Money and Marriage: Merging Finances the Right Way
Learn how to combine your finances after marriage to ensure you’re both on the same financial page.
A happy marriage isn’t always an easy path and fights about money have the potential to get you off track. Managing your money is hard enough on your own, but when you’re merging finances with person that has their own financial perspectives, it gets even tougher. That’s why it’s important to have an honest conversation about money with your spouse, preferably before you tie the knot.
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.
10 key money and marriage topics to cover before you tie the knot
One big topic that you need to cover first is how you’ll maintain your bank accounts. Will you both close your individual accounts and open one set of joint accounts or will you keep your accounts separate? What about savings accounts? This is usually a matter of preference, but each option has its benefits.
|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|
If you decide to get joint accounts, you will also need to decide together what types of accounts you want.
- Are both of you on board with an account that has a minimum balance limit, or do you need no balance limit?
- What kind of overdraft protection do you want?
- If you’re going paperless, who’s email will receive statements and notifications?
Deciding to get joint accounts will also give you the opportunity to shop around for better checking and savings accounts. Look for savings accounts with higher interest rates for better growth and compare features to get the best accounts for your needs.
Each of you likely has a different philosophy on how you manage your bills. You need to talk about those philosophies, so you can both get on the same page – even if you decide to maintain separate accounts.
If you will get a joint account, then make sure to map out when all your collective bill payments will happen. Also map out when you each receive your paychecks. This will help ensure you can always afford to make bill payments on time. Also, figure out which bills, such as mobile services you can consolidate. Finally, decide together how you want to pay bills. You can use:
- AutoPay, which you set up through your bank accounts. This deducts a set amount on a set date, which is good for fixed expenses, like loan payments.
- Direct Debit, which you set up through the billed account. This deducts the exact amount the bill requires on a set date, which is good for flexible expenses like utilities and mobile bills.
- Manual payment, where one of you manually pays the bills, either through an app, through online banking, or by mail.
If you’re going to maintain separate accounts, then you need to figure out how to divide the household bills in a fair way. If one person ends up paying for everything, it can create tension in your relationship. Assuming both partners are working full-time, both of you should feel like you are contributing equally.
Saving money will be essential for you as a couple as you work to achieve your life goals. Ideally, you should save 5-10% of your income each month. If you can’t afford to save that much, then you must save what you can. Savings should not be left to whatever money you have in your account at the end of the month. That’s a good way to ensure you never save anything.
Instead, work out your household budget together and determine how much you can afford to save each month. This should be become a fixed expense in your budget – like a bill you pay yourself. Then decide how you’ll save the money each month. Setting up an automatic transfer to savings can be useful. Or one partner can ask your HR department to split your paycheck to deposit part of it directly into savings.
Also talk about how your savings will be used and when. How much of a financial safety net will you build? When will you start investing? What types of other saving products, such as Money Market Accounts (MMAs) and Certificates of Deposit (CDs), will you use to support your savings goals?
This conversation should start with where each of you stands when it comes to credit. What is each spouse’s credit score? If one partner has a low score, why? Once you’re married, you will still maintain individual credit scores and credit reports. However, any joint accounts will affect both spouse’s credit. So, make sure to keep up with the payments on joint accounts or you can drive down both of your credit scores.
Credit will also come into play when you apply for loans. If one spouse’s credit score is low, it can mean that you may not get approved for the best rates and terms if you apply jointly. So, you may decide to apply for a loan as an individual at the beginning of your relationship if your spouse’s credit is low. If one partner has a low credit score, they should take steps to build credit, so you can apply for loans jointly.
If one or both of you hasn’t taken advantage of your free annual credit report download, got o annualcreditreport.com. You can download your reports from the three bureaus for free once every twelve months. Use this as an opportunity to have full transparency about your credit.
Also, make sure to discuss your overall philosophies about using credit. Some people avoid credit cards entirely, while others use credit card hacks to rack up points and bonuses. Both of you need to be comfortable with how your household will use credit moving forward.
Following on the conversation about credit, you should also have a conversation about how you both like to manage debt.
- How much debt do each of you currently have?
- How much of that is loans and how much is credit cards?
- Do you both pay off credit card balances in full every month or do you carry balances over?
- Does one or both of you try to make extra payments or larger payments on loans to pay them down faster?
- What are your perspectives about the right time to use options like refinancing and debt consolidation?
You should also check both of your debt-to-income ratios (DTI). This measures your total monthly debt payments versus your total monthly income. Lenders use this ratio to determine if you have too much debt when you apply for a new loan. You won’t get approved for a loan if your DTI is above 41% with the new loan payments factored in. So, you generally want to keep your collective DTI below about 36%, so you can afford any new loans you wish to apply for.
