#Adulting: Money matters for the millennial couple

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on February 5, 2018 - February 11, 2018.

You spend differently when you’re part of a couple. When you get married, you need to consider the whole family and you can’t spend as you did previously. > Shing

If the husband wants to start a family but the wife wants to build a career, there may be disputes that ultimately lead to divorce. > Tay

Many women come and tell me they didn’t know what was happening in the marriage. It’s very difficult then to trace what assets belong to the marital pool for division when there are no details of bank accounts, property or shares. > Goh

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Having conversations about finances may be uncomfortable for young couples about to tie the knot, but the consequences of not doing so may be most unpleasant.

After all, financial disputes have often been cited as the main reason for divorce. The Prudential Relationship Index in 2017 found that money was the main source of arguments in Asia, affecting 37% of the couples surveyed. According to the Credit Counselling and Debt Management Agency (AKPK), most of those who seek its help are married and many newly married couples get into financial difficulties because of credit card mismanagement.

The rising cost of living means such conversations may become even more crucial. PhilipCapital Management Sdn Bhd wealth planning director Raymond Tay says some of the financial issues faced by couples today are caused by the high cost of living, stagnant wage growth and debt management challenges, specifically with regards to credit cards and loans. “I think credit cards are the biggest problem because they (couples) are able to spend future money without constraint. At one time, banks were overly aggressive in promoting credit cards and many people are now in credit card debt. That’s why there was a spike in the bankruptcy rate among the younger generation,” he says.

Despite the impact of the high cost of living, many are still not comfortable talking about financial issues with their partners. It’s an unhealthy habit, says Shing Yee Ling, a financial planner with VKA Wealth Planners Sdn Bhd.

“In Malaysia, families are not so open about discussing financial issues. I think couples rarely talk about it. But it is very important. Let’s say you have a boyfriend, and most likely his upbringing and the way he views money is different from yours. When you’re dating, it’s fine, but if you’re building a long-term relationship, it will be good to have a better understanding of one another,” she says.

A simple Google search will yield a slew of questions you can use to start off the discussion. They range from “How much can I spend before I need to consult you?” to “How do you like to spend your fun money?”


Traditional family roles have changed

A very important conversation couples should have is on their respective financial roles after they get married, especially when they have children. This is essential as there are no longer clear-cut roles — single-income households are less common and more women are becoming breadwinners.

“During my parents’ time, the lady would stay home to take care of the children, but now it’s difficult to survive on a single income. Sometimes, the lady earns the same salary or more than the man. So, they need to find common ground,” says Shing.

“I have met a family where the wife works as well but they actually work on a single-income budget, meaning they make sure whatever money they make, they only spend one income and the other will go into their savings,” she adds.

Couples who work need to decide how the financial burden is to be distributed and how some family plans may have to take a backseat to career advancement goals. “For example, if the husband wants to start a family but the wife wants to build a career, there may be disputes that ultimately lead to divorce. So they need to give and take,” Tay says.

Another topic couples should broach is their responsibilities in taking care of elderly parents. Traditionally, married children will still look after their parents. But Tay notes that times have changed. “I’m not expecting my children to do the same for me because I’m seeing the kind of financial constraint and stress that young people are facing nowadays in terms of the high cost of living and their mindset. They were probably sent to study overseas, where society is very open. Typically, in a Western family, when the children have reached a certain age, their parents won’t support them anymore. The children will say, ‘I can take care of myself, so dad and mum, you’re on your own and I’m on my own’,” explains Tay.

“You need to talk about expectations of each other. The lady might expect the guy to pay all the bills and the man might expect the lady to contribute to the household as well, so there might be a mismatch here. It’s good to talk about it, like how much you should commit to the bills.”


Don’t be afraid to delay traditional financial goals

Setting common financial goals is also important for couples before marriage. The big financial decisions include the purchase of a house, number of children, vacations or liabilities the partners have individually.

“There should be a budget for the family as well. You spend differently when you’re part of a couple. When you get married, you need to consider the whole family and you can’t spend as you did previously. When you are young and single, you can just apply for leave and go on holiday, but with two people, you need to double the amount,” Shing says.

One of the first big expenses a couple will face is the wedding. Holding a wedding reception is not cheap, and as various reports have highlighted, some couples have gone into debt by doing so. “Sometimes, they actually get into debt because the man cannot bring himself to say, ‘I cannot afford to take you to Bali for a photoshoot’, so he takes up a loan. You might end up paying for it for the next two or three years. Is it worth it? The lady might want to have a beautiful wedding gown for RM5,000 but the man might not have the means to buy it, so he can just say so and they can compromise and buy one for RM1,000. I’ve heard of weddings that go up to RM50,000, and I do have clients who have incurred such debts,” Shing says.

The couple should decide on a budget for a wedding and make sure they do not break it. If the couple cannot afford the wedding, they might have to consider delaying it, Shing adds. “Let’s say you want to have everything from A to Z and the cost is around RM50,000 — maybe you need to save for two to three years to afford it. Don’t jump in just because people expect you to. A lot of times, when you get married, it’s not about two people but the whole family. But it’s good for the couple to decide what they really want for themselves.”

Shing speaks from experience. When she got married 20 years ago, she and her husband, both auditors, were on a tight budget. “We didn’t have a lot of money … we started work at RM800 a month. So I said, ‘Okay, for the first honeymoon, we can just go to a local pretty hotel in Penang for a few nights. I don’t really need to go overseas.’ The next bigger holiday we had was seven years later when we had accumulated more wealth,” she says.

The next big expense for a couple might be buying a house. But properties, especially in the Klang Valley, are becoming unaffordable for many young people. Tay says while many parents or in-laws may pressure young couples into buying a house once they get married, he thinks they should seriously discuss their ability to take on such a financial burden.

