Unraveling Remarriage and Money
Adapted for Flying Solo
by Marjorie Engel, © 1994
"How can we unravel the complicated web of yours, mine, and ours regarding money and still remain a sharing couple?"
Money. How to deal with it, how to allocate it, and what to do when there's not enough of it. Money management continues to be one of the major problems confronting couples during the initial stages of remarriage. Newly married couples aren't familiar with each other's money habits. One or both adults may not be totally in control of their resources. The state of the economy is one reason - there may be large discrepancies between incoming and outgoing funds. A large factor for divorced individuals is spousal and child support which may or may not arrive on time (or at all) and is almost always subject to court revision. For these families, financial security is a serious business.
REMARRIAGE AND MONEY
Because stepfamily financial responsibilities are complex, couples may need certain financial and legal services - a strategy for uncertain times. The worst time to deal with issues is during a major crisis. It's best not to count on miracles. That's why couples create a method for evaluating their financial situation and developing a plan of action. It helps to share views about how the money ought to be spent and on the process to be used in making decisions instead of being adrift with no real plan in mind.
Married people have to make joint decisions about the "best financial alternatives" - and they're not necessarily the same decisions they would make if they were still single. Even when married people are financial equals, every choice affects both spouses. For example, working overtime to pay for a vacation affects the amount of time available to be with both spouse and children in the interim. The individual may feel this is a necessary evil; the spouse may feel that it is not a worthwhile quality-of-life trade-off.
In a recent study of remarried couples, more than two-thirds indicated that financial matters were handled differently in this new marriage than in their previous marriage. Fifty percent of the couples indicated that they share decision-making equally, and 25 percent said they used "separate pots." These same couples indicated that the wives played a greater role in handling financial issues in remarriage and were just as knowledgeable about financial matters as their husbands.
There are good reasons why financial responsibility is shared in stepfamilies:
(A lifestyle is determined by spending decisions so both partners should have a voice in making decisions.)
(Sharing makes for better decisions and actions.)
(People who share in decisions have a reason for making them work.)
(The disability or death of a spouse is potentially more devastating than divorce.)
Sort Out Money Matters Head On
Money does not have a neutral connotation. Financial conflict and crises reveal hidden rules of family life. That's why people have so much trouble with money; it threatens to uncover what families go to so much trouble to hide.
Money problems can be a magnet for hidden power issues in a relationship. A husband may not be thrilled by his new wife's involvement in family financial affairs. A working woman who becomes a working wife may resent her loss of financial independence. As John described his situation, "I wasn't used to discussing financial matters with my first wife. I always made the decisions. This relationship meant that I had to learn a whole new process."
Reluctance to dealing with the long "F" word (Finances) is likely to lead to complications in the future. Counting and measuring are a part of any relationship, acknowledged or not. Even without specific rules about family money, everyone has expectations. When these expectations are disappointed, people's reactions range from merely unhappy to devastated.
This disappointment leads directly to the ethics of how we think about and spend money. As one new wife put it, "Lifestyle negotiations can be a real eye opener." Fights about money management are usually hardest on couples early in the marriage when they are trying to protect their personal sense of financial order and safety. Ignoring the powers of money does not make them vanish. This is the time of coming to terms with each other's spending habits, tinkering around with those differences, and finding ways to integrate financial values and money styles - with the added leverage of trust.
The ways that people manage money help them achieve the things that are important to them. These things are typically equality, independence, and the pleasures of both separate and joint interests. These are everyday issues so, clearly, couples must deal with the day-to-day management of their finances. Decisions for existing and future funds are to be made about:
When money is separate:
what money is to be separate (checking/savings/brokerage accounts)
how much will each partner contribute to the household
When money is shared:
what money, if any, is to be personal,
what money is to be shared,
what expense categories are most important
will yearly expense plans be created
how closely will they be followed
who will manage the books,
how will they be kept
how often: weekly or monthly
how much discussion is appropriate (and whose opinion prevails) when purchases are
Whether money is kept separate or shared:
how will financial emergencies and unexpected expenses be handled
when will credit be used
arrangements for financial assistance to each other's children/grandchildren
contributions to each other's businesses endeavors of continued schooling
Instead of shooting from the lip, it's helpful to devise new money strategies based on your and your spouse's new needs. Because of previous life experiences, stepfamily couples are typically less stuck in the "traditional" methods of money management and more ready to search for creative solutions to new challenges. This is an advantage when remarried couples are financially connected to such a variety of people and needs. Couples in stepfamilies tell me, "It doesn't matter what your agreement is as long as both of your needs are met."
