Catherine Hyde, Paralegal.
You have heard the expression “Love is Blind”. This can be the case when couples suddenly discover that they have very different thoughts on how to manage their money. During the period when you were discovering each other and falling in love you may have turned a blind eye to your partner’s spending habits. Money, and how it is handled, often plays a primary role in the reason why couples divorce. Often when couples do divorce we find that one party clearly has no idea what the monthly costs are or what bank accounts or debts they have as the other party looked after these tasks.
What should you do to try to avoid this pitfall?
Firstly you need to agree to meet and discuss financial matters. This can be before you are even married, or decide to live together. Set a time to have a face to face meeting knowing that the agenda is to discuss money. Have snacks and drinks and make it a festive event not something you need to dread. Ensure that both parties realize that this is not going to be a shouting match, you simply want to lay out what assets you have, what debts you have and see what the other party has. Be truthful. Remember the other party loves you and will understand if some mistakes have been made. You want to determine if one of you tends to save their money while the other tends to spend it, and what affect that might have on your joint finances. Make ground rules as to how the discussion will go i.e. one party can speak for 2 minutes followed by the other party and you cannot interrupt or raise your voice. If matters get heated, then there needs to be a time out.
It is important for the two of you to determine what your style will be. Your way may not be the best way – there may be room for improvement. Start out with your income – what is your net monthly income i.e. your gross pay less deductions. Discuss how you are going to pay the joint bills i.e. the mortgage, utilities, any lines of credit etc. You could set up a joint account into which you both deposit your share of these costs. Keep in mind that if one of you earns significantly more than the other, than the appropriate share may not be 50/50 but rather a proportionate share based on income. Alternatively you may designate certain costs to be paid by one party. Also look at your other monthly bills for telephone, cell, internet, banking fees and determine if there are costs savings if you bundle your plans or utilize the same service provider.
Determine what debts each of you have to pay and how long it will take the pay the debt. Determine how many credit cards you really need. Are there other debts which need to be paid i.e. loan to parents and how will that be arranged. Decide how joint purchases can be made – i.e. can one of you buy something without consulting the other or is there a price limit to that. Should you be using cash or debit cards?
Now that you have determined the fixed costs and the debt repayment plan, you should consider a joint savings account to which you both deposit certain funds each month towards a common goal i.e. a trip, furniture, down payment on a house. Having a goal for the funds will ensure that you will save the money. Decide on a long term savings strategy such as RRSPs or Tax Free Savings Account.
Factor into your plan an amount that each of you will have to do with as you wish. Everyone needs some money to spend that they do not need to account for.
Draw up a monthly budget setting out the total income of both of you less all the fixed costs, the debt repayment, the savings plans, and the individual monies.
At the end of the month you should reconcile your account. It is usually best to assign this chore to one of you. This is not a lifetime assignment. Each of you should take turns perhaps rotating every couple of years, unless one of you truly enjoys it or the other simply is not good at it.
Keep the papers setting out your monthly and long term goals and your budget. Next year, at about the same time, arrange another “date night” to review where you are at and if you need to make some adjustments in your plan. Over time you will both feel that you had an equal hand in how your financial affairs have been handled. Remember your budget and goals will change as your circumstances change i.e. new baby, job changes, retirement etc.
There are many good books available or computer software programs that will assist you in your budgeting and goal setting. In addition, it is always useful to speak to your banker or financial planner to review your plan so that it can be tweaked if need be.
Communicating with each other is key. In learning how to discuss money, you are also learning how to communicate about other important matters in your life together and hopefully avoid the pitfalls leading to divorce.