Erik Carter, Contributor
Financial Finesse, Contributor Group
Are you one of the estimated 6 million American couples who got engaged this Valentine’s Day? Have you otherwise recently become engaged or tied the knot? Going from “yours and theirs” to “ours” obviously has some significant financial aspects. Here are a few things to consider:
No, your credit scores don’t merge when you get married, but if you apply for joint loans like a mortgage, the spouse with the lower credit score can have a negative impact on the interest rate or chance of qualifying at all. The score of the higher earner is of particular importance. Be sure you know your credit scores before applying for any joint loans and take steps to improve and protect both of your scores.
First, you can each get free copies of your 3 credit reports (Experian, Transunion, and Equifax) at AnnualCreditReport.com weekly until April 20th and then every 12 months after that. Be sure to correct any errors you may find that could be hurting your score. Second, you can get free credit monitoring at Experian and Credit Karma (for Equifax and TransUnion ). While credit monitoring can alert you of identity theft after the case, putting a security freeze on your credit reports can prevent someone from opening credit in your name in the first place.
Setting up joint bank and credit card accounts can simplify household expenses and make you feel more like a couple. If one of you has a poor credit score, being added to the other’s credit cards can help the first spouse improve their score. The money in the bank accounts is also immediately available to your spouse should something happen to you and vice versa.
However, not knowing whether your spouse has written a check or made an ATM withdrawal can actually make managing money harder. Any debts or delinquencies of your spouse become yours too. Finally, there’s no privacy when one of you wants to buy a surprise gift to the other.
One option is to have one or more joint accounts for household bills and savings and separate accounts for personal expenses. Most states allow you to set up your individual bank account with a POD or “payable on death” registration that allows the account to pass directly to your beneficiary without going through the time and expense of probate if something were to happen to you. To help you manage your joint accounts, you can both use a site like Mint to monitor household expenses and withdrawals.
Now would be a good time to create or update your wills, durable powers of attorney, and health care directives. You’ll also want to update the beneficiary information on any retirement accounts, health savings accounts, life insurance policies, and trusts you may have. This is especially true if they still list an ex-spouse since the beneficiary registration generally trumps whatever you say on a will. Making your spouse the beneficiary on your retirement accounts also gives them the unique ability to roll the account(s) into their own IRA, allowing them to potentially benefit longer from tax deferral.
If you’re not already living together, doing so can provide lots of opportunities to save money and even get some extra cash. Not only will you not need to maintain two residences, but you can eliminate redundant bills and sell possessions you no longer need in a garage sale or on sites like Craig’s List or eBay. Just be careful of letting new expenses automatically arise to fill the gap.
If only one of you will be working, it obviously becomes important to have life insurance in case something happens to the breadwinner. You can run a calculator to estimate how much life insurance you need. You may also want to insure the stay-at-home spouse if they’re taking care of children and the surviving spouse would need to hire help for the kids.
You may feel more secure if you’re a two-income household, but you may actually be at more risk. If you’re on your own, you only need to worry about your job. If you’re married and dependent on both incomes for your expenses, you need to worry about both of your jobs. That can make having an emergency fund even more vital as well.
There’s good news here too. If you’re both employed, you may be able to pick and choose from among each other’s health insurance plans and other benefits available to spouses. Social Security also provides additional spousal benefits, even if one of you hasn’t worked enough to otherwise be eligible for benefits.
You can use this IRS withholding calculator to help determine how to adjust your tax withholding on your W-4 forms. You’ll also want to see if you would pay less by filing jointly or separately. There are some specific tax benefits by being married too. You can benefit from $500k instead of $250k of tax-free capital gains on the sale of a jointly owned primary residence, you can pass an unlimited amount to each other without gift or estate tax, and you can combine your $12.06 million estate tax exclusions.
I know a lot of these topics aren’t exactly the most romantic aspects of getting married, but the reality is that money is one of the most common things couples fight about. Avoiding the financial pitfalls and taking advantage of the financial benefits will make everything else easier. Hopefully, these tips will help get your marriage off on the right financial foot.
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