Talk out all of the options, not just the ones you feel adamant about. During this discussion, consider how you will treat each other if the choices prove wrong. Once the hearth of your new financial system has been laid, schedule regular review periods of your temporary solutions for permanent problems. Ask yourself, "Is it broker? Should we fix it?" Something is always working and something is always failing. Keep the choices that are working well and replace the duds with new options. The process may take months or even years before the money "balances." Discussing options is the first step. The second step is setting goals. It's an ongoing process that requires compromise and renegotiating.
"Give it a month or two and we'll have the bugs worked out."
Stepfamily incomes are often lower and spread over more people than in intact families. According to demographer, Paul Glick, forty-five percent of intact families have household incomes of $50,000 or more, compared with 37% of stepfamilies.
In talking with couples, it appears that amounts of income do not, in themselves, determine their uses or control. The allocation of household money almost always depends upon subtle understandings about relationships among household members. Through numerous studies, it is widely accepted that the amount of money available to a couple does have a bearing on their happiness and the amount of conflict they experience. However, the amount of money is not the only important issue. Couples who fight about money argue more often about how it is to be spent than about how much they have!
Throughout history, husbands and wives have struggled over how to define, allocate, and regulate their money. Couples may duke it out for years over what should money buy, when, and how often? A couple has to define their perception of fairness when it comes to the extended family. Is it equality? Is it each according to need? Is it yours is yours; mine is mine? Is it determined on a case-by-case basis?
What happens when one spouse is a spender and the other a saver? The instant family is not always prepared to cope with this brouhaha. One spouse will spend "too much" on his or her favorite activity or hobby. The gourmet-grocery bill will be excessive to the macaroni-and-cheese-loving spouse. A child's coveted designer clothes will always cost more than the new budget permits. Some people confine their exercise to running up bills. Jane Austin made the point, "One half of the world cannot understand the pleasures of the other."
One way of creating realistic spending is to keep tabs of where money comes from and where money goes for a period of several months. Use the FORM-ula for Expenses to track this information. This chart will give a true picture of your financial state rather than snippets of fact. Reality is a necessary condition for exercising choice. When you know the basics are being covered, it's easier to be good-natured and give each other freedom to buy what you want, within reason, and without criticizing each other. One of the essential elements of any healthy financial plan is periodic celebration of it's achievements.
It's easier to be successful in money management when we face up to the fact that love involves conditional exchanges and bargaining. People who drive unreasonable financial bargains create a dark victory. They are inadvertently encouraging their partners to go through their pockets and snoop through drawers of financial papers. The "deprived" spouse is also likely to secretly cut corners in order to accumulate "small change" personal spending money in a hidden jar or bank account and, perhaps, charge an "I deserve it" item while knowing that next month's bill will trigger a full-blown argument. Not a happy set-up.
Most of us could profit by doing good-humored bargaining about family money. Adults can learn from children who are always making deals or trades with one another. Husbands and wives can learn to say, "I'll give you this if you'll give me that." And, for the inevitable financial "Oops," the bargaining might be, "I'll forgive you for this if you'll forgive me for that."
It is hard to put together the perfect money management package. Money will continue to be a major issue for couples because trust, commitment, and the guarantee of permanence are the real issues. It's only natural for people to keep their money separate because we grow up with a strong sense of what belongs to us. On the other hand, as we grow up, we're taught to share and leave total selfishness behind.
Separate accounts, joint accounts, a "his"/"hers"/"ours" accounts system. There's no right or wrong way to handle the finances in a remarriage. The comfortable balance will change with the amount of money available, the length of the marriage, and evolving needs. Your initial money management system needs to be flexible, not carved in stone.
COUPLE TALK ABOUT MONEY MANAGEMENT
Pooled money or separate money? Some couples cannot fathom pooling and other couples can't imagine not doing it. Each side is convinced they have found the secret strategy to a happy financial relationship. And, it seems that both sides may be right. Informal studies show that couples who favor pooling are no more or less satisfied with their money management that those who keep money separate. In either case, the legal realities of marriage are binding enough that pooling is not necessary to make the couple financially linked and interdependent.
In traditional marriages, it is assumed that couples will share almost everything - even if one or both partners is not really willing to do this. These couples allow themselves to be trapped by the so-called rules of marriage. I have found that most remarried couples have a combination of three bank accounts - one joint and two separate.
