Financial management is one of the most important considerations married couples have to plan for.
Financial stress can put a significant strain on a marriage and is one of the greatest causes of divorce. Money is such a hot button issue a 2004 study issued by Redbook magazine found 70% of married couples talk about money every week.
Communication is one of the most important things you can do with your spouse to ensure you are both on the same page, and that you are taking the necessary steps to determine what financial arrangement works best for you.
Money management is no different than the myriad of other considerations you have had to make in order to protect the marriage. Once you come to an agreement that works best for you and your spouse, you need not argue about it or endure lengthy discussions of it anymore.
Today we will examine whether it makes sense for you to merge finances with your spouse, or the two of you would do better to keep your money separate.
Immediate Steps to Take After Getting Married
If you have recently gotten married —congratulations! You’re starting a new, exciting chapter in your life. There are some important steps you should take to make sure that your financial life is on track.
Here are 7 tasks to accomplish so nothing falls through the cracks in your financial life as a couple:
Task #1: Update the Social Security Administration
After you tie the knot, don’t forget to notify all the institutions and people who need your new status and information—otherwise, you’ll have some problems on your hands at tax time.
If you changed your name, your first stop should be the Social Security Administration’s web site at ssa.gov. Your new name must be linked to your Social Security number in the system. It’s easy to update your information and get a new Social Security card by filing Form SS-5, Application for a Social Security Card.
Task #2: Inform the Internal Revenue Service
If you moved to a new address, be sure to let the IRS know where to find you. Though fewer tax forms go out in the mail each year, missing important communication from Uncle Sam could be costly. So visit irs.gov to download and submit Form 8822, Change of Address.
Task #3: Notify the U.S. Postal Service
Remember to also notify the U.S. Postal Service if you move. You can go online and make the change at usps.com. Also, don’t forget about your driver’s license. You can search online for your state’s motor vehicle department and learn how to make a name or address change.
Task #4: Advise Your Employer
Inform the human resources or benefits department at work about any name change or address change. They need your new address to mail out your Form W-2 at the end of the year.
Additionally, your employer should update any workplace benefits you might have—such as your retirement plan or health insurance—with your new information. If you and your spouse both have health insurance at work, consider whether you could save money by having just one policy only, instead of two.
Task #5: Double Check Your Withholding
Now that you’re married, you can’t file taxes as a single person anymore. If you and your spouse both work, your combined income could bump you into a higher tax bracket. So it’s a good idea to complete a new Form W-4, Employee’s Withholding Allowance Certificate, to make sure that you don’t have too much or too little tax withheld from your pay. You can use the IRS Withholding Calculator at irs.gov or ask your employer for help with the form.
Task #6: Choose the Best Tax Filing Status
Your marital status on December 31 determines how you should file taxes for that entire year. As a married person, you can choose whether to file taxes as Married Filing Jointly or Married Filing Separately each year. Though filing jointly is generally more beneficial, figure your taxes both ways and choose the option that gives you the lowest tax liability.
Task #7: Schedule Regular Money Talks
An important part of your financial life as a couple is maintaining an open line of communication about your debt, savings, and goals. Doing so will help each person understand the “big picture” and be aware of issues before they become major problems.
Should You Merge Finances With Your Spouse?
Trends In Marriage Finance
Before exploring the risks and benefits of combining your bank account with your spouse, let’s examine how America’s couples are currently behaving with their money.
In 2004, Smart Money magazine conducted a survey on money within marriages and found that the majority (64%) of couples decide to merge finances. While this number seems surprisingly high, keep in mind that the survey did not make any mention of length of marriages surveyed.
Couples who have been married for a long time might have children, a mortgage (or perhaps two) car loans, and regular bills coming in.
As compared to newlyweds who are still going out with friends and lack some of the financial burdens that come later in life, long-term spouses might find it simply makes life easier to combine bank accounts and finance the marriage jointly.
As for the couples who didn’t merge their money, 14% reported keeping their bank accounts completely separate. The remaining 18% set up a joint account that they both contribute money to, but also kept private personal accounts on the side.
