Money and Marriage: Merging Finances the Right Way
Does your prince (or princess) charming lead a charming financial life?
It turns out that love may not conquer all. One of the leading causes of divorce is disagreements about finances. Both parties need to talk about merging finances before the marriage and continue talking regularly after the marriage to ensure they are on the same page with the family finances every step of the way.
This guide can help you cover all topics you need to cover to successfully combine your finances after marriage. If you have questions, visit our Ask the Expert section to ask Consolidated Credit’s certified financial coaches. Or you can call 1-888-294-3130 together for free credit counseling.
10 issues to address when merging finances
In debt do we part?
In debt we start… 45% of newlyweds went into debt for their wedding; that’s on top of whatever debt they may have had before. Many young couples and even older couples start the relationship in debt. And when you’re married, the partner’s debt becomes your own unless you have a prenup that keeps each spouse’s debt separate. According to an article in Fatherly.com, the number one reason that marriages end up in divorce is because of undiscussed debt. Discussing marriage and finances isn’t the most fun topic when you plan your wedding, but it’s necessary. Having healthy discussions about combining finances after marriage will make it last according to a report in the balance.
Get your facts first… Before you ask about your partner’s finances, be sure to have your own finances in order. That doesn’t mean you have to be perfect financially, but it does mean you need to know your own balance sheet. Find out your net worth by looking into how much you owe others, and what the value of your assets are. Finances in marriage are very important to understand.
Take action: Use the worksheet below to get a detailed account of your assets and liabilities (debts).
Should we have a joint bank account?
|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|
Sharing is caring… Finances are a major decision for married couples, and one of the first decisions is whether to have joint or separate bank accounts or a combination of both. Typically, even with younger couples, both parties will have their own accounts. Experian points out the benefits of a shared account which include transparency, trust, clarity, 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. It’s easy to pay common bills from the same account as well.
But I’m my own person… Good Housekeeping welcomes the idea that having separate accounts because it allows each partner to decide what to do with their own disposable income. That way couples can decide to make their shared purchases together but having their own accounts can give partners their own choices for smaller purchases. Finances and marriage, when discussed openly will lead to a lifetime of happiness.
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.
Should we file taxes together (jointly)?
Mostly Yes… 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.
But Sometimes No… 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.
Helpful Reminder: If a couple is married by December 31st 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.
Action idea: Meet with a tax accountant as a couple to see what options are best for you. You can also use online tax software to help you make that decision.
Should we be on the same insurance?
Keeping it healthy… You might want to stay ‘single’ with individual health insurance if your partner’s health needs are far different than yours, or if you or your partner have a lot of healthcare costs according to Health Care Insider. It could be that one healthcare plan has much higher deductibles and the other does not. The monthly premium(s) should be taken into account as well.
Of course, if one spouse doesn’t have any health care plan available, then they should certainly be included in the policy of the spouse who does have medical insurance.
Keeping it low… According to Car and Driver, combining auto insurance can lead to significantly lower rates and multi-vehicle discounts. Only if one of the spouses has a bad driving record or low credit score should you keep separate insurance. As in other instances, merging finances can save both partners money.
Action item: Combine your health insurance if it makes sense, as well as your car insurance. Homeowner’s and renter’s insurance are typically common bills unless only one partner is on the title or rental agreement.
Happy couples talk openly about their finances
Let’s get together and start talking… Earlier we suggested you come to terms with your own finances before asking your partner about theirs. Once that is done, you both need to have the conversation.
Some questions you might want to ask include:
- What debts do you owe?
- How much savings and investments do you have?
- What are your spending habits?
Let’s think together about our money attitudes… Everyone has their own attitude about money and finances. In fact, our relationship with money can be extremely emotional. Additionally, anxiety and avoidance can create a vicious cycle, according to Forbes.com.
Some questions you might want to ask include:
- Are you a saver or a spender?
- Do you feel a sense of abundance, or do you fear where the next paycheck is coming from?
- Do you follow economic news?
- Do we make all our financial decisions together or do we assign roles?
Action item: Couples need to talk about their attitudes towards money in addition to how much they might owe or own. Ideally, this conversation should take place before the wedding, but even if you’re already married, it’s never too late to start.
Plan before you spend
Let’s work together with a budget… Now that the two of you are one, you can take some of the emotion out of money and plan for the future. Before you start a budget, Experian says you need to put all of your cards on the table and discuss the future you both want. As we explained earlier, both parties should have their financial history ready and then be open about it. Marriage and finances need transparency.
