Remarriage Finances: Planning For A Family Merger--Not A Hostile Takeover
Part 6--Getting Started As A Remarriage Couple:
Planning Your Financial Future Together
By: Joseph Warren Kniskern, Esq.
In this article of our continuing series on financial issues, we begin where most couples considering remarriage begin--the "getting to know you" and financial planning stage of entering into a lifelong partnership. Then we will see how different and unique remarriage issues often change our goals and plans.
As a remarriage candidate, you need to focus on questions highlighting how you and your spouse can best merge your financial lives together: How do you feel about your monthly overhead? Have you discussed what percentage of your total income you want to tithe to the Lord, and how much you would like to save as a couple? When do you want to buy a house, and how much should you spend? Are you going to have more children? If so, will one spouse quit work to stay at home with them? How will you save for retirement? What are you willing to sacrifice to reach your goals? Whether your financial situation is simple or complex, it is very important to discuss these matters well in advance of the wedding. The penalty for failing to do so can be very severe.
Be prepared to recognize any "red flags" as you share and compare responses with your beloved. If he or she feels that family finances are exclusively his or her domain, or if there's any deception about finances, then remarriage may not be appropriate. Ignoring warning signs and disregarding unresolved differences, while plunging ahead into a remarriage, is a recipe for disaster. You risk heading into divorce.
If you and your beloved do share some common perspectives, how can you fine tune matters to build a smooth entry into remarriage? Here are a few suggestions:
Be Sure You Know Your Partner's Financial Habits BEFORE Remarriage. The New England proverb is true: "If you want to know what a man is really like, take notice how he acts when he loses money." It is also true that if you want to really know a person's priorities in life, take a look at his or her checkbook. What is your beloved's attitude about money? Is he a saver or a spender? Does she live within her means by spending less than her income? Does he know the difference between "good debts", like a home mortgage that allows you to build up some assets, and "bad debt", such as credit card bills with high interest payments? Does she understand how to hold onto "cheap money", such as using home mortgage proceeds to fund retirement accounts rather than expensive lines of credit, and how to maximize "free money", such as matching funds by employers for each personal contribution to a 401(k) plan (which also saves on taxes)? Does he responsibly balance today's desires against future needs by making small sacrifices now as part of building up savings for future spending? Try to view financial matters through the eyes of your beloved. What do you see?
Don't assume things about your prospective spouse. Appearances can be deceiving! This brings to mind the story of the young wife who found her husband at their baby's crib with a mixture of emotions spreading over his face. She slipped her arms around him. "A penny for your thoughts," she said, her eyes glistening. "For the life of me," he replied, "I can't see how anybody can make a crib like this for $84.97." Make sure you know and understand your beloved's perspective and values!
Ask Lots Of Questions Before (and After) Remarriage. How important to your happiness is having money? What role did money have in your childhood? What are your parents' attitudes toward money? What are your attitudes toward earning and using money? Do you worry about money? How good are you at managing money? How good are you at keeping your checkbook properly logged with a current running balance? What do you think about setting up, and keeping, a budget? Who do you think should manage the household budget? How do you think we should set up our joint and any separate personal accounts? How much spending money will each of us have in the remarriage? As a couple, what do you think we will be spending money on in the immediate future after we marry? What is the most important thing to save for long-term--a car, house, college education for the children, retirement or something else? How comfortable are you with risk in savings and investment accounts? These are a few of the many relevant questions a couple considering remarriage should consider.
You might also have some fun in discovering new things about each other. For example, imagine that each of you received $25,000. Assume that you must spend it all in 10 days. How would you do it? You and your beloved can each make a written list of priorities and expenditures and then share it with each other. This can be very enlightening!
Premarital financial planning also means asking yourself many hard questions beginning with the phrase, "What do I do if...". No matter how much you think a circumstance is not going to happen to you, it is important that you minimize the element of surprise and misunderstanding by planning ahead.
Know The Facts. Honest and complete premarital disclosure of assets and debts between remarriage partners is critical, so there are no surprises after the wedding. For example, one spouse may have several credit card accounts which are delinquent. These should be disclosed. One good way to foster trust and cooperation in this area may be for both spouses to order a copy of their own credit reports (you cannot order someone else's report without their permission) and then look at the documents together as part of planning for the future. You certainly do not want an undisclosed bad credit problem to come up for the first time when the couple applies for a home loan and gets turned down!
Financial Values and Goals. Remember that important first step? Pray first! Then talk about your vision of life together and brainstorm about how you want to earn a living. Discuss where you want to live. Share about what you want your day-to-day life to be like. Put all of the money issues on the table for discussion. Then begin reviewing each one--one-by-one--by focusing on your shared values. Decide what is most important to both of you, given that there may be some disparity in what is important and how you will spend your money.
Use the "Five Values/Five Years" Plan. Write down the five highest priorities both of you can agree upon and want to incorporate into the first five years of your remarriage. Security? Spirituality? Freedom? Family? How do these values interface with each other? Then write down a brief statement of explanation regarding why those values are most important to you. Include the desires of each child you are bringing into the remarriage. Promise yourselves that you will review these shared values on each anniversary of your remarriage, so you will not lose perspective on how you began life together. Remember, these values are the highest priorities. Do you feel God's approval and direction? Don't shortchange their importance by inordinately cutting the funding to make these values a living reality in your remarriage.