None of these choices can be said to be “the right way” for everyone, as Ginita Wall, co-founder of the Women’s Institute for Financial Education points out. “Married couples should try different ways of handling the money to see what works for them.”
Your Views On Money
Too often when couples talk about money, they focus almost entirely on the practical benefits of combined finances without discussing their individual beliefs and goals for their money.
Before deciding to merge finances or stick to separate financial lives, it is important to sit down with your spouse and discuss your views on money in order to decide if it even makes good sense to combine your bank accounts.
Following is a brief list of topics you should touch upon with your spouse to learn how closely your individual financial goals align:
- Do you two see eye to eye on the importance of savings?
- Do you have similar savings goals? (Think new cars, a boat, home renovations, a pool, etc.)
- When would you each like to retire?
- How much do you want to save for your children’s education?
- Do you even want to have children?
- What pleasure items (travel, clothing, concerts, etc) do you need to spend money on to be happy?
- Where do you want to live in the future?
- Are either of you passionate about investing?
If you see eye to eye on more items than not, merging finances will allow you both to accomplish your goals much faster than you could alone.
If instead, you differ considerably on what you each plan to do with your money, it will only cause tension and arguments to combine your money. Imagine if you are a stern money saver with dreams of early retirement and your spouse is an avid spender with a penchant for designer clothing.
Pooling your incomes will only cause constant bickering, as each of you will be striving to accomplish wholly different goals with the same money.
Combined Finances Allow For Financial Transparency
Financial transparency means that both spouses know exactly how much money they have between them, what they can afford, and how close to reaching their goals they both are.
Trent Hamm, a writer for the popular financial blog The Simple Dollar, reports that this is one of the major benefits to merging finances.
“When my wife and I were first married… we basically left all of our accounts the same, keeping accounts and direct deposits at separate banks,” he recalls. “…It had serious disadvantages, chief among them the fact that it was hard for either one of us to really get a grip on what our true financial situation was.”
Indeed, keeping your finances hidden from view, squirreled away in separate accounts can cause problems within a marriage. You may both talk about owning a beach condo one day, but unless you can look into an account and see exactly how close you are to reaching making a down payment, it can begin to feel more like pure talk than an attainable goal.
Emergencies can be made more stressful without transparency. As an example, a sudden hospital trip is always a living hell, but it is made unduly more hellacious if the spouse in the waiting room has no idea if they can afford the necessary medical care.
Combined Finances Encourage Teamwork
Marriages are all about working together toward common goals and survive largely by the cooperation and compromise of both spouses for those goals.
Merging finances bolsters this sentiment and provides a framework for the two spouses to progress as a unit. If one spouse makes three times as much yearly income as the other, there can be no competition, no bragging or arguing about contributions.
This means that you need to get comfortable with the idea that “my money” is now “our money,” and ditch all of your hangs up around this concept before you even consider merging finances.
Once you have established your common goals, the money you each individually earn is seen as propelling you both toward your dreams rather than worrying about how much of the account belongs to “each” person. In order for this arrangement to be successful, you must both consult each other before making big expensive purchases.
Holdings ideas like, “I just put $5,000 into the account, so if I want to spend $2,000 of it on season tickets to Yankee Stadium, I should be allowed to do so without argument,” will only serve to poison the marriage, as you should both view your partnership as superior to your individual financial desires.
Alternatives To Combined Finances
As was mentioned in the Smart Money study discussed above, not all couples decide to merge finances and there are benefits to alternative arrangements.
If you both sat down, discussed your views on money, and walked away from the table feeling like you both have wildly different goals for your finances, that is okay. Being that you do share a home together, you could either split bills (such that she pays utilities and you pay the mortgage, or some similar set up) or establish a joint account that you both contribute money to for bills and common expenses.
Aside from this “bills” account, you would continue to maintain your personal accounts as you please.
You may instead find that while many of your financial goals differ, you do share some similar dreams that you want to work toward together.
For example, while you might be an avid motorcyclist who spends a lot of money on your hobby, and while she might be a diving enthusiast who spends most of her money on that hobby, you might agree that you both want to live in Italy by retirement time.
