Sunsets and castles aside, exchanging “I dos” will also join two people financially, from filing taxes to buying property and even deciding whether to dine out or eat in. Successful couples must consider a less romantic side of marriage: how will a kiss seal a joint financial future?
Plan It Out
Just as marriage vows are unique to each couple, so are the approaches to handling finances. The first step is to sit down and formulate a plan. One of the best strategies for avoiding mistakes from emotional confrontations and disagreements is to approach the situation as if you are running a business. This allows both parties to put aside personal feelings and make the best economic decision.
For some, creating joint savings and checking accounts is the right decision. For others, separate finances will fit the bill. Need to compromise? Maintain both joint accounts and separate ones. This will give each partner some autonomy, while still allowing you to manage money as a couple. Regardless of which approach is chosen, making a budget is absolutely essential for avoiding unwanted debt and unneeded marital stress.
Filing for Two
Marital finances can be taxing, but filing taxes doesn’t have to be. If you say “I do” before December 31, then you are married for the whole tax year as far as the IRS is concerned. You still have the option of filing separately or jointly. Many couples file jointly, especially if both spouses work but one brings in more dough, in which case the combined income can result in being placed in a lower income bracket than if the wealthier partner filed separately. Filing jointly can also streamline taxes: logically, one return is easier than two.
Consider filing separately if one spouse has a truckload of itemized deductions, like medical bills, which add up to more than the standard deduction for filing jointly. To find your standard deduction and reference other rules, refer to Publication 501 at irs.gov.
Handle Credit Carefully
Although talking about debt can be as fun as a post-bachelor-party jail bailout, it’s just as necessary. Credit reports don’t merge with marriage. Each partner keeps his or her personal history. However, individual history can come into play on joint accounts and loans (e.g. a mortgage). One partner’s poor credit score can affect the credit rating of the couple in a joint venture, and joint account history is recorded on both reports. Before hopping on the financing highway together, couples need to account for and improve existing debt — especially if a house or another large purchase lies ahead.
Once married, debt liability depends on where the couple lives. Some states follow “community property” laws and regard most debt accumulated during marriage the responsibility of the couple. Alternately, states that adhere to “common law” rules usually place sole responsibility on the debt-accruing spouse. There is one common law exception: if debt amassed by one spouse arose from family necessities such as shelter, food or a child’s tuition, then the debt belongs to both spouses.
Newlyweds may want to merge car and health insurance post-ceremony. Merging car insurance can mean reduced rates and multi-car discounts. For health insurance, a family plan can provide coverage for an uninsured spouse, and is a good choice if you plan on having children soon. If you both are already covered by individual policies, it may be more cost efficient to keep your own plans. Compare coverage and costs to see which option works best.
Also factor in double coverage. Double coverage occurs when both spouses are separately insured but add the other spouse as a dependent on each other’s plans. With double coverage, the insurer of the person making the claim is the primary insurer (paying the majority of the claim) and the spouse’s insurer is the secondary insurer (picking up the rest of the bill, up to the policy’s limits). This results in lower or no costs to the couple. However, it will likely mean more money spent on premiums, so weigh the numbers with your health care needs before going this route.
With that much money to manage, marriage is more than love and a three-tiered cake: it’s a business arrangement.