Next focus on specific goals, geared to each one of your five priority values. Prior to any marriage, each prospective spouse has individual goals for career, budget management and savings and investment philosophies. In a remarriage, a couple also should have team goals. Are you on the same page about how to use your individual and joint incomes and expenses? How about dealing with debt? Is one partner comfortable with leveraging investments with debt, while the other considers interest payments a waste of money? What about saving for retirement? Shouldn't that be a priority, even over saving for a child's college education, to ensure that you will not be a financial burden to your child as you advance in age? Discussing financial topics like these are vital in finding out what your individual and shared team goals are, and how to maintain your individual goals within your new team goals. Work toward unity of agreement, as God leads you both.
Prepare A Budget. Gloria Steinem was right about one thing: "Rich people plan for three generations. Poor people plan for Saturday night." It is not enough to spend time thinking about values and goals unless you use them by preparing an annual budget of income and expenses, focusing on how to make those goals a reality.
For each goal, you and your partner may want to use a cost vs. benefit analysis. Is the cost of achieving a particular goal worth the benefit received? Can the cost be reduced, while the benefit increased? Instead of having family dinners at the most expensive place in town, let's find a chain restaurant the whole family enjoys. Let this be a catalyst for your and your mate to mutually resolve budget cutbacks, which reduce wasting money on inconsequential things. Let's subscribe to the magazines we like rather than pay the higher newsstand price each month. Let's commit to returning videos on time so we don't get hit with late fees. Better yet, let's check out videos for free from the library! It is a rare couple indeed who has more money than they know how to spend. For most of us, implementing each goal by budgeting for it is a necessity. It becomes even more important to monitor spending with a tight cash flow in a household. Even more importantly, the Lord blesses those who manage limited resources well with more responsibilities later on. (Matt. 25:14-30)
Based upon our separate living expenses and income as single adults, Cheryl and I worked up a detailed joint budget for our life together months before we married. Not only was it an eye-opening and very constructive experience for us, it also helped us explore our values and goals in a much deeper way than if we had ignored this task until after we married. Additionally, premarital budgeting provided us with a financial blueprint for planning and preparing for our life together. When we married, we hit the ground running!
Having a budget is very important, but being sure to balance your budget is critical! As Senator Phil Gramm once noted in talking about our national budget, "Balancing the budget is like going to heaven. Everybody wants to do it. They just don't want to do what you have to do to make the trip." If you find your annual expenses exceeding your annual income, it is not difficult to see that your budget may not be workable or wise. Arthur Langer once noted, "A family budget is a process of checks and balances; the checks wipe out the balances." If that looks like the way your budget is going to operate, it is time to reassess everything in it. As the old saying goes, "When your outgo exceeds your income, then your upkeep will become your downfall." Therefore an unbalanced budget is a "red flag" that you must find ways to increase your income, or more probably decrease your expenses by scaling down your lifestyle. Calvin Coolidge said it well: "There is no dignity quite so impressive, and no independence quite so important, as living within your means."
Charitable Giving Plans. Remarried couples need to review and discuss personal charitable giving goals and preferred charities. One spouse religiously gives ten percent of his or her gross income to charities--nothing more, and nothing less--while the other spouse prefers only giving from his or her net income, but at a 20% rate. One spouse gives primarily to a home church, while the other partner loves spreading donations around to many charities and parachurch organizations--some of which are objectionable to the other mate. If there is enough disparity in guidelines for giving, there will be great conflict in the remarriage unless the couple learns to compromise and agree on a joint plan of charitable giving.
But whatever charitable giving plan you and your partner decide upon, don't forget the importance of generously supporting the Lord's work. It is He who gives the increase! (Mal. 3:6-12) As Jesus tells us, "Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you." (Lk. 6:38) Remember, it is not so much what we give to the Lord, but what we have left that really is the measure. Are you being sacrificial in your giving? It is foolish to cut corners on the One who blesses us with everything we have. Jim Elliot's modern proverb says it straight: "One is a fool not to give what one cannot keep in order to gain what one cannot lose." Everything we possess will be left behind when our lives are over. Eventually it will all burn. That is why it is so important to always give God what's right...not what's left.
Discuss How Financial Decisions Will Be Made. Remember, keep it a team effort! Always make significant money decisions together. This means talking matters through and brainstorming with each other over options and alternatives. When a financial problem persists, who will you turn to for wise and prudent advice? How will you work through deadlocks and disagreements? Using the team approach means discussing these issues first in order to achieve unity and the Lord's blessing.
Discuss What's Fair. For example, the spouse having Personal Assets probably should bear the expense associated with those items, while the costs arising from ownership of Joint Marital Assets is a joint expense. But how the specific financial decisions are made are not as important as both spouses mutually agreeing on a general philosophy of handling money.