Another key topic to talk about is tax planning. First, you need to decide if both of you will file as married filing jointly or married filing as individuals. Which option you choose will change your tax bracket and how much money you end up getting back from (or owing) the government. Also answer these questions:
- Do both of you use a standard deduction or do you itemize your deductions?
- How do each of you feel about tax refunds? Do you try to break even with your taxes to receive a small refund or do you prefer to get a big refund? (Hint: It’s better to go for a small refund and get more money back in each paycheck)
- How early do both of you like to file?
- Do you eFile?
- Do you use a tax preparer?
When you get married, one or both of you may want to adjust your W-4 tax withholding from your paychecks. If you increase your number of exemptions claimed, the IRS will take less money out of each paycheck.
Insurance is another topic you need to figure out to make sure your household is fully covered. Once you’re married, you may be able to bundle auto insurance policies, and possibly include homeowner’s insurance as well if one of you owns OR you plan on buying a home together. If you’re not homeowners, make sure to discuss renter’s insurance for your home. You need to make sure your property is covered fully, regardless of whether you rent or own
You also need to talk about life insurance policies, especially if both spouses will be working. Now that you’ll be living in a two-income household, it’s likely that your monthly expenses will adjust accordingly. If one spouse dies or becomes permanently disabled, it can place an immense burden on the other spouse. Things like life insurance and accidental death and disability insurance are meant to help your spouse get by if your income is lost. These types of insurance become even more important when you have children involved.
If you have any existing life insurance policies, as well as retirement plans, then you may need to change your beneficiaries when you get married. You will generally want your spouse, as well as your children, to receive the full benefit of these policies and your retirement accounts, should you pass away.
This conversation can get a little more complicated if one or both spouses has children already. You will want to talk about how your assets will be divided to ensure both your children and your spouse can transition smoothly after your passing. This will also naturally blend into the next conversation about end-of-life planning
Besides insurance policies and beneficiaries, you also need to talk about financial issues related to one of you passing away. Both spouses need to write out a will that distributes your assets and possessions after you pass. Depending on where you live, the wills must be notarized to be considered legally binding.
In addition to dividing possessions if you pass away, you also need to outline Power of Attorney if one spouse becomes disabled. Power of Attorney gives someone the ability to make medical and financial decisions on your behalf. You will generally want your partner to have Power of Attorney to make decisions for you. This can avoid conflicts with other family members in case you are unable to speak and voice your wishes yourself.
Finally, if either spouse will bring children into the marriage and you will blend your family, you need to discuss what will happen to the children if the birthparent dies. You want to make sure that the children are taken care of and can transition as smoothly as possible.
Once you talk about all the concrete financial matters you need to nail down, there’s still one more topic that you need to cover. You should discuss your financial goals. You need to know what both of you have in mind for the future – and how soon you want to get there.
- If you want to have kids, how soon do you want to start your family?
- Do both of you want to become homeowners and, if so, when?
- How much do you want to travel?
- When do both of you want to retire and how do you want to spend your golden years?
These kinds of questions will help you define how you need to manage your money in order to support these goals. It will also ensure you are both on the same page as you move forward. This will help you avoid situations where one spouse is spending, while the other is trying to save for a goal.
Ensuring a happy financial home after merging your finances
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.
Things can also slip through the cracks as you get accustomed to managing your money as a couple. If you decide to get joint accounts, you’ll need to get comfortable with two people making transactions on the same account. Overdrafts can happen, which is why you need to make sure your accounts have appropriate overdraft protection.
These tips can help you avoid money fights in your household.
Talk about issues as soon as they come up
Whether it’s an overdraft on your account or a late bill payment, make sure to bring up issues immediately with your spouse. Don’t wait for your spouse to notice the issue if you caused it, and if you find something don’t let it fester. Talk about what happened and, more importantly, how you can avoid having that issue in the future.
What you really need to avoid is keeping financial issues and gripes with your spouse bottled up. You can build resentment and it may lead to challenges in your relationship. Get everything out in the open, talk about it, and then move on.
Don’t hide money… or debt
Financial infidelity refers to any practice of keeping aspects of your financial life hidden from your partner. In some cases, you’re hiding money, so that you can spend it on what you want without your significant other finding out. In other cases, you get a secret credit card and keep the debt hidden, so you can continue shopping. Whatever the case, it’s a recipe for conflict in your relationship with the spouse eventually finds out about it.
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 those are admirable goals, but you need to be working together to accomplish them.
When you decide there’s a new goal that you want to achieve, take it to your spouse so you can discuss it. Then you can set a SMART goal for it together and start working to achieve it.
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 than 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.
Face challenges like debt together
Just like you don’t want one spouse saving while the other spends, you also don’t want one working to pay down debt while the other keeps charging. If you see that you have too much debt and it’s eating into your budget, commit together to find a solution and pay it down.
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.