Money and Marriage: Merging Finances the Right Way

1. Debt

Approximately 45% of newlyweds went into debt for their wedding. That’s on top of whatever debt they may have had before (which matters since your partner’s debt becomes your own unless you have a prenup that keeps each spouse’s debt separate). Ideally, it’s something that you’ve spoken about before tying the knot. Undiscussed debt is the number one reason that marriages end up in divorce according to Fatherly.com.

Before asking about your partner’s finances, be sure to have yours in order. You should know how much cash you have, how much debt you have, and your credit score at the very least. It’s also a good idea to have an understanding of the other’s attitude towards money — including spending, saving, and taking on debt. Here are some great questions to start this discussion:

1. What are your spending habits? Are you a saver or a spender?
2. Do you feel secure or worried about your current finances? Why do you think that is?
3. Should we make all our financial decisions together or do we assign roles?
4. How should we handle making large purchases? Do we need to get permission from the other?

Download the net worth worksheet»

2. Banking

Is a joint bank account the right option for you? There’s no right answer, but it will largely shape how you approach finance as a couple. Benefits of a shared account include greater convenience, transparency, trust, and unity. Having a joint checking account doesn’t affect your credit rating so there is no need to worry about your score when you share an account.

But having separate accounts has its perks too. It allows each partner to decide what to do with their disposable income, which could be attractive to couples with big disparities in income or who have a significant amount of debt.

Benefits of Joint Accounts	Benefits of Separate Accounts
No need to divide bills	Allows each partner to have their own spending money
Easier to budget and pay for collective expenses	Keeps income separate if you have different spending habits and banking philosophies

Action idea: Decide early on how you will set up your checking and savings accounts as a couple. It is usually more beneficial to have at least one joint checking and one joint savings account.

3. Insurance

Should you be on the same insurance plan?

When it comes to medical coverage, it’s an easy choice if one spouse doesn’t have any health care plan available, but what if both spouses already have individual health plans? One reason you might want to stay ‘single’ with individual health insurance is if your partner’s health needs are far different than yours and require much more healthcare costs, according to Health Care Insider. One healthcare plan has much higher deductibles and the other does not. Monthly premium(s) should be taken into account as well.

When it comes to auto insurance, combining policies can lead to significantly lower rates and multi-vehicle discounts, according to Car and Driver. However, if one spouse has a bad driving record or low credit score, it’s usually best to have separate auto insurance policies.

Action item: Combine your insurance if it makes sense, as well as your car insurance. Homeowner’s and renter’s insurance are usually combined by default unless only one partner is on the title or rental agreement.

4. Budget

Take some of the emotion out of money and start planning for the future. Before starting a budget, Experian says you need to put all of your cards on the table and discuss what you want in the future. Do you want to buy a home together, or perhaps one spouse still has debt they’re paying off? Determine which financial goals you’ll work towards together, and which you’ll work on separately. If you have a joint bank account, think about how much each person should contribute and at what frequency.

Couples must also determine how common bills will be paid. Should the bills be split 50/50 or should each partner’s income be a deciding factor? About 74% of couples come into the relationship with earnings that aren’t the same, according to Business Insider.

Couples who have a large difference in salaries might agree to split up shared expenses based on how much each one earns. If you’re the type of couple who does not want a joint account, apps such as Splitwise can make things easier.

5. Credit Rating

 An individual’s credit rating does not affect his or her partner. Marriage (and name changes) don’t affect your score because your score is tied to your Social Security number. For these same reasons, your credit history won’t affect your spouse’s score either—both of you will continue to maintain separate credit reports.

If you have a lower credit score than your potential spouse, you don’t have to worry about bringing them down. You can even help a partner with a lower credit score by adding them to your credit card as an authorized user.

Credit scores are also extremely important when it comes time to get financing. If one partner has a lower credit score and both apply, it can weaken purchasing power and end up being a liability. If the spouse with the higher score was to apply on their own, their approval odds would be better, but the total income would be that much less so the amount that one could borrow would be reduced as well. Even though your credit scores aren’t tied together in marriage, you are still combining finances after marriage and you both need to keep your credit files clean.

Got to annualcreditreport.com to download your credit reports for free and see what they say. Then work on improving your credit individually and as a couple. Keep track of your bill payment schedule with a calendar application so they aren’t missed by accident.

6. Beneficiaries

No one wants to imagine that the love of their life would pass away, but ignoring this subject can be financially devastating. It’s often not just a spouse, but children and other dependents that would affected by the death of a spouse.

Both partners need to agree on a list of who the beneficiaries will be, what items or fiscal security they need, and even what to do if those people are not living at the time of the death of a spouse. These details need to be put in writing in a will.

A will is simply a legal document that states who should get assets after your death. If you don’t make a will, the courts will take over, which is rarely in anyone’s best interest. You can hire a good estate lawyer or use a service such as Legal Zoom to create one. Remember that when you combine your finances, you have to also plan for the future.

After creating a will, one of the best protection measures available is life insurance. Life insurance is a policy that protects the surviving spouse, children, or other beneficiaries in the event of the death of a spouse. If you’re in a two-income household and one of the spouses passes away, the life insurance policy can be used so that the surviving spouse and dependents can continue to live in the same house, and that there is enough money set aside for children’s educational needs.

