05/29/2015 03:53 pm ET Updated May 29, 2016

Financial Incompatibility Can Cost You

A recent MONEY survey revealed that 10 to 40% of all married and cohabiting couples are in the dark about each other's retirement plans. This is not a surprise. Disagreements over money are the leading cause of all break-ups. For many couples that I see, the path of least resistance becomes ignoring the subject of finances entirely. This, however, is a big mistake that can erode your financial security over the long term.

To foster a healthy discussion of finances in a non-confrontational manner, I recommend that couples consider creating a Love Contract. This document is a tool that can be used to remove the animus from financial discussions and develop a solid financial foundation for the future. Yes, the words "Love" and "Contract" appear to be an oxymoron when combined. The notion of entering into a contract with a romantic partner may seem like a big turn off. Before dismissing the concept, however, consider the fact that married couples already have a legal contract. The contract is in the form of state matrimonial laws that determine who is entitled to what in the event of a split. Over the course of the past 15 years, an increasing number of my clients have opted to make their own decisions in this regard by creating Pre-Nuptial, Post-Nuptial, and Cohabitation Agreements.

As a next step, I began encouraging couples to customize these documents to include provisions to address lifestyle issues, pet-peeves, shared goals as well as "deal-breakers". These lifestyle provisions form the basis of a Love Contract. Love Contracts can include infidelity penalties, vacation schedules, social media parameters, fitness goals. They are also particularly well suited to dealing with financial issues within a relationship. Applying the contract process to a couple's financial life requires each party to:

  1. 1. First, become clear about one's goal. This may take the form of reducing debt, building up savings, investing in real estate etc.
  2. Each party is then asked to separately identify actions that they alone can take toward the goal. Can I, for example, buy fewer shoes, eat more meals at home, "loan" less money to adult children, or come up with a plan to rent out my dream vacation house during the weeks that we don't use it. By focusing on our own goals and money behavior first, we are taking the energy out of the tired "money scripts" all couples have: "You spend too much", "You don't make enough" "You can't say no to the kids"
  3. Only once we have taken a critical look at our own behavior, have we set the stage for Step three which is to sit with our partner and share our financial goals and action steps. Because we have refrained from finger pointing, we are much more likely to be met with enthusiasm and spontaneous offers of assistance. The actions and goals that both parties believe they can live with become incorporated into the contract.

Putting our goals and agreements in writing heightens clarity, improves communication and insures against faulty recollections. Implementing the specific steps of the contract process reduces the possibility of the discussion degenerating into finger pointing and anger.

The Love Contract is both a relationship blueprint and mission statement for a couple. It is a dynamic process that encourages periodic introspection and goal review. Properly utilized, the Love Contract can produce powerful results in terms of strengthening a couple's financial foundation.

Ann-Margaret Carrozza is a New York Attorney and TV Legal Contributor who also served as a NYS Assemblywoman.