Here’s a guide to help transition into sharing your financial life with someone else.
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When you get married, should you open joint financial accounts or keep them separate? Do young, healthy, married couples need a will, or can that wait until kids are involved? And how much should your spouse know about your finances?
Going from being a single individual to sharing your financial life with someone else can be intimidating, but it doesn’t need to be. Here are the answers to these questions, as well as a few other important financial topics newlyweds should know about.
1. You still have separate credit profiles
This is one very common misconception. I’ve heard people say things like, "Once you’re married, you essentially become one person as far as credit goes."
This is 100% false. Married couples can have some joint accounts -- for example, my wife and I are both listed on our mortgage, and the account reports to the credit bureaus for both of us. However, you’ll still have a credit report that is your own.
To be perfectly clear, you won’t "inherit" any adverse credit accounts or debt that your spouse has, nor will their credit cards and other accounts be included on your credit report unless your name is on the account.
2. You don’t have to apply for joint credit accounts
After you get married, you don’t have to apply for credit jointly whenever it’s possible to do so. You can apply for loans as an individual or jointly, whichever serves your needs the best. For example, if your spouse has bad credit, it can be a good idea to apply for a mortgage loan in your name only. Conversely, if both of your incomes are necessary to qualify for the car, it can be better if both of you apply together.
As a personal example, I mentioned that my wife and I have a joint mortgage, but both of our car loans are in our own names (no particular financial reason -- it just worked out that way).
On that topic, it’s worth mentioning that for the most part, there’s no such thing as a joint credit card. You can list your spouse as an authorized user but with virtually all credit cards, there is only one primary account owner.
3. Should you have a joint bank account or separate accounts?
There are some good reasons to open a joint bank account, and some good reasons to maintain individual accounts. For example, joint bank accounts combine your finances and make it easy to pay bills that both spouses contribute to. This can help increase trust between spouses, and can often make people think twice before spending impulsively, knowing that their spouse will see the transaction. On the other hand, many married people like having some individualized control over their spending.
For many couples, the right answer can be to do both. Keep a central, joint bank account to pay bills and shared expenses, while also maintaining individual bank accounts for personal discretionary spending.
4. Talk about your finances
Many people don’t like talking about money. This is unsurprising -- after all, as a culture we are generally taught that it’s rude to talk about how much money you have or to ask someone else about their money.
However, when you get married, talking about your finances is very important. Financial problems, especially those that one spouse was unaware of, are one of the top reasons for divorce in the United States. At a minimum, you and your spouse should discuss:
- What bank and credit accounts you have, and where they are. I also keep a list of important account information for myself and my wife in a safe place just in case something happens to one (or both) of us.
- How much freedom to spend each spouse has. Even if both spouses are "good with money," this should be discussed. Some couples have spending thresholds, above which they need to let the other know before they make a purchase. My wife and I will generally let the other know if we’re planning to spend over $200 on a nonessential purchase.
- Any debts you have. Your spouse should be well aware of this information, as hidden debts are one of the biggest causes of marital problems.
5. The tax filing status most married couples should use
One of the most common questions I get asked by newly married couples is which tax filing status is better -- married filing jointly or married filing separately.
Now, there’s no one-size-fits-all answer, but for the overwhelming majority of married couples, filing jointly is better. Filing separately generally only makes sense if one spouse earns considerably less than the other, and they have some sort of income-related deduction they can take, such as high medical expenses.
6. Some basic estate planning is smart -- even if you don’t have kids
One smart move after you get married is to make a will, if you don’t have one already. This way, your assets will be distributed as you want (and quickly) in the event of your death. Estate laws vary from state to state, but dying without a will can be costly and time-consuming.
It’s also a smart idea to update the beneficiary on your retirement accounts and any other financial accounts to reflect your spouse. Before you get married, you may have listed a relative -- my 401(k) listed my parents before I got married -- so it’s worth checking and doing some quick account maintenance if necessary.
7. You don’t need to make a budget, but …
Not everyone needs a budget. I know that this may be an unpopular opinion among the financial planning community, but it’s true. Some people are just good at saving and spending responsibly without actually crunching the numbers.
Having said that, if you’re combining your income and expenses for the first time, a budget (at least at first) can be a smart idea. This is especially true if one person in the relationship is more of a "spender" and the other is more of a "saver."
8. It’s never too early to do some basic retirement planning
As a final point, even if you already have a 401(k) or an IRA, it can be smart to have a discussion with your spouse about retirement planning. If nothing else, it’s a good idea to make sure that you’re on the same page when it comes to long-term financial goals.
For example, if one spouse contributes 10% of their salary to a 401(k) for years, only to find years later that the other spouse hasn’t been saving, it can create a problem. It’s best to get on the same page from the beginning -- after all, now your retirement savings need to be enough to support two people.
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