Economic Partnerships: A Short Case Study on Marital Debt

Once a new year starts, I see a lot of articles focusing on how to give yourself a fresh start financially, and have a generally fiscally responsible year. Some pieces take the approach of the best ways to pay down your debt, while others focus on the best way to invest your money. I recently saw an article in which a couple describes their own debt nightmare, and then goes into the details of how they paid off that debt. While being able to pay off a large amount of debt in a little amount of time is definitely impressive, what actually caught my interest in the piece was the underlying cause of the debt.

At the outset of the story, the husband points out that before getting married, he and his wife never talked about money. He points out that it was in no way intentional to not discuss money and, as a couple, discussing the other person’s financial information was definitely not a priority. Before the marriage, the husband had his own debt stemming from student loans and a car loan. He did not know anything about his wife’s debt or spending behavior. Within just a short time after the wedding, the wife charged a large amount on a shared credit card, and within just a few months, the couple racked up more than $5,000 in credit card debt.

I’ve written before about the importance of discussing finances with your future spouse before tying the knot. While there are a host of reasons I believe this is valuable, the story above is a very important one. Marriage is an economic partnership, and regardless of when you accrued your own debt, bringing it into the marriage means that you and your partner should be on the same page in terms of addressing the debt and paying it down.

How Do My Partner and I Set Up an Economic Partnership?

The first thing to remember is that an economic partnership does not need to be something formal. It means that you and your partner have an understanding of your financial situation and have a plan to address the household budget, including debt. Couples may have their own unique philosophy on money and spending and that’s okay – the important thing is to make sure that both parties understand that. A valuable exercise is to sit down and share information with each other – this might mean going through credit cards that each person has (and their balances), student loans in each person’s name, and other debts that have been accrued by either party. Once the information is shared, you can, as a couple, decide how you want to approach the family budget and debt. It is important to talk about what type of expenses will be placed on credit cards and how that will impact the family budget. Maybe you will both decide on something as simple as paying the minimum payments on all your cards, or maybe you would rather pay off one item in full while paying the minimum on others. The key is to look at the money coming in and going out and to find a solution that you both understand and can agree upon.

Why Do I Really Need to Care About an Economic Partnership?

Using my example of the couple from the article, while they were able to pay off their debt (which is great), some of their issues could have been avoided or lessened if they structured a plan before getting married. When explaining how they paid down their debt, the husband wrote that they first thing they did was to write everything down to see what they were working with. From there they read finance books, blogs, and even took a finance class that covered money management. While all of this may be helpful, one of the most valuable things a couple can do is to sit down as early as possible to be able to take control of their financial situation before problems have a chance to spiral out of control. Taking the time and initiative to form an economic partnership with your future spouse gives you a great opportunity to decide how to manage your money, and how you would prefer to deal with issues that arise.

In my daily practice, I try to help clients understand the importance of having discussions with their partner about finances. Although topics about money can be difficult to bring up, the relationship often grows stronger once these topics are addressed. Remember: if you don’t plan for the future, the future may not happen!