Some actions you might want to take include:
- Setting up a budget. This should include typical household expenses such as rent or mortgage payments, car loans, student loans, food and entertainment and much more.
- Using easy tools for budgeting. Using tools such as Mint, Tiller, or YNAB make budgeting and household finances much easier. Your bank or credit union may also provide budget and money management tools that are built into your accounts for fee.
- Deciding on investments. Investing involves risk tolerance, and, you guessed it, both parties are likely to have different levels of risk tolerance.
Who is paying for what… Couples must determine how common bills will be paid. Will they be paid directly from a shared bank account or from individual accounts? About 74% of couples come into the relationship with earnings that aren’t the same, according to Business Insider. This imbalance can also cause issues including resentment in the relationship. So, it may be better to have that shared account, perhaps in addition to individual spending accounts.
If couples decide not to have a joint account, and bills are paid from individual accounts, should the bills be split 50/50 or should each partner’s income be a deciding factor?
Obviously, this depends upon what is best for the couple. Couples who earn roughly the same salary might go 50/50 on all shared expenses. 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. Finances in marriage should be discussed before the wedding.
Action item: Use the worksheets below to write down expenses and income, so you can understand where income is going. Plan ahead with budgeting. Don’t forget to include long term goals. Even if some bills are paid individually, they should be included in the budget.
Credit rating really does matter
First the good news… An individual’s credit rating does not affect his or her partner. According to American Express, marriage (and name changes) don’t affect your score, because your score is tied into your Social Security number. Additionally, your credit history won’t affect your spouse’s score—both of you will continue to maintain separate credit reports. So, 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.
But the bad news… As a couple, you’re likely to want to purchase things together such as a house or car. If one partner has a lower credit score and both apply, then the terms of the purchase won’t be as good. So, it’s likely that a higher interest rate will be charged. The spouse with the higher score can apply by themselves, but then, because the income will be that much less, the chances for approval go down, and the amount that one can borrow will be less 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.
Action item: 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.
You owe it to your spouse and loved ones
Planning for the unavoidable… As you get married very few like to think about the long-term future, like what will happen when one of the partners passes away.
Both partners need to understand what would happen in that case, and how each would be affected. It’s often not just a spouse, but children and other dependents. 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.
This needs 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.
Providing for the unthinkable… It might be unthinkable to newlyweds that one spouse could suddenly pass away. But it does occur. Your family would be financially devasted with the loss of income. This is why you need life insurance. 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.
Action item: Make a will and purchase life insurance as soon as you can, even before the wedding.
Saving your loved ones from difficult choices
Making your wishes known… End-of-life planning is also one of those subjects newlyweds may not want to discuss. But it 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 the conversation, but only 32% have actually talked about it. The National Institutes of Health emphasize 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.
Action item: Include an end-of-life conversation when making a will. Have a living will prepared at the same time as the regular will.
Getting together on goals
Working together will get you there faster… As a married couple, you should also talk about some financial goals. Goals could include buying a home, planning for retirement, getting out of debt, and much more.
It’s essential to write down the goals and make the necessary sacrifices to achieve those goals. 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?
Action item: 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.
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 1-888-294-3130.
Ask the Expert: How Credit Counseling Works for Couples
If you hold joint credit card accounts with your spouse, you would need to enroll in debt management plan together. Learn how credit counseling works for couples.
Ok, you’re asking a very good question about do a husband and wife need to be on a credit counseling account together, and the answer is it really depends on your situations.
There are reasons why you would want both people on the program and reasons why you may not want both people on the program, and it would really involve me getting to know more about what your individual situation is outside of the debt management program.
The only people who are obligated to participate in the debt management program are the people who are the actual signers on the accounts. These are the people who have signed the loan application, promising the credit card companies that they’re responsible for making the payments.
This is different from an authorized user. You may have a credit card and you could ask the credit card company to give you another card in your husband’s name, and then he’s just an authorized user – he never signed a piece of paper saying that, “If neither of us pay, I’m still responsible for paying.”
If that card is with a bank that you’re also including another card from that bank on the program that’s just in your name, you would have an issue that would affect that card.
The simple answer is, if want to just put your cards on the program you can, we can do the budgeting work just on you, we can do it on you and your household, or we can do both. But in the end, if your name’s on the card you’re the only one who has to join the program.