In this scenario, maintaining personal accounts on the side for your individual hobbies and goals makes sense, but establishing a joint account for your Italy retirement will help you both feel like you are moving closer to that goal as a team, rather than completely fending for yourselves.
Could Marriage Be Better for Your Finances?
It’s true that right now, due to the difficulties in the economy, expensive life events are being avoided. Many people are avoiding marriage, divorce and having kids in an attempt to reduce the impact on household finances.
But could marriage actually be better for your finances than staying single?
Combined Income = Better Financial Stability
If you both have income, combining finances can mean better financial stability. After all, you now have a more diverse revenue stream. If one of you loses a job, the other still has an income to help support the household until the other partner can find a new job.
Or, perhaps, two incomes offers the chance for one of you to cut back on the “day job” and start a side hustle, or work to develop passive income. All of this can lead to financial stability. Plus, with a combined income, your borrowing power increases, and you might get better offers for various services because of a higher income.
And, don’t forget that there are tax advantages to being married.
Combine and Lower Your Costs
You can also see lower costs if you combine households. Instead of both of you paying for your own place, own utilities, etc., you can move in together and save by splitting these living costs. Everyone ends up with more disposable income. And, of course, this benefit doesn’t even have to come with marriage.
Just moving in together can reduce some of your household expenses.
In some cases, getting married can lower your overall insurance premiums, since your risk goes down. You can also combine health insurance. Look at which partner has better health insurance benefits through his or her employer and both of you can get on that insurance, and possibly save money.
Consider the benefits of, if you don’t combine finances completely, at least combining households.
Improve Your Health
Another benefit to marriage might be better health. Long-term, happy marriages can improve your health. (The so-called “marriage benefit” doesn’t work so well if your relationship is troubled.)
Better health is increasingly tied to better finances, due to the fact that you can save on higher health care costs when you have better health — and no need to make a lot of doctor visits or take medications.
Plus, when you have a partner to help you, you can encourage each other to exercise and eat right.
When Marriage Might Not Help Your Finances
While marriage can help your finances in some ways, you do need to be careful. In some cases, it can be worse for your finances.
Combining finances might leave you exposed to your partner’s debt risk, or you might find yourself saddled with his or her poor credit score (although this is more likely to happen in a common property state).
Also, if your partner has a poor driving record, adding him or her to your insurance might increase your costs, so be careful.
Also, watch out for someone with different money values than you. If you are too incompatible, trying to mesh your finances can be frustrating and offset some of the advantages.
Should You Get a Prenup?
The prenuptial agreement used to come with some serious social baggage. Signing a prenup, in the past, was tantamount to declaring that you expected to divorce.
While there is still a reluctance to talk about prenuptial agreements, these arrangements are increasingly viewed as a way to protect your assets in the event of a divorce.
Marriage usually means combined finances in many cases, but sometimes it makes sense to protect what’s yours.
Marriage is Changing
Couples look different now when compared to their counterparts of a few decades ago.
In the past, prenups were used to protect the wealthy from gold diggers. In most cases, though, with men as the primary breadwinners and women staying home, and with partners marrying much younger (before either had amassed much personal wealth), few felt that a prenup was needed.
That’s changing now. Individuals are waiting longer to marry, even leaving second marriages aside. That means that both partners might have assets they want to protect.
Dual incomes are more common, and a tendency to separate finances to some degree has increased over the years. This means that there is a greater sense of “yours” and “mine” in addition to “ours.”
Protect Your Assets
It’s important to realize that, depending on the state, your assets (or at least half of them) could be considered the rightful property of your spouse in the event of a divorce.
Even if you own something prior to the marriage, your ex might have a claim on it.
And, even if your spouse can’t claim the asset itself, he or she might be entitled to a portion of the increase in that asset’s value, whether it’s a home, a business, or an investment account.
A prenuptial agreement states which assets each partner retains ownership of during the marriage. Such an arrangement can define how to figure the value of assets acquired during the marriage should be divided during a divorce.