Even when couples individually own property or objects, the three account system evolves because it is hard to remain in a marriage where nothing important is owned in common. In the beginning, basic household expenses benefit each partner. As time goes by, the more likely it is that a couple will incur shared ownership/debts for additional household furniture and substantial items such as an automobile and primary residence or vacation home.
Many individuals told me it was embarrassing for them to initiate a discussion about ways of keeping finances separate. The feeling of need for separate money seemed to evolve from circumstance as much as temperament. When couples desire separate finances, they are acknowledging that they have separate or different interests and that they want to make certain choices without asking the other's permission. They see it as a condition for being able to act as an adult.
This effort to "avoid potential hassles," even though they love each other deeply, prompts many couples to keep their money as separate as possible.
"It's a protective thing for both of us. I don't want to get hassled the way I did in my first marriage and neither does he."
"We've limited our financial expectations of each other. Therefore, we've limited the potential for resentment."
"If she wants to spend money or not spend it or pay a bill, or not pay it, she doesn't consult me. Same on my part. I learned from my first marriage to keep money separate."
Keeping money separate is associated with reducing the level of conflict over money.
"Avoiding dependency" was another frequent reason given for separate money. Divorce laws have sent a clear and realistic message to women that dependency is not rewarded and will not be rewarded. With a current 50% divorce rate, cold and hard laws are beginning to foster independence in women and men who are committed to each other. Even though many stepfamily couples have not negotiated a formal marriage contract, they have often deliberately arranged their finances to preserve individual autonomy in routine money matters.
While both partners may agree that individual financial autonomy must be primary in their marriage, they may differ on how far to carry the principle. Married couples appear more like squabbling college students when they shop separately for groceries, identify each purchase with color-coded labels, and refuse to share when the other runs out of juice or milk. When "separate accounts" reaches this extreme, couples could use counseling to free themselves of such a system.
On a more practical level, many couples maintain separate savings and checking accounts. From their separate funds, each pays for personal expenses, his/her children, and (precisely?) half the costs of running the house and caring for the "our" children. For example, when the phone bill comes, they each pay for their own long distance calls and split the basic monthly fee and taxes. In notebooks or on sheets of paper taped to the refrigerator, each spouse records all the money spent individually on items that they have agreed are common expense items such as groceries, gas and car repairs, and even costs for birth control.
Even this degree of keeping money separate does not avoid quibbles over spending habits and differing values. One spouse may prefer buying name brand grocery items when less could be paid for generic brands. One spouse may donate significant sums of money to political or social causes that could require a dependence on the saving and investing spouse's funds in an emergency. But even if they quibble over shopping habits, keeping money separate does minimize larger conflicts. Each spouse feels free to indulge their individual special interests ranging from hobbies and adding to collections to expensive hair cuts.
A"separate economy" system tends to fall apart in a financial crisis. There are two particularly decisive moments. First, a can't-turn-down career opportunity for one partner may dramatically alter the job options/income for the other partner when relocation is necessary. Second, a corporate down-sizing can mean those pink slip blues and the loss of a job that makes it impossible to maintain the chit-list system. Out of necessity, couples find themselves financially merged until the crisis is resolved. At that point, they reinstate the "separate accounts" or develop a new variation of money management.
When each remarried parent pays for herself or himself and her/his children's expenses, this tends to create two separate families living under the same roof. This system becomes increasingly unworkable when there is a large difference in personal assets and income. At this point, couples typically begin discussions of financial contributions by relative percentages.
CONTRIBUTIONS BY PERCENTAGES - A DELICATE BALANCE
Couples in remarriages, who favor separate accounts, often begin their financial union by believing strongly in each partner's contributing his or her equal share. The irony is that while this is perceived as the ideal, it is seldom a match with the world of reality. Most wives cannot earn as much as their husbands and incoming child-support payments don't often make up the difference. If a woman puts in an equal share, it is likely to be a much larger percentage of her income than his - if she is even able to provide an equal amount. When she cannot contribute equally, they may both feel that she is not living up to her end of the bargain. She winds up feeling dependent and he feels he is paying too much - precisely the kind of sore spots and financial obligations they wanted to avoid.
While the old model doesn't fit, neither does the newer concept of a 50/50 split. After all, it's not possible to split things 50/50 when the ratio between the two incomes is more like 70/30 or 80/20. Even when the differences in income are not that dramatic, the expenses will eat up a larger percentage of one spouses money. Ways to resolve this dilemma range from, "I would like him to acknowledge once in a while how hard it is for me to do," to "We're going to do this proportionately." This real-world situation calls for a new philosophy.
