“For richer, for poorer, till death do us part”. The traditional words that are spoken at a wedding. But nowadays, their meaning can take you on a roller coaster of decisions, some complex, some easy. Some of you may know that my day job is a tax professional and small business consultant. I have advised many couples over the years through financial mazes and let me tell you, that instead of getting easier, it has only gotten harder, especially with the challenges these last few years.
Today, I wanted to share a few tips on how to make the merging of your finances a little easier. For some of you, this can be a very stressful decision making process, so I want you to sit back, take a deep breath and take a sip. Yes, a sip. Of tea, of coffee, even alcohol if necessary. In the the words of Miranda of Sex In the City: “Sip. Sip. Sip.”
- Before there is even any popping of the question, you both should be observing each other’s spending habits. Does he/she largely pay using cash, debit or credit card?
- Are you aware of the debt load that each other is carrying? Student loans, car loans, credit card debt, even a mortgage.
- What is each of your philosophies regarding debt? To make a new purchase of the latest and greatest, do you buy into the “Gotta have it right now, I’ll pay for it later attitude” or do you set a goal for some time in the future?
- Do you know what your credit score is and what your credit report looks like? Do you know that you should have started with some small store credit cards and built from there to establish a credit score and history? Paying only with cash is very admirable but could cause a bit of a problem down the road when you want to make a larger purchase such as a condo or house. Establishing and keeping good credit has become quite the challenging maze these days. You’ll want to start sooner (and build over time) rather than later.
- Look at each others checking, savings and other investment accounts. It’s time for full disclosure on each other’s net worth.
- Talk candidly and openly if you feel strongly about a prenuptial agreement and why. Seek legal advice when necessary to answer questions. Do not seek the advice of friends or family in this one. Everyone has very different opinions and this can be a very emotional decision. You need objectivity.
- Be sure to discuss your views on life insurance, health insurance, property insurance, car insurance, investments for retirement and how you will meet some of those goals. Make changes once married to appoint the appropriate beneficiaries. Make sure names are changed and added where necessary. Ladies, make sure you make the correct name change, if desired, with Social Security. Talk about retirement. Yes, retirement. Nothing worse than finding out too late in life that your hubby wants to retire and become a Montana-Mountain-Man, while you want to sit on a beach in sunny California.
- Will you or won’t you merge your funds? In other words, will you maintain a joint checking account only or will you keep two separate accounts? I recommend starting with a joint account for all your joint expenses (rent/mortgage, utilities, groceries, etc.) and keep your separate accounts for the fun stuff. If one makes substantially more than the other, calculate a ratio based on your combined income and you each contribute based on that.
- Make a will, execute a health care proxy and power of attorney. While these may sound unnecessary given youth and maybe even lack of built up assets, the legalities of incapacity due to an accident or health issue and even death can create such havoc, both emotional and financial, it is better to plan and implement these points now rather than later. Better safe than sorry.
- And lastly, you should file a joint tax return. Do not file, married filing separate. Unless there is a truly unfortunate situation (too many to detail here), the benefits to filing jointly outweigh the other choice. If you do prepare your own, consider the investment to seek tax advice from a professional even ahead of the year ending that you get married so that they can prepare a preliminary for you and advise of any possible surprise tax consequences.
One final tip, when you begin the process of reviewing your finances together it is important not to judge each other, to really listen and communicate, be patient and build trust. Nowadays, too many are having difficulty getting credit and maintaining credit. If one or both of you have some spending that needs some controlling or some debt issues then talk about it. Do not hide it. You will be much happier then plopping your head in the sand.
Finances can be a very scary topic for some but when approached with openness and honesty, you will be able to manage those financial mazes and meet the goals you set up.
And remember, sip. :)
So tell us, will you maintain separate accounts or establish them jointly? How did you discuss finances? We’d love to hear your comments and tips!
Happy Thursday!
xoxo