That way, you are more likely to keep what’s yours, rather than having a court decide what’s “fair.”
Do You Need a Prenup?
In some cases, partners who have roughly equal assets and similar incomes at marriage want to ensure that things remain that way, and opt for a prenup. However, there are some cases that might make signing a prenup almost a necessity:
- Business: If you own a business, or if you are planning on starting a business, it might be wise to protect it with a prenup. Your spouse might be entitled to a portion of the value of the business — especially the value of an appreciation during the marriage.
- Real estate assets: If you have real estate assets prior to the marriage, a prenup can help you protect their appreciating value. Even if you never put the assets in your spouse’s name, the sale of the real estate to help fund divorce costs might mean that part of your gains can be claimed by your ex.
- Higher income: Someone with a much higher income than a partner might consider a prenup. Otherwise, everything made during the marriage might be split.
- Higher net worth: Whether you’ve received a windfall, an inheritance, or there is some other reason that you have a high net worth, it might make sense to protect your money with a prenup.
Make sure you understand the laws in your state before creating a prenup. A knowledgeable attorney, especially one with experience in marriage and family law, can help you craft a prenuptial agreement that protects both parties.
What Do You Know About Your Partner’s Finances?
One of the most important things you can do for your finances is to talk to a potential partner about their situation. If you are going to combine households and finances, you need to know what you’re getting into. But how much should you know? And when should you know it?
Here are some things to consider as you start to delve into your partner’s finances:
How Serious is the Relationship?
Do you share financial information with your spouse?
According to a recent COUNTRY Financial report, 29 percent of Americans think it’s ok to start talking about money at the outset of the relationship, while 31 percent say that you should wait until you’ve been dating for at least three months.
For about 60 percent of Americans, it appears that talking about money should take place early on in the relationship.
Of course, this doesn’t mean that you immediately begin revealing credit scores and going into minute details. But it is a good idea to get an idea of how a potential partner views money, and start getting a general idea of how his or her financial situation stands.
You can get into more details as the relationship progresses. By the time you are engaged, however, you should probably have a pretty good idea of exactly what issues, if any, plague your potential partner’s finances — and they should know about yours.
I really can’t speak in great detail to the progression, though. I met my husband at the end of September 2001 and we were married by the end of December 2001.
Our entire pre-marriage relationship encompassed the three months the most Americans say you should start discussing money. But we were honest about things before tying the knot.
As your relationship progresses in seriousness, it’s important that you share more detail about your financial situations.
What Should You Talk About?
While it might not be necessary to go into everything early on, it is probably a good idea to gradually introduce increasingly thorny topics.
By the time you’re engaged, you should have a good handle on each other’s finances. Many Americans feel as though they are well-versed in their partners’ debts. Indeed, 72 percent of Americans in relationships say they know how much debt their significant other has, according to the COUNTRY Financial survey.
However, things get a little less definite depending on the level of the relationship. Eighty-one percent of married couples say they know about the other person’s debt. However, it drops off to 54 percent for engaged couples.
This is a problem if you are considering marriage. It would be good for engaged couples to be at least on par with married couples — unless there is a plan to keep finances completely separate.
It’s a good idea to talk about everything, from your philosophy on money to what you want to save up for to how much debt you have (and what kind it is) to how much you make before you decide to combine finances.
Keeping it Separate
If you plan to keep your finances completely separate, though, it might not matter if you disclose information about your money.
While you should still have a general idea of what’s happening with your partner’s finances, and you should share what’s happening with yours, the details — such as exactly how much debt is involved — might not be as important.
As long as you know that your partner can hold up his or her end of the deal by paying his or her allotment of the household expenses, it’s probably not important to know, to the dollar, how much debt is involved, or where all the money is going.
Combining finances, though, requires much more disclosure. If you decide to combine finances, then you should be prepared to share everything, and get ready to compromise on the way you spend and save.
Do You Trust Your Partner with Money?
My husband trusts me with money so much that he looks at our finances maybe once or twice a year.
His interest in our financial situation is pretty much limited to, “Do we have enough for this thing?” If the answer is, “Not right now,” he counters with, “What do we need to do to make it happen?”
