Thursday, 17 February 2011 15:25
True love means never having to say you're sorry. Or, alternately: "I'm taking you to court because you've ruined me financially."
When a couple is in love (or at least think they are part of something destined for "happily ever after"), the temptation is to share and share alike. What's mine is yours -- "mi dinero, su dinero."
Sadly, intertwined finances can be disastrous if the relationship does fray. In fact, money problems can be the source of friction that sours a relationship.
"I really think that people's emotions can override their common sense," says Gail Cunningham, of the National Foundation for Credit Counseling, the nation's longest-serving nonprofit credit counseling organization. "When you are in love you can look at life with rose-colored glasses if you want to, but don't look at your finances with them on. Make financial decisions with your head, not your heart."
The following are five ways couples can set each other up for financial woes:
*Co-Signing a Loan
On the surface, co-signing a loan for your beloved may seem the right thing to do. Your partner might need to buy a new car or get a student loan. The former may be a necessity, the latter something that can offer a significant upside for your future together.
Be wary, though. It is not just your signature on a piece of paper. There are repercussions that can hurt your finances and creditworthiness for years to come.
Your significant other might be a wonderful person and seemingly responsible. But be honest with yourself: There is a reason they needed to ask for a co-signer. If it is because they don't earn enough to qualify, what makes you think they can handle an additional monthly bill? If past credit problems makes getting a loan on their own impossible, that may very well be a portent of how seriously (or not) they treat their responsibility to creditors and, by extension, you.
If your partner defaults on the loan, whether or not you are still a couple, you will be on the hook. Debt collectors will typically go after low-hanging fruit when they look to recoup money; if they think your former love can't, or won't, pay up, they are going to set their sights on you.
Not only will you have bill collectors hounding you, but your credit rating will suffer. Even if your partner does make reliable payments, you may feel a pinch. Even if it is not "your" loan, in the eyes of the credit agencies being a co-signer means it can be treated as such for your ratio of debt to credit.
*Paying Their Bills
In most relationships, one party will out-earn the other. Setting aside the prospect of bruised egos, there is an even bigger worry to be had.
Especially with young couples, one or both parties may be a bit immature when it comes to bill paying. Perhaps mom and dad always took care of such things. Or maybe there is the thought that your relationship is a trial run for marriage, when it doesn't really matter who pays for what? Well, it does matter. Couples need to carefully think about when, how or if they should pool resources into joint accounts. Before decisions are made, make sure to have a serious, detailed discussion about each other's financial history, future prospects and attitudes about spending and saving.
Adam Levin, former director of New Jersey's Division of Consumer Affairs and co-founder of Credit.com, a consumer advocacy website, weighed in on the matter.
"I don't know if it's ever really good to combine credit," he said. "I think it's a natural tendency that couples want to do it as part of the process of bringing themselves closer together. But I think that couples must always maintain separate credit files because death, illness or divorce requires that each member of the couple be able to stand on his or her own feet."
"So often the boyfriend or the girlfriend with the bad credit will say, 'Please, let's get a credit card together, it will help me build my credit and you would be so wonderful if you would do this with me,'" Cunningham says. "Don't do it. There is joint control of that credit card which means you may very desperately want him or her off the card, but your hands are tied if they won't budge. If somebody turns into a jerk, they can run up your credit, refuse to pay and nobody can force them to pay. They are off scot-free."
As an alternative, she suggests making that partner an authorized user of an existing credit card.
"Then you can kick that person off whenever you want to and you've remained in control of the card," she says.
*Dragging in Family Members
If it isn't advisable for one half of a couple to get tied into the other's loans and bills, it is even more dangerous to bring family members into the picture. No matter how well a partner gets along with the potential in-laws, introducing money to the equation is an invitation for trouble.
Even if they offer to help out with that needed loan, either by directly lending the money or co-signing, the help may not be worth the hard feelings that will haunt you if anything goes wrong with a repayment plan.
Leases -- for an apartment, car or business space -- are also fraught with hazard if a partner or their family is overly trusting in providing their John Hancock.
*Moving Too Fast
The American Dream has many couples dreaming of buying a first home and perhaps even starting a family. But realizing such plans can be too much too soon.
Make sure you understand that an asset such as a house complicates your relationship. Are you prepared to meet the cost of a mortgage payment, insurance and regular maintenance? Is your relationship on solid enough ground that you don't have to fear a messy divvying-up of assets?
"I guess the worse thing would be buying a house, because that's the largest amount of money most of us put our money on the dotted line for, and so many people outside of a marriage situation will buy a house together," Cunningham says. "Then you have the lack of a marriage, which sometimes makes it easy to bail on the emotional commitment, but it is still very difficult to then untangle the financial commitment."
*Not Having an Exit Strategy
Love can fade as fast as it blooms. From teenagers to senior citizens, every new relationship feels like a sure thing -- until it isn't.
It may be a difficult conversation to have amid fast-beating hearts and fluttering eyelashes, but couples need to discuss what will happen if their financial arrangements outlast their relationship. That conversation may not be put to paper as a prenuptial agreement, but certain, very specific items need to be agreed to verbally and, if possible, in writing.
How will joint credit cards be treated? What is the plan for discharging jointly acquired debt? Who gets what physical assets? How will insurance policies be updated or investment portfolios unmingled?
Hashing out such details may not make for a fun date, but in the long run having those conversations may spare grief and uncertainty and, at the very least, make a split far less acrimonious or litigious.
(This article is part of a series related to being Financially Fit)
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