Last year I wrote on the financial specifics that apply to unmarried couples, the legal avenues they had to legalize personal or joint property, and other issues of interest. Now it’s time to discuss the legal financial and legal aspects of marriage.
It is funny, when we’re single we each learn –with greater or lesser success- to manage our monthly finances: pay the bills, credit cards, loans, money for food, for fun, for other
necessities. Regardless of how neatly we go about it, we all have a personal budget and our own way of handling our money.
Things change when we hook up. Over time, depending on our commitment, we create a system that works for both partners. Those not intending to marry, but who feel they are in a fully committed relationship find ways to work as a household.
Things change when we hook up. Over time, depending on our commitment, we create a system that works for both partners. Those not intending to marry, but who feel they are in a fully committed relationship find ways to work as a household.
Those who choose marriage find that things change afterwards. Even those who have been together, sharing everything for a long time, change their dynamic when they say that ‘I do’. Things change financially when we marry.
Is there a marriage tax?
Yes, but not for everyone. Low-and average- income couples will not pay extra tax when they marry, as deductions are counted double and the tax is calculated as being for two people. At higher income brackets, however, there is a higher payment for married peeps, yes. So, if one of you makes an average income and the other a lot more, the one making less may find him or herself taxed at a higher rate than they did before.
What happens with our individual debts?
It’s a delicate topic. In many cases this is no problem. Others, you marry to find out that your spouse has six accounts in collections. Does marrying make you responsible for that?
The answer is no. Debts incurred by either spouse before marriage are his or hers alone. No matter what any collectors calling may claim about your responsibility, only the one person is responsible for prior debts brought to the marriage.
This being said… you should have an open communication system with your now and future spouse.
Talking about your financial history before you marry, not after. Even if it’s embarrassing.
When you start a family, everything starts a process of becoming a joint venture: money, accounts, debts, and assets lose their property boundaries some more literally than others. Before that process starts, talk about how you’re doing: your debts, your savings, and your assets. If you are deep in debt you should say it and not hide it. While your future spouse may not like your current debt status, how do you think they’ll feel later if you hide it from him or her?
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Each one of you should know what the other person makes and owes and how much is left over each month or if they are in financial difficulties. Because if you can’t share and handle jointly one of the cornerstones of being a family unit, how do you expect to tackle things like buying a home or having kids?
Talking about your goals
Many people marry with completely different expectations on their future, particularly short-term ones. He wants a macmansion and kids soon; she wants to keep travelling for her vacations and kids only after she’s 32 and has paid off her student debt. And if they don’t talk, many spouses end up in life arrangements that they did not sign up for.
So, you should talk about the future you want: what do you want to happen in the first year after marriage? Any plans that you would like to start? What about in the next 5 years? When do you want to have children? Do you want children at all? This may seem odd to some, but many people are supporters of zero population growth, and that’s fine, but you should agree as a couple. Do you want to travel every year and have money set aside for that? What about retirement, what are your plans for that? Do you want to buy a home right away?
A friendly reminder: if you both work you likely have individual health insurance plans and/or life insurance. Find out right away who has the best coverage for the best price, and switch both of you to that one.
Making it a household thing
After you each know each other’s state of affairs and you have agreed on some short-, medium-, and long-term goals, now you can put everything in one pile and sort it together.
That is, you can make a budget. It’s the best way to bring together your obligations, your willingness to work together, and to start the path of your agreed financial future. Here’s how to do it.
Financial tasks: avoiding clichés
Now that you know everything about each other and have agreed goals and a household budget, there is one last step: clarifying who will do what.
You should decide which of you pays the bills each month, and who will handle tax stuff. There are also investment decisions to consider. If you invest in stocks, mutual funds, or bonds, find out which of you is better at it. Avoid the clichés that men are better at any of these things. The reality is that these tasks should be undertaken by the person with more knowledge or, in the case of a tie, the one with more time. However, the other spouse should never completely wash his or her hands and you should always maintain an interest in your household affairs.
Should we get a pooled joint account and ditch our individual accounts?
That’s really up to you. Some couples do, some don’t. Talk and go with what seems right.
Personally, I believe that if you save money by having only one account, then that’s the best option. It’s particularly handy if all your bills are going to be paid by the same person, too. This brings me to living expenses. While you may be used to a system that is something like “I pay for the food and he/she pays the utilities” I would caution against it if you have separate accounts. Likely you both have different salaries and expenses and things like food costs can change drastically month to month, as can utilities. I suggest you find a way to pool at least a percentage of your money to pay for shared expenses.
What about new loans and credit cards?
You may obtain debt together or separately. Again, your choice, but you should both always know of all debts incurred. Also be aware that community property states have the rule that any debt incurred by either one of you after marriage is the obligation of both of you. These community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska allows the spouse to ‘opt out’ of the debt of the one applying. There are many nations that still have community property laws as well, and if
you read this outside the United States, check with the pertinent government agency to find out.
My suggestion either way: it’s wise for you to have at least one separate credit card each, inyour name only. That way, in case of separation, divorce, or death (hey, I have to be pragmatic here!) you have been developing each your own separate credit worthiness.
Keeping communication open
With time we tend to fall into our routines and we let things run their course. Don’t do that with your money. Even when things are going well, make it a point of talking periodically about the household finance, goals, and new ideas. Your money is the responsibility of you both, and as with everything in life, responsibility is more bearable when shared.
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