Do you trust your spouse with money?
At that point, he doesn’t look through our past spending or follow my suggestion that we take a look at some handy graphs created by the personal finance software I use to track our finances. Check out Mint.com and Personal Capital for free software to help you manage joint accounts.
He just wants me to lay out the plan, telling him what needs to be done in order to save up the funds necessary.
He trusts that I’m setting money aside for the future (I contribute to our retirement) and for a rainy day (I use a taxable investment account as our emergency fund).
When things are a little tight, as they are during the summer when his teaching load goes down, he simply expects me to let him know that we can’t go out to eat as much.
And, apparently, he’s not alone. According to a recent survey by COUNTRY Financial Security Index, 63 percent of married Americans completely trust their spouse’s ability to manage money.
Interestingly, this same survey also indicates many couples don’t openly talk about money. My husband and I are kind of in that boat. We talk about our priorities, and what we want to spend money on, and we’re much better with shared goals than we were when we first married.
But, even so, for the most part, we trust each other. Like 52 percent of married Americans in the COUNTRY survey, we don’t even ask spousal permission of each other before making purchases. (Interestingly, men feel as though they have to ask permission more than women do.
Is this a result of the fact that, in many homes, women are more likely to make day-to-day purchase decisions? Perhaps they are more comfortable with spending money.)
The Effect of Children on Partner Finances
We all know that adding children to the mix tends to change the financial picture in many families. But what does it mean for partner trust?
According to the COUNTRY information, 68 percent of those who have children at home trust their spouse’s money management skills; this is only true of 60 percent of those without children at home.
Having children at home also tends to result in more couples managing their finances completely jointly. This isn’t true for my husband and me, even though we have a son at home.
We have joint accounts, but I’m pretty much the be all and end all for money management in our family. So, I guess in a way, we do sort of fit that statistic.
We don’t manage our money together, but everything is completely in one pot, no matter who earns it.
Discussing Money Before Marriage
The good news is that more young people are having the money talk before marriage. My husband and I really didn’t talk about finances before we tied the knot. It came up; we talked about debt and discussed merging our money.
However, we didn’t talk about shared goals, or make plans, or talk about money management styles. (Part of that may have been the fact that we were married three months after meeting.)
However, according to the COUNTRY survey, 77 percent of 18 to 29-year-olds talk about managing their finances before marriage. Compare that to 31 percent of those over 65 who say that they talked about money prior to getting married.
Five Worst Money Mistakes Married Couples Make
As Americans, we have all grown up with the fairy tale view of marriage: you fall deeply in love, have a beautiful wedding, and then live happily ever after.
Unfortunately, marriage can be more like running a business than like dancing and singing around Prince Charming’s castle.
And many married couples find themselves surprised at how difficult it is to keep the financial aspects of marriage from hurting the romance.
There are some common mistakes that are very easy to make when you have romantic stars in your eyes. Make sure you don’t commit any of these five financial blunders, and it will be that much easier to live happily ever after with your sweetheart:
1. Assuming That You Have to Share Everything Financially
While it’s very important for married couples to treat their money as “our money,” many couples feel as though they have to share every last penny in order to prove that they really love each other.
The problem with this plan is that it allows each spouse to know exactly how the other is spending money. Not only does this make it impossible for you to buy presents for each other, but it can also breed resentment when you simply don’t understand each other’s spending habits.
Pool your resources as a married couple in a way that works for you, but also allow yourself a little financial independence. That way, a splurge on a mani-pedi or a video game does not have to become a fight.
2. Keeping Financial Secrets
The other side of the “share everything” coin is when one spouse keeps money secrets from the other. Whether you have credit card debt that you are not talking about, or a sudden windfall that you’re keeping to yourself, money secrets are a recipe for resentment and marital strife.
Each spouse needs to know where the marriage stands financially. The conversation about something you have been keeping to yourself may be a difficult one, but ultimately, treating the marriage as a financial partnership will bring you closer together.
