February 28, 2019
The decision to get married can be one of the most exciting and important decisions you’ll make during your lifetime. However, in practical terms, marriage often represents the merging of assets—and as such, has numerous financial implications.
With many adults waiting longer to get married, it’s common for people to have distinct financial goals and challenges before finding a partner. Fortunately, if each partner has a voice and a better understanding of each other’s financial circumstances from day one, many issues can be addressed before they become relationship problems.
If you’re considering marriage, it’s important to discuss where you and your partner stand on the following financial issues before making it official.
Everyone has quirks and idiosyncrasies that help define them. The same is true when it comes to saving and spending money. You likely have an idea of your partner’s money habits given their lifestyle, but their attitude towards money likely has larger underpinnings going back to their childhood and their parents’ financial habits. It’s important to understand what your partner splurges on impulsively, their attitude towards saving and investing, and what financial fears they may be trying to hide. Once you have a complete understanding of each other’s money values and habits you can better establish common financial goals.
When discussing finances with your partner, it can be helpful to begin with the end in mind. In other words, before you start combining assets and financial futures, it’s important to mutually decide where you want your financial journey to take you. For example, do you want to own a home together someday, do you want to travel extensively, do you have specific retirement goals? Depending on the answers to these and other questions, you can decide how to merge assets or whether it makes more sense to keep certain accounts separate to achieve your individual goals.
Marriage can result in higher taxes, especially when both partners are high earners, as your combined incomes can push you into a higher tax bracket. On the other hand, it’s possible for marriage to result in lower taxes because you can combine deductions and other tax advantages. If you and your partner are not tax experts, it can be helpful to discuss the tax implications of filing as a couple versus filing separately with a tax advisor or CPA to avoid overpaying come tax season.
While debt can be an uncomfortable subject to discuss, both partners should be honest about what debts they have before combining finances—and, more importantly, what habits led to that debt. For example, thousands of dollars in credit card debt may be more concerning than thousands of dollars in student loan debt. Understanding each other’s debt stories, credit scores, and credit history are important factors to consider before making future purchases together.
In addition to understanding your partner’s debts, it’s important to identify the assets you both have acquired prior to your relationship—as well as any assets you have purchased together over the course of your relationship—and what your expectations for those assets are in the event of a split. In certain scenarios, a prenuptial agreement (or “no-nup” if you’re not yet married) can help clearly define how assets will be divided if you eventually decide to part ways.
Once you and your partner have thoroughly discussed your financial history and habits with each other, you can come up with a plan for how you may want to combine finances. Remember—it’s not necessary to instantly merge your assets once you’re married. Instead, it’s often best to be methodical in your approach, discussing each step carefully along the way. You can start small by opening a joint checking account, which can be a good introduction to learning how to manage your money together. From there, you can build out a budget and start saving together for joint goals.
Bringing your partner into your financial life is exciting, but it should be done with honesty, trust and awareness. There is no single correct approach to handling your joint finances once you’re married—every couple is different. The key is keeping an open line of communication as your financial circumstances and goals evolve. It may also be helpful to work with outside advisors that can help you make informed decisions and navigate your financial future as a couple.
Cathy Schnaubelt is a senior wealth strategist for CIBC Private Wealth Management's Houston office, with more than 35 years of industry experience. In this role, Cathy is responsible for the development of integrated wealth management solutions and provides comprehensive estate and financial planning services to high net worth clients.
This article originally appeared on Forbes.com on Jan. 17, 2019.
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