So you’re in a committed relationship. You’ve done most of the negotiations: who moves in with whom, which dinner plates to use and which holdover poster from college days absolutely has to go. But there’s one question left: How do you handle the debt one person brings to the relationship?
Money is one of the most common stressors in a relationship, and couples that fight regularly about their finances are 30 percent more likely to divorce, according to the study, Examining the Relationship Between Financial Issues and Divorce, published in Family Relations, 2012. As scary as those statistics are, honesty and planning ahead can help alleviate the stress of sharing a budget. Here are six tips to help start the conversation, work out a plan and become a debt-free couple.
1. Be upfront, early on. While having the money talk can be stressful, a realistic expectation of each other’s finances is crucial. Sit down together and talk about everything you don't want to: income, outstanding loans and whether you’re able to make progress toward paying down your debt.
The talk is the easy part. Afterward, you’ll have to make a budget. If you’re planning on sharing a balance sheet, you’ll each have to factor in your own debt payments when you’re deciding where to live, how often you go out to dinner and where you can go on vacation. Before planning for the future, get everything in order today.
2. Learn the law. You aren’t responsible for debts incurred before marriage, but there are some cases where you’re liable for your partner’s balances. As a rule of thumb, if your name is on the form, you’re liable. For example, if you co-sign any loans with your partner, you’re fully on the hook, whether or not you’re married. If you co-signed a loan, split the money down the middle, but realized your partner can only repay 25 percent, you still have to pay back the remaining 75 percent.
Marriage only complicates the issue. Though you’re almost never liable for debts your partner incurred before marriage, in communal property states, you might be liable for anything racked up afterward. Know where the law stands, and consult with a financial advisor to make sure you’re fully prepared.
3. Have yours, mine and ours finances. While every couple believes they’re the exception, it never hurts to prepare for the possibility that you’ll need to separate your finances. While you can help out an indebted partner by supporting him or her financially, you might not have to assume the debt in your own name to do so. Typically, it’s also a good idea to have separate bank accounts as well as joint ones, just in case.
4. Factor debt into your plans. When you’re planning for the future, don’t forget to include debt payoff. A heavy debt load can affect your ability to get a mortgage, where you can afford to live and even how you’ll pay for your kids’ college. Be realistic when you’re setting expectations for your life going forward.
5. Lower the amount you’ll pay on your debts. This sounds like a no-brainer, but an important step in debt payoff is to take measures to reduce the amount you’ll actually pay. This can include everything from doing a balance transfer for credit card debt, refinancing your mortgage and looking into student loan consolidation. Keep in mind, though, that some of these options can cost more than they save. A lower mortgage rate may come at the price of fees and higher property taxes. Similarly, debt consolidation is a good option for some, but it’s definitely not one size fits all.
6. Remember you’re in it together. Finally, don’t let the talk of money come between you. No matter how you plan to pay, no matter how much debt you have, you’re still together. If your partner’s finances aren’t necessarily in shape, be supportive and kind. If you’re the one bringing the debt, remember you still have much to contribute to the relationship. With some planning and focus, you can weather the debt storm.
Anisha Sekar writes for NerdWallet, a personal finance website dedicated to helping consumers.