3. Not Spelling Out Your Goals
Everyone tends to fall into the same habits that they were raised with or that they made work when they were single. Unfortunately, that means that married couples sometimes go on financial autopilot without determining what they really want.
Having a conversation with your spouse about where you want to be financially will help you both make better financial, career, and life decisions.
4. Enabling Each Other’s Poor Money Choices
This is one of the toughest mistakes to break out of, especially if neither spouse is particularly good at impulse control. But it’s very important for you both to practice being the voice of reason.
Yes, taking a two-week vacation to Europe may sound like a dream, especially after a tough year, but is it really going to bring you closer to your goals? Practice saying no to each other.
If necessary, institute a rule where you have to discuss any financial purchases over a certain amount or you wait 24 hours before making a major purchase. These steps build in a cushion of time so that your cooler heads can prevail.
5. Not Planning Ahead
Americans tend to be very poor at saving money, and lack of money in an emergency will certainly add to the stress of that situation. Plan ahead—both by making sure you have an emergency fund should the worst happen, but also by saving for your retirements.
It’s very easy to assume that your life will continue to be the same for years to come, but it’s going to be better for you and your marriage if you plan for a time when you can’t count on your income.
4 Times to Avoid Having Financial Conversations with Your Partner
Many of us know that it’s important to talk about money with a partner. Whether you are having “the money talk” for the first time as you prepare to move in together or marry, or whether you have combined your finances and you just checking in regularly, it helps to choose the right time to have your money talk.
“Research shows that money is the number one issue causing stress in relationships,” says Syble Solomon, an expert on financial behavior with Money Habitudes. If you want to keep the money stress out of your relationship — or at least reduce it significantly — you need to talk about money.
Don’t Talk About Money If You Are HALT
Solomon identifies 4 times that you shouldn’t talk about money. She refers to these four times as HALT. Any time your present situation is qualified by one or more of the following characteristics, it’s not a good time for your money talk:
We all feel these things throughout any given day. Trying to have any sort of conversation at these times can be a recipe for relationship disaster. My husband and I don’t even so much as talk about his day until after he’s eaten upon arriving home. Hunger puts him in a bad mood, and he’s much easier to talk to after he’s taken care of that physical need. I often have a hard time focusing when I’m tired. I’m also much more irritable. Often, a quick nap or meditation can help me refresh myself. But it’s better if I don’t have conversations — especially about fraught topics like money — when I’m tired.
“Have a good, non-threatening conversation about money,” says Solomon. In order to do this, you need to make sure that you try to create ideal conditions to talk about a subject that can be difficult to tackle. Solomon recommends scheduling a time that you know you will not be HALT.
If you plan ahead, you and your partner can both make sure that you are well-rested, fed, and in a good frame of mind. You don’t want to be feeling angry or lonely, either. If something happens before your scheduled money talk, and you are out of sorts as a result, consider rescheduling. My husband and I were planning on talking about a major decision once, and, just before, I had an argument with my son over his chores. I needed to calm down before talking, so I asked if we could talk about it later. We changed the time, I sorted out my issues with my son, and things went better than they probably would have otherwise.
It’s important to be aware of your mindset, and of things that could irritate you while you are having the money talk. Any time you are hungry, angry, lonely, or tired, it’s not the time to tackle anything complex — especially something with as many emotional complications as money has.
Don’t Start Talking Numbers
Once you have figured out when you can talk about money, Solomon suggests that you avoid starting with numbers. “Try a conversation starter like, ‘What was the first big thing you bought with your own money?'” she suggests.
You can also start by talking about your shared goals as a couple, and acknowledging that you have made good progress toward them. While you will have to get down to brass tacks on the numbers, starting out with other items related to money can put you in a good conversational mood, as well as remind you that you have things in common and that you are working together.
With a little planning, you can pick a good time to talk about money, and reduce the chances that your money talk will end in a fight.
The Bottom Line
Although discussions about money have a reputation for being a romance-killer, the opposite tends to be true. Couples who are on the same page financially feel more secure and loving.
Sit down with your Prince or Princess Charming today and make sure your marriage is on a solid footing, both financially and romantically.