Preliminarily Decide Who Will Be The "Accountant" In Achieving Each Goal In Your Remarriage. Perhaps it is my legal background or love for managing details, but paying bills and imputing financial data into the computer, which helps us track our income and expenses, is one way I love to serve our family. I like to make sure our bills are paid on time, and that our checkbook balances. Cheryl is a wonderful cook (all I can cook are peanut butter sandwiches!). She enjoys having complete discretion over buying groceries, deciding the family menus, and surprising us with wonderful meals. But we monitor bills, and write checks, using different styles. She makes quick work of completing this task in her personal accounts, using an occasional running balance in her personal checkbook. So we divide up our chores according to our strengths, keeping in mind how we can best achieve our family team goals.
Preliminarily Agree On Number And Use Of Checkbooks. Some couples find it easier to simplify household bookkeeping by using one joint checkbook instead of having separate accounts. In fact, some couples believe this unites a couple since sharing one checkbook is an extension of the intimate nature of their "one-flesh" relationship. Others find a common checkbook creates problems, when one spouse has the checks at a time when the other needs to pay a bill immediately. If a responsible spouse diligently posts each check and maintains an accurate running balance, frustration and anger can arise in a flash if the other spouse forgets to log a check and the account is overdrawn. Also, there is a tendency for bill payments, account reconciliations and other matters to get overlooked.
Many couples find that the best way to avoid problems with the use of joint checkbooks is to have one spouse assume the responsibility for being the family bursar. He or she is the one who tracks money in and out of the account and has primary signing privileges over the account, but with open access and accountability to the family while doing so.
Other couples—especially remarried partners—may prefer to have separate checking accounts. This usually requires a decision about how family expenses are to be divided. Many believe it is vitally important that each spouse preserve a personal financial identity for privacy reasons—not secrecy. This means that, whether the couple has a joint account or not, each spouse needs to have his or her own money and personal credit card privileges, regardless of who is employed. But separate accounts also tend to create and preserve separateness between remarriage partners—a hurdle the couple may want to minimize over time, not enhance. Also, separate accounts may not be wise for spouses who do not manage money well, or tend to overspend, since this can create a financial crisis before the couple knows enough in time to prevent it.
I believe you can have the best of all worlds by having one joint checking account receiving all marital income, with disbursements made from that account to the spouse's separate accounts for personal spending money. Ralph, a recently remarried evangelist in California, agrees: "Mary and I have separate checking and credit card accounts. There's just too much administrative hassle otherwise. We each contribute monthly to a joint checking account to pay our family bills." Of course, you may want to handle payment of your blending family's bills in a different manner. That's OK. The most important point is that you agree with each other as to how to do it, and then act as a united team in putting your plans into practice. If one method doesn't work, simply try something else.
Discuss General Spending Procedures and Limits. What about spending limits in using joint income? How much is each partner free to spend without the prior approval of the other partner? Some couples agree that no spending decision above $50 or $100 will be made without prior joint approval, except in the case of emergencies. Alternatively, the couple can prepare a detailed budget and, for each line item in the budget, allocate funds to a particular spouse while pre-authorizing that person to spend up to, but not exceed, the budgeted allocation in any particular month.
For other couples, agreeing upon specific spending rules and sticking to them month-to-month may seem legalistic and prove to be too much busywork. For these individuals, spending rules may become a continuing headache. They may prefer more general spending guidelines. But the most important goal here is that both remarriage partners know what the spending rules are and mutually agree to honor them as a team. This builds trust!
Budget For Housing Expense. Buying a residence is one of the biggest investments most couples make in their lifetime. Given this major expense, all costs of acquiring and maintaining the residence need careful evaluation and planning. Would it be better to rent rather than to buy? What type of mortgage will we need? Can we afford the monthly payments? This is a critical financial decision for a couple to review and discuss.
Also consider how much housing you can afford after you remarry. Two ratios that mortgage lenders commonly utilize in reviewing home mortgage loan applications are: (1) the housing expense ratio, and (2) the debt payment ratio. The housing expense ratio compares your total monthly housing expenses (mortgage payment plus real estate taxes and insurance) to your gross monthly income before income taxes are deducted. The rule-of-thumb used by lenders is that your housing expense should not be more than 28% of your family's gross income. The debt payment ratio compares your total monthly payments on all debts (including a home mortgage) to your gross monthly income before income taxes are deducted. Lenders believe that percentage should not exceed 36% of your family's gross income. Of course, these are only guidelines to help determine whether your dream home is within reach. But the housing issues definitely need to be mutually discussed between remarriage partners—preferably before the wedding.
Many of the foregoing issues are matters which most married couples face. But remarriages are different. That is why we need to focus on some unique aspects of financial planning for real life as a remarried couple with a blending family in our next two articles of this series.
Next: Special Financial Issues For Couples To Consider Before Remarriage.
Joseph Warren Kniskern is a Christian attorney, mediator, and author of "When The Vow Breaks: A Survival and Recovery Guide For Christians Facing Divorce," and "Making A NEW Vow: A Christian Guide To Remarriage And Blending Families," both available from Broadman & Holman Publishers, Inc. in Nashville, Tennessee.