So, you're getting married. You've planned the wedding, booked the honeymoon, talked about the important things, like whether or not you want kids. But have you talked, seriously, about money? You don't want to find out too late that you and your spouse are a bad financial match. In this column, Early Show money maven Ray Martin shares some suggestions to keep money from ruining your relationship.
Coupling and FinancesBen Franklin once said, "Keep your eyes wide open before marriage and half shut afterwards." That's good advice, especially when it comes to your finances.
When two people become a couple, whether they just live together or get married, they form a new relationship with their money. They also confront a new set of financial decisions. Should they combine their finances? How much should each contribute to the couple's bills? Who will manage the couple's finances? These are some of the basic money matters that couples need to think about.
The "Money Talk" for Couples
Most couples talk about having children, but they rarely talk about money before getting married. It may not be romantic, but it's no less important.
Here are some of the money issues that couples should discuss before mixing their money with their relationship:
What You Own and Owe: Each person should write up a simple list of his and her assets and debts, including descriptions, amounts and monthly payments for each. Getting married does not necessarily require taking ownership of each other's assets and responsibility for each other's debts. In fact, the debt one partner brings into the relationship, such as student loans and credit card debt, is not the legal responsibility of the other. Credit Scores and Problems: What is each person's credit score? Has either person filed for bankruptcy or had credit problems? It's a good idea to get this out in the open and resolve how to deal with it, because it will come out later, when you apply for a joint loan for a car or a home. Also, ask if there are tax problems, such as non-filing of tax returns, tax liens or nonpayment of taxes owed. These problems could cause an unsuspecting partner grief when they file a joint tax return. One way to guide this discussion is to have each person get a current copy of his and her credit report and review it with each other.Sharing Bills and Expenses: If there are two incomes, discuss what each earns and how to apportion household bills and shared expenses. One way to do this is to divide your take-home pay by the joint take-home pay. Apply the resulting percentage to the household bills and pay that amount. While the partner who earns more will pay more, each will pay the same proportion of expenses as compared to their income. Some couples assign expenses -- you pay the rent, I'll pay for groceries, phone, cable/Internet bills, etc. Others use one partner's income for all expenses and try to use the other income to build up savings for goals such as a down payment for a home. Setting up Financial Housekeeping
There are three commonly used systems for money management to consider when setting up financial couple-hood:
1) The Traditional: Pooling both partners' money into one account. This is the best way to have a clear view of what is coming in and going out in financial terms. But the challenges will include keeping organized and maintaining control of the checkbook. Wars have begun over lesser issues.
2) The Modern: Each partner maintains his or her own accounts and responsibility for the bills is divvied up between them. This provides the ultimate in control for those who are set in their ways or just so financially incompatible that this is the only way to coexist financially. There will be double the number of checks to write and records to keep. Unless your bank offers a relationship deal, you may also get dinged for extra fees. It will also add extra work to paying for any joint obligations, such as mortgages and loans.
3) The Combo: This is a combination of the Traditional and the Modern. Think of this as sharing a bathroom, but having separate sinks. Each partner deposits his and her pay into their separate account, then transfers an agreed amount to the joint account to pay the household bills.
Regardless of which way you go, you'll need to decide who will be the household accountant -- the partner who will take on paying the bills and keeping track of the expenses. Just remember, the partner who takes on this thankless job gets out of his or her choice of other loathsome household duties! Even though one partner becomes the household accountant, both partners must be aware at all times of the household financial status and how the money management system works. You also need to agree on who will have the responsibility to write down checks and ATM/debit card transactions that have joint access.
As a couple begins to make financial decisions jointly, they will confront some important decisions. Here are some of the main financial matters and what couples should consider: Consider Joint Credit Carefully: Couples almost always bring their own credit cards into the relationship, with each partner having several. Take an inventory, consolidate, and close out unnecessary cards and accounts. Also, it's a good idea to keep one credit card in a partner's maiden name to avoid the hassle of reestablishing credit later on. Simply getting married doesn't obligate each partner for the others' debts. But do be aware of the legal term "joint and several liability" when opening joint credit accounts. If one partner racks up loads of debt and skips out, the remaining partner will be required to pay the entire amount owed on joint credit accounts.Joint Tax Returns: Filing "married" is required beginning for the first year in which the couple is married. While it is most common for couples to file married-jointly, they can chose to file married-separate income tax returns. Reasons to file separate may include possible tax savings where one partner has deductible expenses for separate property or medical expenses that are significant relative to his or her separate income. This may enable one spouse to claim deductions that are otherwise disallowed when filing jointly. Another good reason to file separate income tax returns is that you suspect your spouse is less than forthcoming in reporting his or her income and/or deductions. If you file a joint tax return and enjoy a lifestyle that is enhanced by the financial gains achieved by fraudulently filed joint tax returns, don't think you can play the innocent spouse card when the IRS comes calling! Choosing the "married-separate" tax filing status is the best way to protect you from another tax-cheating partner's misstatements and errors. If this is your concern, perhaps you should reconsider the nature of your association in the first place.Changing Names: If you do decide to take the family name of your partner, you will need to notify the Social Security Administration, your state's motor vehicle authority (drivers license, title and registrations), financial institutions (banks, mutual funds, insurances, brokerages, etc), and update citizenship documents (passports and visas). For this reason alone, many women find it more convenient to keep their maiden name.Update Property Insurance: Some couples come away from their engagement or wedding with lots of loot. Whether you rent or own your home, you'll want to get a personal articles rider for valuable items, such as your engagement ring and the silver table settings you received as wedding gifts. Lose your diamond down the sink drain while washing the dishes and you'll be glad it's insured!Update Employee Benefits: Getting married is a qualifying "change in family status," which allows you to make new elections under employer-provided health and life insurance benefit plans. If both of you have employer-provided coverage, use this opportunity to change your benefit elections to select the coverage that best meets both of your needs. Also, consider how much life insurance is needed to support a partner who is financially dependant on the other.Get Wills: If there will be property owned separately, and especially if you are expecting children, get a will or update an existing one to reflect your wishes. Also, update the beneficiary designations on retirement accounts, employer-provided benefits and life insurance policies. These designations will supersede whatever is stated in your will, so do not let this go forgotten. It's also a good idea to get or update a living will and health care agent to clarify your intentions for final care and the designation of people to make these decisions.