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Merging Finances, Including Debt?

Question: I am 37 and getting married in three months to a gal who is 10 years younger than me. Financially, we're at different places in our lives and I am wondering what I need to do as we merge our lives together to protect my modest wealth and assets in case of a financial disaster on her part.

I've had my hard financial knocks in life, but have gotten to the point where I have a good job, good credit, own a condo, own a car, have money in retirement accounts, and my credit card debts are very low and manageable (and could be paid off quickly if needed). My fiancée has huge student loan obligations ($100k+) and damaged credit because she declared bankruptcy three years ago. Her debt is almost entirely student loan debt, so that does simplify things.

How would you proceed into such a situation? Please do not use my name if you answer this question as I do not want friends/family to be able to identify us should they hear or see the question. Thank you! Washington D.C.

Answer: Ah, romance. Poets, philosophers, and songwriters have long struggled to capture the mysteries of love and marriage.

That key question is this: Are all the financial issues out on the table, discussed, and the approach toward dealing with debts bought into by both of you? Are you on the same page about handling her student loan debt? Your credit cards? How much is each of you going to set aside in retirement accounts? What you need to do is really gain an intimate understanding of each others desires and fears about managing money as you go into this marriage. The rest is financial technicalities.

This is where a prenuptial agreement can help. Now, most people don't like the idea of a prenup. It isn't romantic. It has an aura of preparing for failure in the marriage. But look at it this way: A prenup can be a critical part of your money discussion. The beauty of a prenuptial agreement is that it is a vehicle, an impetus for full financial disclosure. Many couples like to write their own wedding vows. A prenup allows a couple to write their own marriage contract. It should cover all assets, including property and difficult-to-value holdings like stock options, businesses and professional practices, and academic degrees. You should also cover all debts, potential inheritances, and spousal support.

A prenup is a binding legal contract. That means you'll need lawyers to help both of you understand the document and to make sure the prenup does not violate any laws. Another way to handle it is a more informal, do-it-yourself approach. It isn't a legal document and it won't hold up in court, but it's a written understanding between the two of you. It's a way of getting both of you on the same financial page. The value lies not in the contract, but in the process.

Two books that might help your financial relationship: For Richer, Not Poorer: The Money Book For Couples by Ruth Hayden (Health Communications), and Prenups for Lovers by Arlene Dubin (Villard Books).

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