Lurching toward a new understanding, the higher earner can contribute proportionally more to household expenses. For instance, one spouse earns $15,000 a year and the other earns twice as much. A $300 heating bill arrives. In a 50/50 arrangement, each chips in $150. In a proportional arrangement, the higher earner contributes $200 and the other partner contributes $100. Another way is for one person to pay for the heat and the other will pay the total amount of a different household bill. All household bills can be handled by paying proportional shares of each bill or by paying the full amount of specific expenses (when they represent a proportional share of the total household costs). The spouse who is better at keeping the books can write and mail the checks.
Sharing financial burdens equitably is not always so simple. When you file a joint income tax return, the lower earner pays a disproportionate amount of tax. Usually, the tax bite hurts. Determine the portion of taxes relevant to the lower income. This information is available in the 1040-IRS booklet charts or an accountant can easily figure it out for you. While the U.S. has a progressive taxation system (all income will be taxed at the higher rate appropriate for the combined incomes of married couples filing jointly), perhaps the higher wage-earner will be gracious and cover the amount beyond the lower personal income liability.
Extraordinary personal expenses and income must also be considered in determining proportional shares. Child support, medical needs, continuing education, responsibilities to extended family members, and windfalls from the lottery and possibly inheritance may skew financial capability to contribute to stepfamily expenses.
FINANCIAL HODGE-PODGE MIX
Because they are married, couples cannot escape responsibility for one another's economic decisions, and custom leans heavily toward financial interdependence. From a practical standpoint, individual preferences for separate accounts often takes a back seat to convenience.
This is not uncharted territory - there are many ways to manage family money. The best of all worlds for many remarried couples is one of two variations on the "three pots" system:
small separate accounts of their own and most of their income into a joint account
large separate accounts and a minimal joint fund
Joint accounts are funded equally or, more often, in proportion to individual incomes. I frequently heard, "We have a pot we put together for joint plans and that is the only money we can make equal decisions on." Stepfamily couples seem to compromise on issues that are joint financial responsibilities and handle their own accounts independently.
Typically, separate accounts are maintained for expenses related to a previous marriage while joint accounts handle the bills of the new household. As one dad said, "It's really very simple. My wife supports her children and I take care of mine. We had to deal with that before we married." When household expenses go up appreciably, for instance when non-residential children visit for an extended period of time, the biological parent usually contributes additional money to the household fund. Sara said, "When my children come to stay with us, I pick up three-fourths of the household expenses. When Jack's children are here, he does the same."
Most stepfamily couples told me that since they each already had their own credit histories and cards as well as individual bank (and brokerage) accounts, they agreed to maintain them as usual. They also agreed to pay for expenses related to their own children (residential and child support payments), insurance premiums, repairs and maintenance of property individually owned (cars, rental property), and personal expenses for clothing, business costs, medical expenses, hobbies, and gifts. Joint expenses such as rent/mortgage, cleaning, groceries, entertainment, and family/couple vacations are paid for equally or in a flexible manner according to ability to pay. Most couples also struggled valiantly to accumulate savings for emergency funds and investments.
I found that while children's personal expenses were usually handled by the biological parent, the higher wage earner spouse often paid all expenses of the combined household and covered "group costs." Group items included eating out, tickets to theater and sports events, and family vacations. As one such dad commented, "I like to live in style and I can afford it."
Financial advisors suggest keeping cash flow separate from investments. It is preferable to fund joint accounts with the income stream from employment and/or child support collection. However, there may be practical benefits to pooling at least some of the partner's assets. For example, a large investment opportunity or a new home may require more than one income and, once acquired, the increasing value of the investment or home may profit both husband and wife. Each person has the opportunity to gain financially. The couple also gains another reason to continue the relationship.
When a prenuptial agreement exists, it is harder for married couples to ease into pooling over time. Their finances may actually remain more separate than those couples who are not married. Otherwise, even when couples begin a relationship with the intention of keeping money separate, they eventually find it too inconvenient to keep track of who paid for what. They may drift into more and more pooling in spite of their original intention.
THE "ALL-IN" POOL - TOTAL SYSTEMS INTEGRATION
Couples often find themselves easing into pooling their finances. It frequently starts with establishing a joint vacation fund. On a more practical note, the home may need an item such as a new stove and neither wants to own it individually. An "ours" child tends to make it complicated to tally each person's individual contribution to the child's welfare. Sometimes there's a purely psychological transition.
