You found the love of your life and you can’t wait to get married. However, you don’t want to get so caught up in your wedding plans that you fail to lay a solid foundation for your future together. Talking about money before you tie the knot is one way to avoid future conflict. Conversations about money are always awkward, but laying your financial cards down on the table before you get married is always a good idea.
Financial education is important for everyone, and for married couples, the higher the debt, the more strain there is on the marriage. That’s why it’s important to be open about your joint finances. Here are some interesting findings from a Ramsey Solutions survey:
- Two-thirds of married couples start off in debt.
- One-third of couples who argue about money hid a purchase from their spouse.
- Ninety-four percent of couples who say they have a “great” marriage share their financial dreams with one another.
- Sixty-three percent of couples with more than $50,000 in debt are anxious about discussing personal finances.
To smooth out some of the bumps in the financial road ahead, take some proactive steps to work together to establish financial strategies. Here are some topics to discuss before you start your financial journey together:
1. Be completely honest about your financial history.
We all want to hide financial faux pas from our past. Are you carrying student loan debt? Have you ever declared bankruptcy? Are you carrying significant credit card debt? Whatever is in your dark financial past, be sure to share it. It’s better to be honest in advance than to have to explain later.
2. Create a joint budget.
Come together on household spending. Make a list of expenses and create a joint budget that covers household and individual expenses. You want to be sure to account for rent, groceries, transportation, utilities, and other monthly costs. Also, be sure to account for credit card bills, car payments, student loan debt, and other personal expenses.
3. Set up bank accounts.
Some couples prefer to maintain their own bank accounts and divide household expenses. However, according to a survey by TD Bank, 68 percent of millennials have at least one shared bank account. Pooling your money into a joint account is one way to promote financial transparency in a marriage and show your commitment to sharing expenses.
4. Share your long-term financial goals.
It is never too early to discuss retirement planning. You want to review your long-term financial plans to make sure your goals align. Part of the reason to start financial planning as early as possible is to understand how your partner approaches money. Some people are savers and some are spenders, and when a spender and a saver decide to get married it can lead to conflict. Be sure to establish ground rules about saving for the future and develop joint investment strategies.
5. How will you file your taxes?
You should consider seeking professional advice to answer this question. There are actually five different filing statuses for taxes: single, married filing jointly, married filing separately, head of household, and a qualifying widow or widower with a dependent child. As newlyweds, you can either file as married filing jointly, or married filing separately. How you choose to file will affect your tax bracket, and therefore how much you have to pay in taxes. Most married couples choose to file jointly.
6. Update financial and legal documents.
When you become a legal couple, you should update your wills and other legal documents. There also are steps you need to take to legally change your name when you get married. You will want to be sure to change your name on your driver’s license, passport, immigration papers, bank and credit cards, loans, car titles, and other documents.
7. Discuss sharing property.
Not to put a damper on your wedding day, but you also may want to discuss what happens in case you split up. More couples are opting for a prenuptial agreement. In fact, a survey by the American Academy of Matrimonial Lawyers showed that 62 percent of the lawyers it polled saw an increase in prenuptial agreements between 2013 and 2016, and 51 percent said they saw an increase among millennial couples seeking a prenup. As couples marry later in life, they bring more assets and debt to a marriage, so having a legal agreement about assets and liabilities in advance may be a good idea. Remember, in the event of divorce, Washington is a community property state, but Oregon does not recognize community property, and so dividing assets in Oregon can be more problematic.
8. Review your finances regularly.
As you go through life, your financial situation and goals will change. Be sure to review your finances regularly; at least once a year. Assess how your savings have changed, rethink your retirement strategy, assess your debt, and plan accordingly.
One of the smartest things you can do to ensure a long and happy marriage is to be open and honest when discussing money. Share responsibility for saving as well as spending. Discuss major purchases in advance. If you can avoid financial surprises, then you can avoid many arguments.
As you plan your joint future, talk to financial experts. The professionals at iQ Credit Union are committed to helping our members manage their money today so they can achieve their dreams in the future. Start by using our budgeting checklist to review your finances and feel free to contact us to review your financial plans. We are always willing to help.