Each marriage has its own money dynamic. Some couples keep all their accounts separate and split the check when they go out for coffee; others pool everything from day one and make all financial decisions together. Sometimes there’s one spouse who handles all financial matters — from bill paying to taxes to decisions about investments, retirement savings and debt — leaving the other in (blissful?) ignorance. Others split financial responsibilities down the middle.
All of these models can work within the confines of a marriage, but some will put one spouse at a distinct financial disadvantage. As a divorce lawyer, I’ve helped many clients deal with the consequences of these types of unequal financial decisions made during a marriage. My advice? Don’t wait until something goes wrong to take stock of your marriage’s money culture and improve your own security. Here are five of the most common financial mistakes I see women make in marriage, all of which are easily avoidable.
You Joined All of Your Money
It’s the age-old debate: Should you merge your money with your spouse’s or keep your accounts separate? While I think both philosophies can be effective, I do believe there’s a benefit to keeping one bank account in your name for discretionary spending — money you can use to purchase gifts for your significant other or to splurge a little without dipping into cash you’ve both worked hard to earn.
But, as a divorce lawyer, there’s one situation I’ve seen cause trouble time and time again: If you accumulated savings or purchased a house before you got married, or if you received an inheritance during your marriage, you can put yourself at risk if you merge it and then the marriage breaks up. If you transfer that bank account or house into joint names, or deposit that inheritance from your grandmother into the jointly titled brokerage account, you will likely have converted what would have been considered yours alone into marital property; all of it will be in the pot to be divided with your husband if you should divorce.
Solution: If not outweighed by other concerns (such as estate planning or protection against creditors), keep premarital property, gifts and inheritances titled in your name only.
You Have No Credit in Your Own Name
Almost everyone has a credit card, but not everyone thinks about whose credit the account is based on. If you have credit cards with your name on them only because you’re an authorized user on your husband’s accounts — meaning the accounts are titled in his name, based on his credit rating, and the cards were issued to you because he requested them to be — those cards do nothing to establish your own credit history. And they can be easily taken away if your spouse dies or you separate and divorce. It’s important to establish your own credit no matter what: You won’t qualify for apartment leases, car loans or mortgages without it.
Solution: All women, married or single, should apply for a credit card in their own names. If you are declined based on lack of credit history, get a copy of your credit report (you can get it annually for free at annualcreditreport.com) and read up on how to build credit, which can include having bank accounts and utilities in your own name, applying for retail charge cards and getting a secured credit card — and, of course, using them responsibly.
You Rely on Your Spouse’s Inheritance for Retirement
Your spouse is the beneficiary of a wealthy relative’s trust, or is an only child with affluent parents. You’ve discussed the fact that significant assets will be coming to him in the future, and you’re counting on those inheritances to fund your (joint) retirement. Neither of you have contributed to retirement accounts because you’ve needed all your income to meet current expenses. So why tie any of it up in a 401(k) when there’ll be plenty in the future from your husband’s family?
Outside the context of divorce (which, by the way, would mean that your husband’s retirement is safe, but not yours), counting on inheritance is a gamble you just shouldn’t take. Estate plans can be changed without your knowledge, assets can be depleted by extended illness or family emergency and the value of investments over which you have no control can take a nosedive.
Solution: Start saving for retirement. Now. Period.
All Debt Is in Your Name
Maybe you’re the spouse with the better credit rating, so you’re the owner of the credit card accounts. Or maybe you both have cards, but you’ve decided to put all charges on your card because it has the best rewards program or the lowest interest rate. And maybe you and your husband have run up a significant balance on that card (which you know shouldn’t do, but the reality is, well, sometimes it happens).
Dividing the debt between you and your spouse may be the best — even the only — way to truly keep you both accountable. After all, if, for whatever reason, you fall behind on payments for credit cards held only in your name or, worse, you divorce, you’ll be left holding the bag.
Solution: Best practice — by far — is to pay your credit cards off every month. But if you must carry a credit card balance, don’t let it build up only on cards in your name; spread it out between you and your spouse.
You Don’t Understand Your Household Finances
If you’re the spouse who knows nothing about the household finances, you’re putting yourself at a significant disadvantage. If you’re apart for an extended period of time (whether that means you’ve divorced, your husband has passed away or just that he’s on an extended trip), it can take a long time to find out the basic information — online account information, for instance — you need to know to take care of the bills.
Make sure you have a handle on what it costs to run your household, what your spouse earns, what retirement benefits and other employment benefits he may have (for example, stock options), what savings and investments exist, how much debt there is and in whose name it’s carried and what type of insurance policies you have. You’ll feel more confident, no matter what happens.
Solution: Have regular financial meetings with your spouse. Review the status of your income, debts and assets. And always read — and ask questions about — joint tax returns before you sign them so you can understand how much household income there is and where it’s coming from.
Margaret Klaw is a founding partner of Berner Klaw & Watson, an all-women law firm located in Center City, Philadelphia, dedicated exclusively to the practice of family law. She writes and speaks frequently on family law topics and is the author of KEEPING IT CIVIL: The Pre-Nup and the Porsche & Other True Accounts from the Files of a Family Lawyer.