“Some people think that it’s holding on that makes one strong; sometimes it’s letting go.” – Unknown
Summer is invariably the most popular season for weddings. When you’re caught up in the excitement that surrounds starting a life with the person you love, there’s a good chance that the only time finances comes up in conversation is when it comes to discussing the cost of the event itself or the honeymoon that follows. Sadly though, an increasing number of marriages end in divorce and the financial ramifications of a relationship ending can be just as painful and long-lasting as the emotional pain.
Related article: Couples need to talk about money
I know from personal experience how soul-destroying it can be to get sucked into the “he says, she says” bickering that goes along with trying to determine a solution that both people can agree is fair. Life isn’t measured in dollars and cents and it can be a hard rule to measure a marriage by. As with many things in life though, when it comes to divorce, hindsight is 20/20 so here are some financial life lessons I learned both from my own experience of divorce and also from the experiences of others:
Take a Snapshot
As much as I still believe in true love and marriages that last, it’s also a sad reality in Canada today that divorce has become a fact of marriage. When a marriage ends, assets are divided equally between spouses and this often means that one spouse will end up making an “equalization payment” to the other. The basic calculation for this is for each person to take their net worth (not including any equity in the marital home) at separation and subtract their net worth on marriage and then the higher net worth spouse pays the lower net worth spouse 50% of the difference to “equalize” the gain during the marriage.
Related article: Calculating your net worth
The trouble with this “simple” process is, if you’ve been married for a while, it can be tricky to figure out exactly what your net worth was on your wedding day. Taking a snapshot of your financial health on an annual basis is a great habit to develop and, if you don’t already do this, then getting married is a great reason to start that habit. Hopefully, for those of you just embarking on the marriage journey, this number will only ever serve to remind you how far you’ve come since your early days of marriage but just in case things don’t work out the way you anticipated it can be a good antidote for a hazy memory.
Keep a Balance
Marriage is a partnership but it is rarely equal, especially when it comes to finances. Chances are one partner earns more than the other or one partner is better at managing money than the other. Perhaps one partner will contribute more at certain times so that the other partner can stay home with the children, go back to school or start a business? Perhaps one partner will contribute a larger share to purchasing or renovating a home?
It almost feels wrong to keep track of these things because when you’re in a relationship the whole point is that you approach your life together as a team. When that team is divided though, each person’s perception of what was contributed, what was agreed and what is “fair” compensation can vary dramatically. It’s worth keeping track of any times where one partner is contributing more financially than the other, especially when the other spouse is contributing to the marriage in a non-financial manner (caring for children or retraining for a new career etc.).
Related article: Life balance and Financial balance
Keep Track of Everything
Tracking your spending is a key habit when it comes to building wealth and it’s a habit that can be worth its weight in gold when it comes to divorce. As much as you don’t want your divorce to get mired in the minute details of an excel spreadsheet, keeping track of expenses makes it really easy to document what is spent on accumulating assets and “stuff” and makes it a lot easier to agree on how things should be divided fairly. Divorce is grounded in dollars and cents and often the people who don’t feel the need to keep track of just how much they’re contributing because they’re simply investing in their family are those who stand to lose the most if things fall apart.
At the end of the day, logic is hardest to find when your brain is in emotional turmoil. Most of the people I’ve talked to, didn’t expect on their wedding day, that their marriage would end in divorce. Dividing assets, homes and determining custody and living arrangements can be a challenging and emotionally devastating process and the devastation is often amplified by financial issues and disagreements over money.
Good communication and good money management are key to a strong marriage and I believe they are also key to both protecting wealth and reducing the stress (and the cost) of divorce.