Couples initially equate commitment with fidelity. One man told me, "It wasn't until we opened up a joint account [five years after their marriage] that we fully understood what the word 'commitment' meant." Along the same lines, I heard, "Either you're married or you're not. It's very simple. You either make a commitment or you don't. Whatever I bring into this marriage I share."
Some married couples do not have the option of deciding whether they will pool their income and assets. The law in nine of the United States (Arizona, California, Idaho, Louisiana, Nebraska, New Mexico, Texas, Washington, and Wisconsin) declares assets to be part of their community property. Supporting this practice, guidance from tradition suggests joint property because "joint accounts promote trust in a marriage and ease household management."
When all of the money is put into a common pot and divided according to the total family's needs and wants, family decision-making is critical to successful money management. To begin with, the joint bank account needs to be set up at a bank that is convenient to both of you. This household account gives each of you easy access to depositing and withdrawing money.
Create a starter plan for:
A record-keeping system (running totals or monthly tally).
Who's going to be responsible for bill paying from the account.
What will be paid for out of the joint account.
how much each spouse can withdraw without discussing it with the other
Just as on any team, people should handle different activities according to their ability to get the job done. One man marveled at his wife's ability to budget their money, "She makes sure it accumulates and we can do fun things with it - like our vacation last spring."
Sometimes, especially after a bad financial book-keeping experience in a prior marriage, couples need to earn each other's trust. With vivid memories of wild check-writing by an ex, time may be essential for confidence to grow about each other's spending habits. A more relaxed position allows for this option, "On most issues, we decide who is going to be the primary decision-maker and who is going to be the helper. Neither of us is the same one all of the time."
Emotional dangers of pooling
Pooling money to mask inequality of resources isn't going to improve a financial relationship. Couples who truly mix their funds my have the sense that their individual shares are obscured. This may be the case while the relationship is healthy, but any person who has been divorced knows just how easy it is to remember the amount they put into the pool and which household items were bought with their own money.
When assets are pooled, it's a little easier for the more dominating spouse of the relationship to control things while the couple pretends it isn't happening.
Occasionally, one spouse needs the other's support to pursue or to change his/her chosen career. The required support may be emotional, practical, or financial. All the safeguards that apply to personal loans apply to business loans to your spouse. If you can't afford to lose the money, you can't afford to risk it!
When you're knowledgeable about the proposed venture, you'll know how to recognize opportunities disguised as risks. Otherwise, find the best advice and resources available to you. Small Business Development Centers are located at many universities. They may provide sufficient information and also suggest other sources for loans. For larger projects, there are venture capital groups and "incubator business centers" that can give advice, physical space, and sometimes provide capital for start-up operations.
Another source of low-cost counseling is local and regional Chambers of Commerce. In addition, the Small Business Administration has a Service Corps of Retired Executives (SCORE) with volunteers who counsel small business owners. Women and minority groups have the advantage of additional government agencies and foundations. Ask for members of the Chamber of Commerce, SBCD, or SCORE to point you in the right direction or even make the connection for you.
In this age of corporate down-sizing and the frequent need to relocate for new employment, the other spouse may not be able to make an appropriate job transition. When that spouse is self-employed, a move may mean the loss of on-going clients and a lean start-up period in the new location. A family therapist told me that her husband supported her financially for seven years while she rebuilt her practice to it's pre-move level. This couple clearly negotiated what they considered to be a reasonable trade-off. They moved to another city to enhance his career and earning potential; he agreed to finance her business start-up in exchange for her agreeing to the family move. Spousal commitments have personal, psychological, and financial implications. We can help each other reach for our dreams. If we fail, we can try again or try some other line of work. Whenever possible, we can help give each other a chance.
HOWEVER MONEY IS HANDLED...
For couples to share the relationship spirit, each partner should have a reasonable amount of money to use at their discretion to meet their own personal needs. All women must have credit in their own name. It is too important a commodity in our society not to be protected. It's very important to keep some readily-available money for each individual's own use. While separate accounts promote a feeling of autonomy and also cover emergencies, they are crucial if one partner dies suddenly and the joint account is frozen.
Details about this situation are in chapter XX, Inheritance. Marriages need nurturing. All couples need financial plans that provide money for private time together. This might be as small as a quickie weekend at a romantic inn (that is timed to coincide with a child's visit to a non-custodial parent) or as large as a month-long European vacation.