Don't fight over money

Here are strategies to help couples settle financial disputes

It is often said that money issues are at the root of most marital discord. Yet whether or not to buy an annuity, how much to invest in bonds, and where to find the money for home repairs doesn’t exactly sound like sweetheart talk.

So a lot of us put off those important talks about family finances. “Unfortunately, a great marriage can go south when financial problems arise,” says Jeff Bogue, a financial planner in Wells, Maine. “When you have financial problems, it can create a marital crisis.”

On the other hand, reaching common ground on family money matters can improve matrimonial happiness and stability. And you’ll have a much better chance of achieving your long-term financial goals if you’re both committed to them and work together. You can also help avert future family wars waged by heirs over your estate (see Make estate planning a family affair). Resolve these money battles and you can go back to more mundane matrimonial disputes, like who gets the remote.

Big spenders vs. mattress stuffers

It seems the old saying “opposites attract” is especially true when it comes to the way people handle their money. According to at least one study, many individuals dislike their personal spending behavior, so they’re attracted to partners with the opposite habits. Yet a 2009 study, “Fatal (Fiscal) Attractions: Spendthrifts and Tightwads in Marriage,” by researchers at Northwestern University and the Wharton School, found that when a spendthrift marries someone who is extremely frugal, financial disagreements and marital conflicts are likely to follow.

A good way to start resolving spending differences is to talk about the money messages you learned while you were growing up. “I had one couple who had horrible fights about spending, and it turned out they had never discussed how money was handled by their families,” Bogue says. It turned out the husband’s parents made lots of money but they never spent anything, so he wanted to make—and spend—a lot. The wife’s family lived paycheck to paycheck, so security was paramount to her. “When they understood why they each felt the way they did, they were able to appreciate the other’s perspective, and they found ways to compromise,” he says.

That compromise should include some short- and long-term financial goals, and setting up a budget that will help you achieve them. We’ve looked at free online budgeting programs that can assist, including Mint (www.mint.com) and Yodlee MoneyCenter (www.yodlee.com). Note that if you use these services, your financial information, user name, and password are housed on the company’s servers, not on your computer. If you’re not comfortable with that, you might want to purchase budgeting software such as Quicken. Amazon sells Quicken Deluxe 2011 for about $38.

Couples with different spending habits might be able to reduce disputes by setting up both joint and individual accounts. For example, you can use joint accounts to pay your household bills and to save for mutual goals, like vacations and car purchases. Then you can each set up individual accounts with the remaining funds that can be used to buy whatever you like. “You can fund those discretionary accounts proportionally, based on what each of you earn,” says Linda Campbell, a financial planner in Columbus, Ohio. “We’ve also had clients with just one wage earner, so they agreed to a split of those funds.”

Risk takers vs. safety seekers

Financial planners tell us they see couples with different risk tolerances daily, including ones where one partner likes to put nearly all his or her money in stocks while the other would prefer keeping the family funds in CDs. Setting up a well-balanced portfolio, as a result, is a challenge.

“When there are big discrepancies in investment styles, you don’t want one partner’s investment style to dominate,” says Jake Engle, a financial planner in Portland, Ore. “That can be especially detrimental if the dominant partner is the one who wants to invest very conservatively.”

However, most couples’ retirement investments are in individual accounts anyway, which allows each spouse to invest in a way that’s comfortable. You just have to make sure that the accounts strike the right balance overall.

A financial planner can help couples get more in touch with their own risk tolerance. For example, John Fiege, a financial planner in Onancock, Va., uses a questionnaire by FinaMetrica, a software developer, to determine each partner’s ability to handle risk. Fiege discusses the results and other goals with the couple, then transfers the data into a program that sets up an appropriate portfolio allocation.

Couples who want to work out their own allocations can get a better handle on their risk tolerance by using free online questionnaires. One developed by personal finance professors at Virginia Tech and Kansas State University can be found at njaes.rutgers.edu/money/riskquiz. Another, based on the North American Securities Administrators Association’s Uniform Investment Advisor Exam, is at www.isi-su.com/new/risktol2.htm.

In the end, if one spouse invests aggressively while the other is more moderate or conservative, that’s OK, says Dawn Brown, a financial planner in New York City. You just have to look at your entire portfolio to make sure it’s allocated for your long-term goals. “If I have two partners with roughly the same amount of investments, their overall asset allocation is 60 percent in stocks and 40 percent in bond and cash investments, it’s fine with me if the more conservative partner has a portfolio that’s 50-50 and the one that wants to take more risk has 70 percent in stocks and 30 percent in bonds and cash,” she says.

Retiring types vs. the career-minded

“Couples are often not on the same page when it comes to retirement,” Brown says. A Fidelity Investments survey of 502 married couples ages 45 to 72 backs up her claim. Sixty percent of the respondents did not agree on when to retire; 44 percent were not in agreement on whether they would work in retirement; and 42 percent had different ideas regarding their expected retirement lifestyles.

If, let’s say, your husband wants to retire before you would like him to, run the numbers to see if it’s economically feasible, Brown suggests. The first thing you want to do is project your annual retirement spending. You can base it on what you spend now, subtracting the expenses you expect to go away when your husband stops working and adding any new ones.

Then you and your husband should see if you’ll have saved enough by the date he would like to call it quits. The conventional wisdom in financial-planning circles has been that retirees can safely spend about 4 percent of their wealth each year with little risk of exhausting it. For example, if you tote up your expected annual sources of retirement income, including Social Security, investments, and any pensions, then add 4 percent of your invested assets, you’ll at least have some idea of whether he will be able to retire early or had better tough it out in the workforce a while longer.

You could also try to trim your expenses if it looks like you won’t have enough saved, or calculate what effect staying at work longer but scaling down your husband’s hours will have on your savings (assuming he can get the boss to agree).

But if, after running the numbers, it looks like both a husband and wife can retire earlier than the wife would like, the situation gets a little stickier, Brown says. Consider a compromise. Perhaps the husband can work a little longer than he planned, and the wife can stop working sooner than she anticipated.

He, of course, will find lots of benefits to staying in the workforce longer. For one, his Social Security benefits will probably be greater. The retirement estimator at www.ssa.gov shows how much a worker would gain or lose by electing to start taking benefits at different ages. And many traditional defined-benefit pensions, if he’s lucky enough to have one, are based on a formula involving an employee’s years of service and highest salary. So working longer can mean a bigger pension once he leaves work and starts collecting, too. Then all that’s left is finding a compromise on how to spend all their free time.

This article appeared in Consumer Reports Money Adviser.