If you married a financial zombie your own money could be in danger! Rick Emerson, the author of Zombie Economics, stopped by to tell us what a financial zombie is and what couples can do to slay the beast.
Q: In Zombie Economics, you talk about the unique financial challenges faced by couples, including the danger of having a "Zombie Spouse". What makes someone a "Financial Zombie"?
A: A "Financial Zombie" is someone whose monetary choices are risky...even dangerous; when this person is your spouse, their choices can endanger you as well.
We've all had a friend or roommate who seemed to be constantly courting financial disaster...either through overspending, or neglect, or both. Sometimes, if the situation is bad enough, you have to move out or find a new roommate, just so the lights can stay on.
It's difficult enough when this is someone you know or someone you live with; when it's a spouse or domestic partner, it becomes even more serious (with potentially life-changing consequences), so it's crucial that both partners work together to achieve financial stability and minimizing future problems.
Q: What's the first step a couple should take when addressing their finances?
A: Get everything on the table...a complete picture of your budget.
It's easy to lose track of where your money is going. Multiple credit cards, a checking account, a savings account, automatic-deposits, automatic-payments, maybe a 401k....things can really start slipping through the cracks. Set aside an evening or an afternoon with nothing else planned, and make a list of all the ways your money could be "escaping". When my wife and I first did this, we discovered that she was charging on a credit card that I didn't even know existed...so the balance wasn't being handled. That miscommunication meant we had to make that debt our first priority. Which leads us to our next item...
Q: What's the best way to handle joint finances without driving each other crazy?
A: Whenever possible, divide responsibilities according to your strengths and weaknesses.
Very few people enjoy dealing with a budget for its own sake - but depending on how you share the workload, it can be a lot less frustrating. For example, I tend be a little OCD about making lists, putting things on the calendar, setting reminders, etc...so I'm the one who tracks when a payment is due or when a credit card is about to expire. On the other hand, my wife knows a lot more about saving and investing than I do, so she takes the lead in making sure our money is going to the right places where it can do the most good.
A more day-to-day example of dividing the work: my wife knows far more about nutrition and healthy diet than I do...but she also has a tendency to "impulse buy" at the grocery store. The solution: she makes up the shopping list, and I do the actual shopping, so we're eating right without going off-track.
Q: Is one spouse automatically on the hook for the other spouse's debts?
A: In many cases, yes...though not always.
There are times when a spouse or partner just cannot (or will not) get their spending under control; when this happens, you need to know how this will affect you.
My co-author and I are not lawyers, and your best advice is always to seek professional legal guidance, but, as a general rule, there are two kinds of states: Community-Property states (such as Washington) and Common-Law states (such as Oregon.)
In a Community-Property state, both spouses are responsible for debts acquired during the marriage, even if only one partner's name is on the debt, so it's especially important to be upfront and honest with each other. In a Common-Law state, like Oregon, most debts acquired during the marriage are the responsibility of the person who signed for them. If that's only one spouse, it's their obligation; if it's signed by both of you, or something that is clearly a family expense (such as a child's education), the debt is shared equally.
Q: What about couples who are thinking about getting married? What do they need to take into account regarding money?
A: Be upfront about your past...and what you want for the future.
When it comes to discussing your "past" with a a potential spouse, your financial past needs to be on the list. If you have substantial debt (college loans, for example, which can easily exceed $100k), your partner needs to know that - not because it's necessarily bad, but because it can affect both of you going forward. Similarly, if one of you has a bankruptcy or a foreclosure, these things can impact your ability to buy a house or get a car loan. As with most issues, past financial situations can usually be dealt with or overcome one way or another, but you don't want them coming out of the blue five years into a marriage.