“There is no point in owning a house when you can’t even afford it in the long term. What’s the point of going through this when in the short term, you cannot finance it? What’s more, it will also cause much financial constraint because it may lead to bankruptcy,” he says.


Talk about spending habits

Couples should be frank with each other about the debts and financial responsibilities that they have. In addition, they should discuss their spending habits and how they view money.

“Let’s say the lady likes to buy things, but the man is very thrifty. Do you think they will end up arguing about money? If the man can wear the same pair of trousers for 20 years but the lady has to change hers every month, it is a small matter that could destroy the marriage. I don’t think it’s worth it. There are ways to work around it, depending on whether you’re willing to compromise,” Shing says.

“Some people say, ‘I cannot keep money, so I don’t save’. There is also the other mindset of, ‘I don’t want to spend money, I save all my money’. I met a couple the other day where the husband is okay about getting into debt and buying houses because he thinks it’s a good debt. But the lady does not want any commitments. I told them that they have to find common ground.”

In declaring their assets, how frank should the couple be?

“I’ve met parties who choose to have their secrets. For example, the couple might have a joint account, but they will have their own separate accounts that they tell me about privately, saying, ‘I don’t want to show my full income or savings to my spouse because of uncertainties’. The question comes back to whether the partners trust each other. Should they declare their assets fully or agree to keep their accounts separate? This is very important to establish,” Tay says.

Sometimes, couples may not want to declare all their assets or accounts because they’re afraid their other half might make unreasonable demands, Tay says. Of course, if the assets are fully declared upfront, the advantage is that if either party were to pass away, the assets can be properly distributed.

“Imagine if the husband were to pass away but he didn’t declare his assets fully. Then the wife wouldn’t know that there are other assets,” he says.

Another very common question many couples ask is whether they should have a joint account after they get married, Shing says. While there is no hard and fast rule, she suggests couples have individual accounts and only use a joint account if they have a common goal.

“For example, if you bought a house in both your names, that could be a joint account. Or let’s say you have children and you’re jointly responsible for their education, then have a joint account to contribute to that,” she says.

However, Tay warns that joint accounts should have a survival clause to protect the account holders in terms of ownership transfer should either party pass away. He has observed cases where the surviving spouse is unable to get access to funds in a frozen joint account in times of need.


Women should be financially savvy

As more women are becoming salary earners, they are also becoming more involved in financial planning for the family. Shing encourages more women to equip themselves with financial knowledge early on. “Whether it’s men or women, they should have individual accounts. Don’t think just because you have got married, your husband will take care of everything. I think women have to become financially literate and not rely on 

other people. At least, take the first step and slowly grow your knowledge. I have a lot of customers who tell me I’m very long-winded and they don’t understand me, but I tell them, ‘Don’t worry, the first time you hear what I say, it’s like an alien language. Please see me a few more times, I will repeat the same things and you will gain understanding.’ The world is changing, everyone should at least know where their money goes to and how to plan for themselves,” Shing says.

Goh Siu Lin, partner of law firm Kee Sern, Siu & Huey, says this is especially important if a marriage were to break down.

“Many women come and tell me they didn’t know what was happening in the marriage. It’s very difficult then to trace what assets belong to the marital pool for division when there are no details of bank accounts, property or shares,” she says.

“It’s also to protect your children. Typically, the breadwinner will have the lion’s share of the marital assets, so if he is no longer around, you need to know where to locate the resources to maintain the children.”


In case things don’t work out, some legal issues to be aware of

When talking about financial issues before marriage, some may think of a prenuptial or premarital agreement. Typically, the written contract lists the properties and debts of each party and specifies their rights to these after the marriage. While a prenup is legally recognised in countries such as the US and the UK, it is not recognised in Malaysia.

Goh Siu Lin, partner at law firm Kee Sern, Siu and Huey, says prenuptial agreements are not automatically valid in Malaysia, but may be seen by the court as evidence of the parties’ intentions when they enter the marriage. There have been some cases in the UK and Australia where couples tried to either enforce or annul their prenuptial agreement due to arguments about assets.

“It’s mainly about assets and how to carve them out. That’s what was happening in Australia and the UK. In the Malaysian context, we are still very far from conclusively coming out to say yes to prenups as an everyday approach to resolving financial disputes (in marriages),” Goh says.

Another legal issue couples should talk about is inheritance, she adds. “When you marry and you have an existing will, the law automatically revokes it. After that, if you don’t prepare a fresh will to take into account the interest of your spouse and future children, then the Distribution Act will kick in and distributions would be in the order of priority. So, it would be one quarter for the parents, one quarter for the spouse and the remaining half for the children in equal shares. Muslims have a different scheme under shariah law.”

For those who come into the marriage with inheritances that they would like to keep separate from the marital pool, Goh advises them to set up a trust. The spouses have to be clear about their goals for the assets acquired pre-marriage and post-marriage.

“If the property was an inheritance, a provision in the Law Reform Act says although it may be a gift, if the other spouse enhances the value of the asset through, for instance, renovating it, then it could be a factor considered by the court, which may provide a small share to the said spouse,” Goh says.

It would be wise to fully disclose your assets and debts. “Sometimes, one party might not disclose credit card debts, massive loans or even their bankruptcy status, which would then jeopardise future acquisitions of assets and undermine the stability of the family,” she says.

“If an asset is in the husband’s name and he becomes bankrupt, the creditor would then try to liquidate it. Or if he has money, the creditor might want to get access to it even if it is in a joint bank account. Sometimes that is possible. That’s why it’s important to have your interest reflected in the title deed. Usually, the breadwinner will have his name on the title deed and nobody is aware of the homemaker wife’s interest, and that’s how trouble escalates for the mother and children,” Goh say.