In this topic, we cover:
The importance of talking about money both before and during marriage.
The potential tax considerations of getting married.
Getting married is not only a personal commitment, it is also a very special financial arrangement - maybe that's why so many marriage vows include the phrase "for richer or poorer." While some couples choose to keep their finances separate for day-to-day spending and even for retirement planning, financial goals and behaviors are likely to play a central role in any marriage.
When couples join their financial lives in marriage, there's a lot more to consider than whether or not to get a joint checking account. From changes in everyday spending behaviors to what happens to existing financial assets or liabilities, the financial aspects of beginning a life together are too often ignored.
While this module cannot speak to the complexities of every situation, there are a number of topics that every couple should consider when beginning a life together. Research has shown that money issues are one of the leading causes for stress between partners, so keeping an open line of communication about money could help to minimize financial stress and conflict.
Conversations about Money
Talking about money can include anything from setting long term financial goals to setting clothing budgets. Communication topics should include:
- Setting Financial Goals - Setting financial goals is key to staying on track with a budget and achieving financial success. Consider completing the financial goals exercise together - it covers daily, monthly, yearly, and long-term financial goals. For example, a long term goal may be paying off debt or saving for a home. How will you set shorter term plans to reach your long-term goals? A yearly meeting will give you the opportunity to assess progress and to revise goals if needed.
- Maintaining a Monthly Budget - Once you have prioritized your monthly budget goals, a monthly meeting can be effective for sticking to it. Many experts suggest a monthly meeting to review the prior month's finances. Are there spending leaks that need attention? This time should be dedicated exclusively to financial topics - not over dinner or during a television show. Our interactive budget calculator is an excellent tool for planning and assessing your budget.
- Understanding Assets and Liabilities - Even if you and your partner decide to keep separate accounts, marriage is a pooling of resources and liabilities. In other words, your partner's credit card debt or student loan debt is your debt and vice versa. Some experts even recommend sharing credit reports before getting married. Remember - if one partner has a low credit score, that will affect your ability to get favorable loan rates in the future. How will you work through any problems to meet your financial goals?
- Understanding Financial Expectations - Spending, saving, and charitable giving behaviors in "real life" may be very different from the expectations set during college or graduate school. A partner may be surprised by the appearance of spending behaviors that were once impossible on a student budget. Topics to discuss may include clothes, cars, luxuries, and saving for the future.
- Join Versus Separate Accounts - There is no definite answer to the question of which account management strategy is better, but account options should be a conversation topic.
- Staying Flexible - If a financial decision is not working out as intended (savings goals are not being met, for example), don't be afraid to try something different. Maintaining flexibility is one of the keys to minimize financial stress. Goals should be challenging, but not unrealistic.
- Remembering that Help is Available - Before financial conflicts become lasting resentment, seek the advice of a financial planner. Sometimes an objective opinion is the best way to ensure continued open communication.
Tax Implications of Marriage
Getting married has definite tax implications - some married couples will pay more in taxes compared with pre-marriage returns, while others will pay less. It is best to check with your tax advisor to find out how marriage will affect your taxes.