimes we don’t think about what would happen if one spouse is saving money for retirement but the other is not. And if a spouse takes time off work or takes a salary cut to care for the children, how will his or her retirement funds and investments be affected by this? You need to have these discussions right at the beginning of your engagement to make sure you are on the same page and to give your marriage the best chance of success,” concludes Khan.