Getting married is one of the most impactful decisions you can make in life. While celebrating all the great things about your new partnership, it's also important not to forget how your finances can play a role. Whether you've been happily married for years or you're about to say "I do," you don't want financial conflict to derail your decisions together. It’s a good idea to sit down and take a clear look at your finances, both as individuals and as a pair.
Should you combine finances after marriage?
The decision of whether or not to combine your finances or keep them separate is a very personal one and depends on your situation as a couple. Here are some of the pros and cons to consider as you make your decision.
Benefits of combining your finances
- Combining finances may make it simpler to manage one combined account from which all bills are paid.
- Combined accounts reduce time and hassle associated with deciding who pays which bills and how much, which can be a burdensome task.
- Combined finances make it easier to work toward common financial goals and have complete visibility into your combined spending, savings, etc.
Benefits of maintaining separate finances
- If one individual has a large amount of debt or a poor credit score, it can be wise to keep finances separate.
- For couples who have vastly different spending habits – an individual who likes to save and another who likes to spend – keeping finances separate can help avoid money conflicts.
Debt
Debt can be a major source of strife in a marriage. It's important to be as transparent as possible about your debts before you wed, and to develop a game plan for addressing your debts as a couple. If one of you has a significant amount of debt and the other is debt free, it's important to know if and how you can afford to tackle your debt as a team. Budget planning can be key, and sticking to your budget can be even more important.
Income and assets
Your finances aren’t just your bank account. As you assess your financial situation as a couple, it’s important to consider all income and assets – not just your paycheck and your bank account. Think about the following:
- Do either of you own property? This can be a sizable asset but you will also need to consider property taxes and any upkeep expenses associated with that asset.
- Are there investments that should be considered? Investment accounts, 401(k)s, etc?
- Are there life insurance policies that will need to be maintained or reevaluated upon marrying?
- Are there any ancillary income sources generated from a rental property, dividends or ownership in a business that should be accounted for?
Be sure to take a comprehensive look at assets and income when planning your financial future together as a couple.
Lifestyle plans
Plenty of people get married later in life or have second marriages years after their first ended. So you might be in a very different place getting married at 45 than you were at 25. Make sure you discuss your future plans and goals together so you can build your finances around them and create budgets to help accomplish your goals.
Prenuptial agreements
You might not want to go into a marriage thinking about how it could end. However, a prenuptial agreement is a financial document that can help protect children and assets. Many couples consider them.
Credit scores
Good or bad, it’s important that couples are transparent with their partner about their credit score. This important information can help inform a decision on whether to combine or leave finances separate. If one individual’s credit score is low, the couple can work together to improve that credit score.
Considerations for couples combining finances
Before you get married, there are plenty of things to go over with your future spouse — from planning the big day to scheduling a possible honeymoon. Sometimes, discussions of your finances can get lost in the shuffle — but you certainly don't want to miss having the conversation altogether.
As you prepare to officially combine your finances, here are some topics to discuss:
How you'll combine everything
For example, you might fully join finances or prefer to have a joint account that you each contribute to, while keeping some money as "yours." Take time during this discussion to also figure out how you plan to pay bills.
Taxes
If you're like many married couples, you're probably planning on filing taxes jointly with your spouse - and with good reason. The married and filing jointly (MFJ) status generally allows you both to take advantage of many deductions and benefits together as a couple. However, there may be certain situations when filing separate tax returns might be considered. Situations may include:
- Spouses who are living apart or separated (but not yet divorced) and wish to keep their finances separate
- A spouse who prefers not to be held personally and financially responsible for the other spouse's return due to possible inaccuracies
- A spouse who is unable or unwilling to sign a joint return
- When one spouse wants to file a return and the other does not
- When it simply makes better financial sense to file separately
According to the IRS, couples that married filing separately generally end up paying more in combined taxes than if they were to file jointly. For this reason the IRS recommends that unless you are required to file separately, you should try to figure your taxes both ways - on a joint return and on separate returns. This way, you can be sure you are using the filing status that could result in the lowest combined tax. The IRS also suggests that when figuring your combined tax as a married couple, to consider state taxes as well as federal taxes
Retirement goals
As you age, your retirement planning can become more important than ever. Discuss what you'd like to get out of your retirement and then work on ways to save toward those goals. Contributing in a 401(k) through your work or opening an individual retirement account may help.
Life insurance
Once you're married, priorities can change. If you have kids or make a big purchase like a home, you'll want to ensure the people you love are protected. Life insurance can be one way to give you the assurance they'll be taken care of if the unexpected happens. The process of applying for life insurance may be easier than you think. Start by getting a quote.
Wills and estates
If you don’t have a will, now is the time to create one to ensure your assets are handled the way you want. If you already have a will, it’s critical to take time to update your beneficiaries to include your new spouse. Failure to update your will can result in lengthy court reviews and legal battles.
Fun money
A lot of money discussions are around serious topics. However, don't forget about having some fun with your money, too! Consider setting aside savings that you can use for nights out, special treats and vacations to enjoy together.
Keep an open dialogue
Talking about money doesn't have to be a tricky subject. Take a look at your finances and work together to create a budget that you're both comfortable with and helps you hit your short- and long-term goals. The more open communication you have around your finances, the less likely you’ll run into monetary conflict in your relationship.
If you need assistance, you may consider seeking the expertise of a financial professional who can help you get your finances in orders.
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