Investing for Life: Marriage and money -- making it work
We all know that getting married is a significant life event. But as you're planning for the big day, thinking about financial matters may not be top of mind. The fact is, when you get married, you are combining your finances and creating a whole new financial entity. Your savings, investments, benefits, property -- even your status in the eyes of the Internal Revenue Service -- will all change.
You and your fiance should have in-depth conversations about money before the wedding. Waiting until after can be a critical mistake. Arguments about money are a leading cause of marital strife, so it’s important to begin having open and honest conversations about money before you tie the knot.
Here are the key financial matters to discuss with your partner before you get married. If you're already married and haven't broached these topics yet, there's no time like the present.
You should review any investment accounts you own separately. Talk about whether you would like to merge your portfolios or keep them separate. Of course you’ll keep contributing to your distinct retirement accounts.
You may want to create new investment accounts for saving for goals like buying a home or funding a child's college education. Consider your investing objectives together. If you have different risk tolerances, it might be best to keep separate accounts. But if you have similar goals and risk tolerances, consider a joint account for investing outside of your retirement plans.
Start this conversation by obtaining your credit reports and sharing them with each other. A person’s credit report contains a wealth of financial information. Every detail of your credit and debt payment activities -- good and bad -- is spelled out clearly on a credit report. You’ll quickly see if your partner has a history of paying bills late. You’ll also see exactly how much debt your partner is carrying.
Check out your credit score. A clean credit report doesn’t necessarily translate into a high credit score. This is definitely something you want to know about each other before applying for a mortgage or a car loan, particularly in today’s tight credit market.
This is a good time to consider closing out unused cards and accounts. It’s a good idea to keep one credit card in each partner’s individual name to preserve and continue to build their individual credit history.
Have an in-depth conversation about whether or not you should open any new credit accounts in both your names. Most people bring a collection of credit cards and debt into their relationship. Remember, just because you are getting married, you are not legally responsible for the debts that your spouse owes on credit accounts solely in his or her name. But once you put your name on a joint credit account, both people named are responsible for all of the debt, regardless of who racks it up.
If you do decide to open a joint credit account, consider setting a low limit of credit on the card, such as $2,000 or $5,000 dollars, at least initially. This will protect you while you are becoming comfortable with each other’s financial behavior.
Typically there is one person who ends up taking responsibility for paying the bills and managing the household finances and the other who does most of the spending on food, clothing, etc. Are these roles right for your relationship? By talking openly about each other’s roles in this way, you may be able to eliminate conflicts that often erupt between savers and spenders in a relationship.
You're required to file as a married person no matter when you get married during that year. Even if you get married on the last day of the year, the IRS requires filing married for purposes of the entire year. While the most common route most married couples take is to file a joint income tax return, there may be some good reasons to file returns as married, but separate.
Reasons to file separately can include possible tax savings. For example, consider it if one partner has their own deductible expenses for property or medical expenses that are significant relative to their own income. This may allow one spouse to claim deductions that are otherwise disallowed when filing jointly.
Another good reason to file separate income tax returns is that you have concerns over how your spouse is reporting their income and/or deductions. If you sign a joint tax return and enjoy a lifestyle that is enhanced by your spouse’s maneuvers to avoid income taxes, don’t think you can play the innocent spouse when the IRS decides to audit. Choosing the “Married - Separate” tax filing status is the best way to protect you from your spouse’s tax errors.
In company benefit plans, getting married is a “change in family status.” This allows you to make new elections under employer provided health and life insurance benefit plans. If both of you have employer provided coverage, use this opportunity to change your benefit elections to select the coverage that best meets both of your needs. This is also a time to reconsider the amount of life insurance is needed, especially if one partner is financially dependent on the other.
Once you're married, you should update the beneficiary designations on retirement accounts, employer provided benefits and life insurance policies. This is also a time to get new wills or update existing ones, especially if you plan to have children. It’s also a good idea to have a Living Will and Designation of Health Care Agent to clarify your intentions for final care and the persons to make these decisions
If you decide to take the family name of your partner, you will need to notify Social Security, the motor vehicle department (to update your drivers license, title and registrations) and financial institutions (banks, mutual funds, insurance companies, brokerages). You also need updated citizenship documents (passports and visas). For this reason alone, many women find it more convenient to keep their maiden name.
Here’s an Action Plan for Newlyweds:
Before the Wedding:
· Talk about finances, including your income, expenses and debts
· Decide where to live and whether you should rent or buy a home and if you should sell a property one of you currently owns
· Consider if a prenuptial agreement is appropriate
After the Wedding:
· Review your beneficiary designations on your insurance policies, retirement plan account and investments
· Review your health insurance coverage and select the plan that best suits your combined needs
· Continue to be enrolled in and contribute to your employers retirement savings plans
· Draft and sign new wills and estate planning documents
Source: Ray Martin - CBS