Jonathan Gorski, a partner at Edelstein & Company, LP conducted a live chat on solving personal finance problems for couples Boston.com on Tuesday, Feb. 12. Below is an edited transcript of that chat.
Question: Should my wife and I share all money equally?
Jonathan Gorski, CPA: I generally advise married couples to share funds in order to prevent “leakage” from the family budget. It also allows for better tracking of total expenses in order to properly plan for future financial events. Of course, in the end it is a personal decision and couples must act in the manner that makes them both feel comfortable.
Question: I’m a lawyer. I advise all my clients to sign a pre-nup. Do financial experts do the same?
Gorski: Generally, it is advisable to do so for high-net worth individuals (such as beneficiaries of a family trust) or those that own part or all of a privately owned family business. Often, this is not a reflection on the future spouse, but more so a method of preserving prior family wealth. Again, the opinions of both parties must be considered carefully but consensus can usually be reached.
Question: How do we decide how much each of us can spend?
Gorski: The best way is to create a family budget. Although it sounds very business-like, it often helps to find a monthly surplus and allows couples to agree upon how much personal spending is affordable. The family budget would include things such as monthly contributions to retirement plans, the current “rainy day fund” and possibly towards education for the children.
Question: My husband won’t tell me how much money he makes. Should he?
Gorski: You can always carefully review your tax return filed at the end of the year. This will give you most of the information you need.
Question: We always fight about money. Is there any way to avoid that? He thinks I spend too much.
Gorski: If I could answer this question I would be extremely rich! It is a concern among all couples. Open communication and a balanced budget are good starting points.
Question: Should my husband and I pay off all of our debt before we start saving for a down payment on a house, or should we do both at the same time? 2
Gorski: You should first check with your mortgage broker as they calculate various debt-equity ratios in order to qualify you for a mortgage. This will help you to determine how much cash you should have on hand vs. your total debt balance when applying for the mortgage.
Also, if this is credit card debt and you eventually purchase a home, it would then be beneficial to possibly borrow against your home at a much lower interest rate to pay-off your credit card debt, hence accomplishing both goals to a large degree.
Question: Should we pay off student loans or credit card debt first?
Gorksi: Always pay-off credit card debt first as it is generally at a much higher inteerest rate and may prove more harmful on your credit score when applying for a mortgage if payments are missed. In addition, you may receive a tax benefit for interest paid on student loans but you do not receive that benefit for interest paid on credit cards. 2
Question: What advice would you give to a couple who is considering opening a business together?
Gorski: If this couple isn’t married, then a clear written understanding of the financial responsibilities and consequences is important.
For married couples, a clear written understanding of roles and responsibilities is important. These should usually be written. We also generally advise that the couple treat each other like business associates in work as it helps impress employees and potential clients. You may also want to explore the possibility of having the wife own the majority of the company as their are benefits for women-owned corporations. You should discuss the appropriate business structure with your advisor.
If the couple is married, a separate business account must be created for the entity, no matter what the structure is. You should create a budget for the entity, which would include how much money you intend to invest personally. In order to be successful, treat the business as completely separate from you and your spouse personally.
Question: At what point do you think is the right time to get a joint checking account?
Gorski: Generally, I would wait until you are married. I have seen some couples create a joint account where each contribute equally in order to start a transition to combined accounts. Sometimes creating an account to help fund a wedding or a home purchase also works.