7. Taxes

 According to the IRS, filing together (jointly) is usually more beneficial. Turbo Tax agrees that filing together is advantageous, adding “The IRS gives joint filers one of the largest standard deductions each year.”  A U.S. News & World report adds that a “married couple will typically get lower tax rates” when filing jointly, as well as receive more credits and deductions. Remember that in a marriage you will usually combine your finances as a couple.

However, if one partner has student loans with a high balance or has defaulted on them, a report from CNBC says that filing separately might be better, as any refund could go to the unpaid debt and neither party would get a refund. Another reason might be high medical bills. The IRS allows taxpayers to deduct medical care expenses that exceed 7.5% of their adjusted gross income. Filing separately means you’ll have a lower amount to be taxed and be able to deduct more quickly. Finally, if your tax professional says that both partners can save more money by filing separately, then continue to file as individuals.

If a couple is married by December 31^st the law considers them to be married for the entire year. Additionally, the IRS also reminds us to review and notify them of any name and address changes, for both spouses, to update their W-4 forms and filing status.

8. Financial Goals

As a married couple, you should also talk about some financial goals such as buying a home, planning for retirement, getting out of debt, or saving for a new vehicle.

After agreeing on the goal, the next big question is how to achieve it as a team. If you want to save for retirement – and you should – you’ll need to devote a portion of your income to retirement savings. Likewise, if you plan to purchase a home – a very wise decision for most – you’ll need to dedicate savings for a down payment as well as taxes, maintenance, and hopefully some upgrades. You’ll want to save up for that wedding too if you are still not yet married.

Some questions you might want to ask include:

• Do we want children, if so, when?
• What savings do we need for the children’s education and other expenses?
• Do we want to rent or buy a home? If we want to buy, then when and how much?
• What are our retirement plans?
• How much can we spend on our wedding/honeymoon?

Spouses can have differing opinions on short and long-term goals. Have the conversation and use the SMART goals worksheet below to put your goals in writing. Then discuss strategies to obtain those goals.

Download the SMART goals worksheet »

9. End-of-life Planning

End-of-life planning is as equally important as making a will or having life insurance as we discussed earlier. AARP reports that 92% of people think it’s important to have this conversation, but only 32% have actually talked about it.

The National Institutes of Health emphasizes the importance of end-of-life planning, saying studies show that married adults don’t know their spouse’s end-of-life expectations, and many have never even discussed it. It’s very important to make end-of-life plans formal with documents such as living wills, healthcare proxies (durable power of attorney), and other related legal documents. While it’s best to get this documentation done by a lawyer, you can type up a document and get it notarized.

Include an end-of-life conversation when making a will. Have a living will prepared at the same time as the regular will.

Keep the conversations going

When you first combine your financial life with your spouse or partner, don’t expect that everything is going to be perfect. There are going to be some bumps along the way as you transition into merging your finances fully. Keep in mind that you each have your own financial perspectives and ingrained habits that could lead to conflict.

These tips can help you avoid money fights in your household.

Make a date

Schedule time each week to talk about upcoming expenses. Tell your spouse if you plan to purchase anything significant and remind each other of common bills such as rent/mortgage payments, utility and insurance bills, and so on.

Keep some independence

You should both decide upon a maximum dollar amount that you can spend on something without the approval of the other spouse. This helps each partner have a certain degree of autonomy.

Agree to agree

There is no reason to argue about purchases. When you disagree with your spouse on an expense, you can both write down the service or item and what you are willing to forgo to get it. Try to understand the objection your spouse has. Check and make sure it fits in your budget so you can continue to meet your financial goals. Ask yourself: Is it truly necessary?

Don’t be a cheater

Lying about spending means your marriage is going in the wrong direction. If your spouse (or you) is hiding bank accounts, not letting you see the bills, and/or suddenly has new possessions, there may be “financial infidelity” in the relationship. You can avoid this by being as transparent as possible with your finances.

Don’t let your spouse save, while you spend

There’s nothing worse than working against each other. If one person is trying to save up for a down payment on a house, while the other is trying to give your kids the best Christmas ever, it’s bound to cause friction. Both are admirable goals, but you need to be working together to accomplish them.

Spoil each other with acts, not expensive gifts

It’s easy to go overboard on gifts for the people you love most in the world. But going over-the-top for Valentine’s Days, birthdays, anniversaries and the holidays is an easy way to wind up with big debt. Make a commitment together that you will stay below a certain dollar amount on any gifts – and make sure you stick to it individually when you’re out shopping!

Remember, gifts of experience and gestures usually mean more than the price tag that goes along with a present. So, find ways to spoil each other that won’t break the bank.

Celebrate financial wins

A life of strict budgeting and saving to achieve your goals can be tough, so you need to find ways to celebrate your financial wins as a couple. Make sure to give credit where credit is due when your spouse does something good for your finances. You obviously don’t want to go overboard but finding room in your budget for a nice meal or a fun excursion that you Groupon can help you stay on track and avoid feeling like you’re starved for fun on your road to financial success.

Just keep it simple and healthy

When both spouses are open and honest with each other about finances and marriage, you’ll be rewarded with a lifetime relationship that will be extremely healthy. And remember, if you need counseling to get on the same page, Consolidated Credit is here to help. Call us for a free couple’s financial counseling session at (844) 276-1544.