Love, marriage – and money
by James L. BotsfordLove, money and marriage. Talk about a topic that can bring about some heated discussions.
Often, a husband and wife bring entirely different risk profiles to their portfolio. Here’s a real-life example (with their names changed):
John and Sue Babyboomer are in their 50s. They have just finished putting their children through college and paid for their daughter’s wedding. They have a house in Brewster that is worth $600,000, which has a $220,000 mortgage remaining. They also have a $45,000 balance on their home equity line of credit they used to help pay for college expenses and to put new granite in their bathrooms two years ago. Both John and Sue work full-time and are now scrambling to save for retirement.
Sue’s dad passed away 10 years ago, and her mom died recently. Now, Sue has inherited $500,000. She would prefer to take the money and pay off all their debt (including a car loan) and place the remaining balance in a bank money market account and short term CD.
John thinks they should only pay off the home equity line and a car loan – but not the mortgage. Its interest rate is fixed for another 25 years at 5 percent. He believes that by investing the balance in the stock market, they will be able to generate a rate of return that exceeds the 5 percent on their mortgage.
Besides, he argues, the interest is tax-deductible.
“Hogwash,” says Sue. She doesn’t trust the stock market, and she likes the idea of not owing anyone a dime.
It is clear there are stark differences of opinion relative to risk – and what it takes to give each of them peace of mind. Incidentally, this can work in either direction. Sometimes the wife has the more aggressive investing style and the husband is more conservative.
So what’s a married couple to do?
Like everything else in a successful marriage, communication is the key. Somehow, the couple will have to determine what their individual risk-comfort level is and then make each other aware of it. One possibility would be to take a brief quiz that measures your comfort level in relation to risk. Some questions might include:
• When I see short term losses in my retirement account, I feel …
• If the stock market dropped 10 percent tomorrow, I would …
• If I had a choice between $1,000 cash and a 1-in-10 chance for $10,000, I would …
• Do I like surprises?
These were just a few of the questions from the book “It’s More Than Money – It’s Your Life!” by Candace Bahr and Ginita Wall. Given that more than half of today’s marriages end up in divorce – and a large percentage of those divorces are the result of differences over money – it is certainly worthwhile to spend some time together as a couple and have frank conversations about these issues.
Your financial future is too important to handle in a haphazard fashion. As that sage, Yogi Berra, said, “It’s getting tougher to make predictions, especially about the future.”
Too many times I’ve heard one spouse say to the other: “Gee, I never knew you felt that way.” This is too important an issue to avoid clear lines of communication.
And what goes hand in hand with good communication? The big “C” word: compromise. Knowing when to say, “Honey, I hear what you’re saying – and I think we should handle it as you suggest,” is a fine art. And, in my experience, it’s critical.
That’s not to say that you shouldn’t have a good, healthy discussion about it first – especially if your spouse is not comfortable with you investing your life savings 100 percent in an emerging markets fund, and she wants to bury it in the backyard.
James Botsford is a vice president and certified financial planner with Cape Cod Five Cents Savings Bank's Trust and Asset Management Group. He can be reached at jbotsford@capecodfive.com.
Published in Cape Business Health & Wealth July/August 2007
James L. Botsford James L. Botsford, CFP, is vice president of Cape Cod Five Trust and Asset Management. 
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