Getting married? Understand the financial implications first
Getting married changes your financial life in profound ways. It’s not just that you’re living together or sharing expenses—you don’t need marriage to do that—it’s that your legal and tax status changes. And while your credit score remains individual, your future choices could be changed by what your spouse brings into the financial picture.
Whether you’re getting hitched for the first time or remarrying after a divorce or death, it’s smart to sit down with your partner well before the wedding to talk about these issues and do some financial planning. Granted, it’s not the most thrilling premarital activity. But the decisions you and your future spouse make about how to handle money will have long-term repercussions for you—not just as individuals, but as a couple, whether you choose to combine your finances completely or keep certain things separate.
Your choices won’t just have financial implications, but also emotional and legal ones. A little preparation now will pay off handsomely later.
- Partners should fully disclose their assets, liabilities, and credit reports to each other before marriage.
- Financial decisions around wedding budgets will affect couples for years—for better or for worse.
- Marriage can have major financial benefits, especially if you understand the best way to file your taxes as a couple.
- Learn your state’s laws regarding marital property, and understand how assets and liabilities acquired before and after marriage will be shared.
Before You Say “I Do”
Before you exchange vows, it’s important that you and your partner each disclose your full financial circumstances to each other. Because marriage is a legal and financial decision—the government couldn’t care less how in love you are—you need to know what risks you are taking by binding yourself to another person. Disclose all assets and liabilities (including those from a previous marriage, if applicable, or responsibilities you have for members of your family). Obtain both of your credit reports and credit scores from all three credit bureaus. Sit down and review each other’s balance sheets together and discuss any concerns.
Once you know what you’re dealing with, you can decide how you’ll handle your finances in marriage. If one partner has considerably more assets or earning power than the other, a prenuptial agreement may be in order. These contracts can protect premarital assets and provide for children from previous marriages. They can also establish responsibility for debts acquired before marriage and prearrange spousal support in case of divorce.
If either or both of you carries considerable debt, it’s time to make a plan for paying it off. One spouse’s premarital debt does not automatically become the other’s upon signing a marriage license, but that debt can still affect you after marriage insofar as it affects your joint finances.
If either of you has poor credit, come up with a plan for improving it. Life will be easier if you both have good credit. You can be co-borrowers and use both of your assets to qualify if you ever apply for an automobile loan or mortgage together.1
When spouses borrow jointly but one has poor credit, a lender may charge higher interest and fees than the spouse with a good credit score could have been eligible for on their own.
Set joint financial goals
Set joint financial goals for your future and create a household budget that will help you get there. Now is the time to think about your answers to questions like these:
- What are your top priorities in life, and how do finances factor into those priorities?
- What are your long-term career prospects and goals?
- Will either of you need financial support for additional education or time out of the workforce to work toward your goals?
- Will one spouse stay at home full time or part time to care for children?
- Do either of you have children from a previous relationship, and if so, what kind of financial responsibilities will you have for them?
- Do either of you expect to be called on to support other relatives, such as aging parents?
- At what age do you hope to retire, and what kind of retirement do you envision?
- Do you have different attitudes toward saving and spending? How will you manage those differences?
Even if you don’t know all the answers, it’s helpful to get a sense of where your partner stands and evaluate what you each might need to think about or research further.
Planning Your Wedding
How much you will spend on the wedding and who will pay for it are two of the first big financial questions engaged couples need to answer together. Your decisions can have a major effect on how the marriage starts off, which can set the tone for your partnership.
In some families, the father of the bride pays for the entire wedding. But sometimes there’s no bride, sometimes there’s no father, and sometimes neither of the engaged couple’s families has the financial means to contribute to the wedding. When you’re paying for the wedding yourselves as a couple, especially if you’re a young couple with little money saved up and many unmet goals, it’s imperative to establish an affordable wedding budget and adhere to it.
Sticking to a wedding budget can be harder than it sounds. Once you start researching wedding costs and talking to vendors, you might learn that the magical event you’ve envisioned costs a multiple of what you expected or can afford. You then have to choose whether to go into debt, scale back your expectations, or get creative—or do a bit of all three. Does the wedding have to be on a Saturday? Do you really need to have 300 guests? If you’re crafty, can you make your own centerpieces instead of paying for them?
Decisions about what to spend on rings are also important. Ultimately, wearing a band on your ring finger is a symbol of commitment, and that symbol can be had for as little as $10.
It’s up to you whether you want something fancier, such as having a family heirloom ring resized or reset, opting for traditional gold and diamonds or a modern alternative, shopping at a major jewelry store, or working with an independent jeweler who does custom work. Couples who opt for pricey rings should make sure they have enough homeowners or renters insurance to replace the jewelry if it’s lost or stolen.
