| Marriage
and Money - Yours, Mine and Ours
If you are newly married,
or planning on getting married soon, be sure to allocate some time to
considering some of the financial aspects of marriage. Marriage will change
how you handle your finances and it can also be the source of anguish
in a marriage. Here are some things you may want to consider:
Some discussions
before your wedding day
After you are married, you and your spouse will be financially responsible
for each other and to each other. This responsibility includes legal things
like being liable for joint debts and filing a joint income tax return;
and physical things like putting food on the table and paying the rent.
But, it also has an
emotional aspect. You owe each other openness and honesty about discussing
your finances. The chances are that you and your spouse bring different
financial backgrounds to your marriage. One of your families may have
been more affluent, one of you may be more inclined to use credit cards
or one of you have better financial organizational skills. One may be
very interested in financial matters and the other may not care as long
as there is money in the bank to pay the bills.
Over time, the financial
tendencies that you bring to your marriage will probably be blended into
a financial lifestyle that both of you are comfortable with. To help that
blending process, consider spending some time, perhaps an evening alone,
where you discuss your finances and perhaps even agree on some financial
policies.
- Are you going to
have individual checking accounts on a joint one?
- How much of each
of your incomes is going to be used for normal household expenses?
- Who is going to
be responsible for actually writing the checks for monthly bills?
- How are you going
to approach things like how often to buy cars, how are you going to
use credit cards, how expensive of vacations are you going to take or
how much risk do you want with your investments?
There may not be perfect
answers for these questions, but the discussion will be valuable. Here
are some ideas that may make some of the conversation easier.
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Issue
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Potential
ways to approach the issue
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How
many checking, savings and credit card accounts are you going to
have?
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Even
though you will be married, each of you will remain you own person
and should continue to have individual accounts, especially individual
credit cards. Each of you
will have your own credit report.
Consider
continuing to have your wages deposited into your individual accounts
and then transferring funds monthly into a joint account that is
used for your monthly expenses.
If you have different credit card habits, you may want to
pay your credit card bills from your individual accounts.
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Whose
income will be used for household expenses?
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Each
of you will have different levels of income. While it may sound attractive for one income
to pay the bills while the other income is dedicated to saving,
this can often lead to hard feelings.
Consider
splitting the financial responsibility for monthly bills in the
same ratio as your incomes. If one of you has monthly income of $2000
and the other has $3000, split the expenses 40% and 60%. If your monthly expenses are $4000, transfer
$1600 and $2400 respectively from your individual accounts into
a joint account where you pay these bills.
That way, each of you is contributing and you are both saving
money each month.
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Who
is going to pay the monthly bills?
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Paying
bills each month is a task that must be done. Consider switching responsibility a couple
of times a year so it does not become too much of a burden on either
of you. Even if one of you has the actual check writing
duty, be sure to discuss your bills each month. It is important that each of you know what
is happening financially.
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What
about a prenuptial agreement?
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A
prenuptial agreement is a legal contract that specifies how a couple’s
assets would be divided in case of a divorce. In general, assets that are brought to a marriage
and that stay in an individual’s name remain
the property of that individual.
Assets that come to the marriage after the wedding day,
are usually considered jointly owned assets.
As a practical matter, over time the source of assets usually
becomes blurred and can be an issue in a divorce.
Previously,
these agreements were mostly used by wealthy people to protect assets
they were bringing to a marriage. Recently, they have become more common for
couples of all wealth levels. They
can also be used to help spell out some of each person’s expectations
(who will work, who will stay at home with a child) and how any
inherited assets may be treated.
If there is a family home that has been passed down through
the generations, you may want an agreement that specifies how it
may be treated in case of a divorce. An agreement may also be wise if one party
has significant debts.
If
one of you has considerably more assets than the other, or if there
is an expectation of a significant inheritance, you may want to
consider a prenuptial agreement.
If you do, each of you will probably need an attorney because
the rules can be complex and different states treat these agreements
differently.
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Common problems
to avoid
Many couples have some disagreements over how much money each person is
spending, either on themselves or overall. It may take some time to find
a comfort level of spending. The key is to discuss your spending before
it becomes a big issue.
Another common problem
is where one spouse ends up completely uninformed about their financial
status. Even if one of you is more comfortable handling the finances,
be sure to keep the other one informed. Not knowing how much money is
in the checking account can lead to bounced checks and potentially a feeling
of being taken advantage of.
As you grow as a married
couple, be sure to have discussions about long term financial goals. Knowing
how each other feels about saving for retirement, taking risks with your
investments or how much current financial sacrifice you are willing to
make saving for a child's college education is important. Discussing these
things may not only avoid a problem, but may actually bring you closer
together.
Some practical
things to address
When you marry you need to consider how your beneficiary designations
are set up on your retirement plan, IRAs and life insurance policies.
You will probably want to designate your new spouse as beneficiary. You
also need to notify the Social Security Administration of your new status.
If you are changing
your name, you will also need to notify institutions like your bank or
credit union, employer, Department of Motor Vehicles and companies where
you have accounts.
Conclusion
Getting married is a big step in your personal life. It is also a big
financial step in your financial life. Get to know your partner financially
before you are married, discuss your finances often and you may find that
these financial discussions will bring you even closer together as you
dream of your future.
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