Wednesday, January 15, 2014

Prenuptial Agreements (not that kind)

If you are a 43 year old multimillionaire contemplating a third marriage to a 23 year old Las Vegas showgirl, you might want to talk to your attorneys about a prenuptial agreement. If you are a normal young couple contemplating your first or even your second marriage, you might want to consider a different kind of prenuptial agreement.

First of all take an honest look at each other and at your prospective in-laws. Does your intended shop for her clothing at Le Cher Boutique in the mall with valet parking or does she do her shopping at Target? Guess where she will want to shop with “our” money after the marriage? Is he an impulse buyer? Did he just take out a 60 month loan on a new pickup truck? Guess who will be paying that note in a few months? If he paid cash for 87 Pontiac that makes funny noises so he could pay down his student loans before tying the knot that tells an entirely different story.

If there was one generally unknown truth I would like to share with young people, this is it. You are not just marrying one person, you are marrying a family. Even if your in-laws are not physically present, they are there writing checks and using your credit card. Parental and family expectations are powerful driving forces behind human behavior. I didn’t see one set of my cousins from childhood until we were around 40 years old. It was eerie. Our set of operational presuppositions was almost identical. When it came to career, financial, and family values it was easy to see we were formed by pretty similar tooling.

I know. He’s different. He will not make the mistakes his parents made. Don’t bet on it. Go into marriage with your eyes wide open. Do not expect that you can marry one person and turn him into a totally different person. It rarely happens that way. Don’t think your intended can totally erase 20 some years of psychological programming that started in his mother’s arms. You are marrying the person and his family. Pretty scary thought, isn’t it?

There is hope but it isn’t very romantic. When you say, “I do,” you are making a decision that has serious financial implications. If you study Consumer Reports total cost of ownership and frequency of maintenance data, if you read test reports from Road and Track magazine, if you research fair price numbers before buying a new car, why would you do any less before making the most important decision of your life?

Before you tie the knot, count the cost. I know that is not what your hormones are telling you, but take some time to discuss these issues before your wedding day. Learn to communicate about money before you get married. It has been recommended that both bride and groom order a credit report complete with their score, then sit down at the table and examine each other’s financial history. In this conversation, bride and groom should also list all their debts including car payments, credit card debt, and student loans. I hate to be the bearer of bad news, but in most states you are not only marrying each other, but you are marrying each other’s debt.

I believe this is more important today than it was when I got married over 35 years ago. I like to tell people my wife married me for my money. I owned a 67 Chevrolet. It might have been worth $450. I also had $900 in the bank. I did not have any debts, no credit history, and I did not even know that such a thing as a credit score existed. Today, the average age for a first marriage is pushing 28. That is long enough to develop a credit history. Six years for a college graduate or ten years for a high school graduate is sufficient time to develop some bad habits and rack up some significant debt.

In marriage, as in the beginning of any business venture, the partners need to determine their assets, liabilities, and goals. Discuss where you want to be in 10, 20, or even 40 years. Do you want to start a family? That will cost you about $250,000 per child if you wish to raise them as traditional middle class Americans. Do you want to retire sometime before you die? Better start soon. Laura Rowley even suggests discussing hypothetical questions, like what would you like to do with an unexpected $10,000 inheritance?

Make your own prenuptial agreement. It doesn’t need to be in writing but that might be even better. Write down the basic ground rules for the use of money in your marriage. I would strongly encourage newlyweds to live on a formal budget at least until you both have some confidence in each other’s abilities to manage money. Agree that neither of you will use a Credit Card unless you can pay it off every month. If you fail to pay it off, even one time, lock it up and don’t use it again until it is paid off in full.

Prioritize your goals.

I would suggest that you agree to pay off your debts as rapidly as possible. Pay off the debt with the highest interest rate first and the debt with the lowest interest rate last. Or if you prefer the psychologically sound debt snowball, pay off the smallest debt first.

Start a “rainy day” fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month.

Don’t forget to give something to God without expectation of return. It is good for your heart.

Once you have addressed the basics, consider your dreams. Dream together. Dream big.

Psalm 128

1 Blessed is every one that feareth the LORD; that walketh in his ways.
2 For thou shalt eat the labour of thine hands: happy shalt thou be, and it shall be well with thee.
3 Thy wife shall be as a fruitful vine by the sides of thine house: thy children like olive plants round about thy table.
4 Behold, that thus shall the man be blessed that feareth the LORD.
5 The LORD shall bless thee out of Zion: and thou shalt see the good of Jerusalem all the days of thy life.
6 Yea, thou shalt see thy children's children, and peace upon Israel.

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