Handling Your Money After You’ve Tied the Knot
Getting married doesn’t just have emotional benefits. It also has a lot of financial ones. The benefits can include reduced housing costs, savings on health insurance, and lower car insurance premiums. These savings, in turn, can increase financial stability for both the short term and the long term by providing cash for emergencies and the means to save for retirement. In fact, married couples often have an easier time saving for retirement not only because they share incomes and expenses but also because a higher-earning spouse can contribute to a lower-earning spouse’s traditional or Roth IRA.2 3
Married couples often establish new joint checking and savings accounts and may want to add their new spouse as a joint owner on existing accounts. Some use a combination of strategies. It’s important to decide which strategy for managing money as a couple feels the most comfortable to you. Shortly after the wedding is also a good time to update account beneficiaries.
Because of the legal and financial ties that marriage creates, financial openness and honesty in your relationship is more important than ever. If one partner blows the household budget, for instance, owning up to it, not hiding it, is the best way to move forward—hard as that may be to do. Honesty will allow you, as a couple, to discuss the circumstances that led to the mistake, the best strategy for damage control, and how a similar mistake can be prevented going forward. A spouse who tends to overspend, say, might need a monthly allowance that they’re accountable for sticking to.
Sharing financial responsibilities
In a marriage, it’s common for one partner to handle budgeting and bill paying and another to handle all the investments, or for one partner to do all the financial tasks. There are dangers in these lopsided approaches. What happens if one spouse becomes too sick or injured to handle their usual tasks—or even dies suddenly?
Because we do so many of our financial tasks online these days, the other spouse may have no idea what accounts exist, what bills need to be paid, or what the passwords are to log in to each account. It’s better to do financial tasks together at least some of the time or to trade off each month so both spouses can access every account and know how to manage the household’s money. A joint approach to finances also makes it harder for one spouse to hide income or overspending from the other. If neither of you is particularly money-savvy, it may make sense to consult a financial planner in order to get on good financial footing from the get-go.
Financial problems are a leading cause of divorce.
The Legal Side of Marriage
State law determines who owns what in a marriage. The law might not seem important when you first get married, but it will become a huge factor when one spouse dies or if you get divorced. Better to understand how things work now than to be unpleasantly surprised later.
Most states are common law states. If you live in a common law state, property belongs to the person whose name is on it, and that person can leave their property to anyone they want. You can own property jointly or individually, but the type of title you hold affects whether joint property becomes entirely your spouse’s or whether you can leave your share to someone else upon your death.
In community property states, assets and debts acquired during marriage belong equally to both spouses. Assets that one spouse owned before the marriage or that one spouse inherits or receives as a gift at any point belong only to that spouse, however. Similarly, debts incurred by only one spouse before the marriage are not the other spouse’s responsibility.4
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
If you didn’t sign a prenup but wish you had, you and your spouse can create and sign a postmarital agreement or postnuptial agreement (“postnup”), a legal document that lays out how assets will be divided should the marriage end. Similar to a prenup, it can simplify issues of inheritance and asset division and can eliminate the need for divorce proceedings.
Marriage also increases the importance of establishing wills for each of you—or changing your wills to incorporate the fact that you are married—as well as adding payable on death designations for all of your accounts so your money can go to your spouse or another named beneficiary within days of your death. How the law handles your assets after your death may not be the way you’d like them handled. This also seems like a very-far-in-the-future issue (you hope), but why not take care of it while you’re organizing everything else?
Marriage and Taxes
Married couples can file joint or separate tax returns. Using tax software to run both scenarios can simplify the decision of how to file in order to pay the least in taxes. Filing jointly is often the way to go for financial reasons, but each couple’s circumstances are unique.
A couple might prefer to file separately if they don’t want to be responsible for the completeness and accuracy of each other’s returns or if, for example, one spouse wants to maintain complete separation from the other spouse’s business. Medical deductions for one spouse—if that spouse earns significantly less income than their partner—is another reason it can pay to file separately in some years. On the other hand, certain deductions and exemptions are only available to couples who file jointly.5
If one or both spouses have student loans, deciding whether to file joint or separate tax returns can affect the size of student loan payments. For borrowers on income-based repayment plans, filing a joint tax return means that both spouses’ incomes will be used to calculate student loan payments, potentially resulting in a higher payment than if they file separately. But the key word here is “potentially”—it depends on the repayment plan in question, the income discrepancy between the spouses, each spouse’s student loan debt, the difference in taxes owed depending on filing status, and other factors.5
One tax benefit of marriage is the unlimited marital deduction, a provision that lets married couples transfer an uncapped amount of assets between each other during life and upon death without owing any gift or estate taxes.
The Bottom Line
On the surface, marriage might seem to be all about love and companionship. On a deeper level, it’s much more than an emotional commitment—it’s also a financial and legal one. Because of the way state and federal laws are written, tying the knot can have significant consequences for your money. It’s important to make sure you and your partner are on the same page about the assets and liabilities you are bringing into the marriage, and about how you’ll handle money as a couple.
Getting these important conversations out of the way before the wedding means you’ll start your marriage on the right foot, with no ugly surprises lying in wait. It will also set you up to have ongoing discussions about your finances over the years. These conversations will help you stay on track to meet your goals and reduce or eliminate the fear and stress couples can experience around discussing money matters with each other.
With your finances in order, you’ll have the peace of mind to focus on taking the next step in your relationship, enjoying this special time, and building a life together.