By Roberta L. Nestor
Whether you are 25 or 65, getting married is exciting; however, it brings many challenges for couples. The majority of first marriages today will involve joining together two incomes, two retirement plans, two different health insurance plans and maybe even two totally different approaches to short and long term savings. Second marriages have their own financial challenges as they can involve adult children, retirement income and a deeper dive into estate planning. What is the best way to merge your finances?
Hopefully, before the wedding day you have already had several conversations about money. Knowing your new spouse’s money history, hang ups and dreams will help you both discuss your financial goals. Start with a list of your short term goals. These might include paying off debt, new car purchase, home purchase or even vacation planning. Longer term goals could include starting a family, how to pay for your children’s education and retirement. Once you have identified the goals that are the most important to each of you, then you can focus on how to achieve those goals.
On-going conversations should include how you have managed money before marriage. How much debt are each of you bringing to the table? How does money make you feel? What was money like growing up? Discuss your spending habits – is someone a shopaholic? Since your financial picture and attitudes about money will change over time, it is important to have these discussions regularly.
Combining finances is a big decision – especially for individuals who marry later in life. We feel protective about our own paychecks and are used to making independent decisions. If you and your spouse decide to keep individual accounts, you should consider having a shared account for the regular monthly expenses (rent or mortgage, utilities, shared car payments). Make sure you both agree (and list) all of the shared bills that will be paid out of this new joint account. It is also a good idea to set a ceiling that neither spouse will make purchases over a set amount without first consulting the other.
What about credit cards? If you’re thinking about adding your name to your spouse’s credit card accounts, you might want to reconsider that. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it can negatively impact the credit rating of the other. If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won’t show up on the authorized user’s credit record. But remember, you remain responsible for the account.
Of course there will be many post-wedding financial decisions on your “to-do” list. You should update your beneficiary designations on life insurance and retirement plans. If you have a will, that should also be updated. You will need to take the time to review one another’s health insurance plan to compare costs and benefits. If you are changing your name, you will need to notify your employer, social security and all financial institutions you work with. Lastly, you should meet with your tax advisor to see if you should be adjusting your tax withholding.
These steps may seem overwhelming, but the good news is that there are many professionals available in the financial and tax world that can help you make a smooth transition to merging your finances.
Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or firstname.lastname@example.org.