Marrying Your Finances

When you make a lifelong commitment to another person, the way you agree to handle money can have a significant impact on your future together.

It's not the most romantic subject, but discussing financial details early can help prevent tensions later. A good place to start is to address any differences between you and your partner when it comes to handling money:

• Is one of you a saver and the other a spender?
   
• Is one of you more of a risk taker?
   
• How do you each handle credit and debt?
   
• What are your individual financial goals?
   
• Is one of you more experienced than the other when it comes to money?

Take a comprehensive look at where you stand

• First: Total up all your assets (what you own) and liabilities (what you owe).
   
• Next: Make a list of all sources of income and expenses so you can see what your joint monthly cash flow looks like.

On the matter of prenups

Even if you don't create a legal document, we suggest discussing all of the issues covered in a prenuptial agreement before you get married. Find out if a prenuptial agreement is right for you.

Sharing finances—where to start

There can be a lot of details when managing shared finances. Take care of them right away to make your transition simpler.

If you're changing your name, immediately order a new Social Security card and driver's license with the new name. Notify your employer, your creditors, and all your bank and credit card account providers and insurance agents.

Request copies of your credit reports. You'll need to check for accuracy and also share your information with your partner.

Consider your tax-filing choices. Check with your tax professional to see whether you should file taxes jointly or separately. Update your W-4 forms.

In most cases, married couples benefit from filing a joint tax return. In general, the only time that it makes sense to file separately is when one person has significant medical expenses, casualty losses, or miscellaneous itemized deductions—or if a couple is contemplating divorce. Filing separately can be especially complicated if you live in a community property state. Consult a tax professional.

• Coordinate health insurance. You and your spouse are probably covered by your individual employers' health insurance. It may be less expensive to cover you both under one plan.
   
• Determine your life insurance needs now and if you have children.
   
• Address any change in property titling.
   
• Update beneficiary designations.
   
• Create or update your estate plan.
   
• Create durable powers of attorney for finances and health care so each of you can make financial and medical decisions for the other in the case of an incapacitating injury or illness.

Plan, plan, plan

The more you and your spouse clearly define roles—like who will handle daily financial obligations, for instance—the smoother your financial relationship will go.

Developing a plan will help you come to an agreement and stick to your goals. Here are some important things to consider:

Sharing financial responsibilities—decide how you'll handle expenses. For example:

• If both of you are earning income, will you share certain expenses (e.g., your mortgage, utilities, groceries, etc.) while keeping others separate (such as clothing, personal entertainment, etc.)?
   
• If only one of you is earning income, how will you handle the need for personal money for the unemployed spouse?
   
• If one of you makes more money than the other, can you agree on a fair percentage of your individual incomes to contribute to the common pool?

Once you've determined where the money is coming from, agree on who will be responsible for paying the bills.

• Where you keep your money and how you keep track of expenses—Some couples prefer to pool everything in a joint account. Others like to keep separate accounts for personal expenses and a joint account for shared expenses. Be sure you both agree and have equal autonomy.
   
• Paying off debt—If one or both of you have personal debt (e.g., credit cards and auto loans), work together to eliminate it first. Also consult each other before taking on any new debt.
   
• Setting goals and saving—Discuss your goals and how you want to achieve them. What percentage of your income will you save each year? How will you divide your savings between short-term goals like a vacation and long-term goals like retirement? Consider our eight savings fundamentals to help you get started.
   
• Creating an emergency fund—Build enough savings to cover three to six months of living expenses in case of an emergency or for other unexpected costs. Keep your emergency fund accessible by depositing it in an interest-bearing checking account, a money market savings account, a money market fund, or a short-term CD.
   
• Investing—Once you have some savings, consider how to invest it. Keep in mind that investable assets should be money that you won't need to access for at least three to five years. You can open a joint brokerage account or separate investing accounts. Together or separate, the goal is to put your money to work and help it grow in a way that works best for both of you.

Don't forget to make retirement saving a part of your plans. The sooner you start, the less you may have to save each year. Starting in your 20s and putting aside 10% of your income for the rest of your life might be enough. The older you are when you start to save, the larger the portion of your income you'll have to put aside. Learn more about saving for retirement.