I am no expert on marriage, nor have I been close to tying the knot. However, after doing some research I have come up with some information and questions couples thinking about getting married, or perhaps recently married, should think of.
Statistics show that the majority of marriages end in divorce because of finances. Whether it is debt, spending habits, disagreement on how to save and invest, use of credit, etc. Your finances are not a subject that should be taken lightly and should always be discussed throughout your relationship. The amount of debt (school, credit, etc), or your spouse’s credit score should not be a shock to you after the wedding. Along with talking about debt, credit, savings and investments, your financial goals should be discussed just as much (current, future, and retirement).
Once you are married, it is important to keep communicating about your finances. You should be looking over your bank/credit card statements together to see where you are spending and to create and use a budget, to see if you are on target to reach your goals. There should be set agreements between you and your spouse about spending limits, and maybe set up a weekly “allowance” for personal spending so you don’t feel restricted or feel like you have no say over money. Setting purchase limits allows a couple to avoid financial friction, provides independence while creating the basis for financial collaboration. All big purchases should be talked about before buying. For example, is there a certain dollar amount that you both should agree on such as a purchase over $100.
Another important conversation to have is the much debated topic of combining assets. Do you want to have separate or joint accounts? There is no right answer, just a lot of different opinions and personal beliefs. With couples getting married later in life, most people have formed their own spending habits, so creating restrictions on someone’s money may be frustrating. Combining accounts provides both benefits and drawbacks. If one spouse has a poor credit history and debt level, this could impact the other spouse. It does however, become easier and create less friction in the relationship when it comes to managing a budget. Divvying up bills can be tedious and a lot more work. How do you keep everything fair once you have the financial burden of kids? If accounts are joint, saving can feel easier and can be something that you can do together, instead of feeling like one person is saving more than the other. As every couple is unique, you should sit down and weigh your options and see what will work for you!
Not only is it your bank and investment accounts that need to be discussed, but your real estate, and automotive ownership as well. Just like many new couples have wedding counsel, post wedding counsel is equally important. Asking questions of insurance advisors, financial advisors and mortgage advisors is critical in making financial decisions. Don’t assume!
When getting married, it is important to know what happens to your credit score. It is believed that once you get married credit scores become combined. This is FALSE! Your credit score is found through your social insurance number and therefore is not combined when you get married. When purchasing a home or taking out a loan through a joint account, your lender will usually look at the lower score in order to calculate your interest rate. It is important that both spouses have a credit score which means both spouses have access to credit. No credit means no credit score. If choosing to take out a joint mortgage, you can help strengthen your partner’s credit score but it can also be a burden, as it may cost a lot more. If you decide to take out a single mortgage through the spouse with the better credit rating, it could drop your interest rate, but could force you to find a less expensive house. The bank will take into consideration whether or not you can afford the home by looking at the DTI (debt-to-income) ratio. It is the lenders way of looking at all your prior debt and payment history, the cost of your new debt, and to see what you can afford.
Most families these days are supported by dual incomes. This does not mean you have a whole income for spending on whatever you like. Once married, you will take on expenses of your partner such as food, clothing, car expenses, etc. With the extra household income coming in, you will most likely be brought into a higher tax bracket, forcing you to pay more money during tax time. You still need to stick to saving 10% of total household income, and want to have at least a 6 month emergency fund. The 6 month emergency fund should consist of your average spending per month on all bills, and essentials. You always want to have an emergency fund in case of financial challengers such as the loss of an income. Statistics say that the average person takes 6 months to get a new job.
The topic of wills is often over looked. Some of you have probably never completed a will yet, and there is nothing wrong with that. If you don’t have assets, there might not have been a real reason to have a will. Now you have a spouse (a family) to consider, you should be looking to make a will with your partner. If you would like more information on wills, we have an article Wills and Power of Attorney’s- The Basics that will give you more information, with some background information on what to look for when considering a will. For those of you who have a will already, take the time to consider beneficiary designation, executors and power of attorney.
At the end of the day, there should be a reoccurring financial discussion between you and your spouse. Sound marriages have open communication as a cornerstone. We talk about where we want to live, what we want to drive, where we want to travel, starting a family and careers. Each of these topics has financial implications. There are a lot of topics that need to be discussed and your finances should be one of the most talked about ones.
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