Meet Mark and Sophie. Mark is a quiet accountant working at Industry Inc and Sophie is a happy-go-lucky saleswoman working at Corporate Co. While an unlikely couple, the two recently met at the intramural softball game, and quickly hit it off. So much in fact, that they’ve been happily together for the past nine months, and things are starting to get serious. In truth, the two make a great team, and seem destined for a bright future together.
There’s just one problem. They’ve left out one key compatibility check: money. Now I know what they’re thinking, “That’s like a marriage topic, plus conservations about money are always so awkward and stressful.” While, that’s indeed true, this “money talk” remains a crucial conservation for any serious couple. Don’t believe us? 75% of divorces are partially due to money, specifically not communicating about it, plus, the last thing you want to find out once you married is that your spouse has $30,000 in secret credit card debt. So, awkward as it may be, Mark and Sophie need to sit down with a list of their financial goals and numbers, namely assets, debts, credit scores, and salaries, and talk them through, ideally in a relaxed environment, like a restaurant or bar. While admittedly painful, this talk will accomplish three things.
One: It will help you to better understand your partner’s saving and spending habits. Two: It will better align you and your partner on shared financial goals. And Three: Most importantly, it will help you discover any financial pitfalls or deal breakers now, rather than after marriage. So, assuming Mark and Sophie survive this conversation, for which our video “Funding Your Future”, can be a very helpful framework, their next big talk won’t occur until they move in together. And don’t worry, this conversation is much simpler. It just has three things to establish:
One: Who’s going to be on the lease. Two: Who’s going to buy the one-time expense items, like furniture. And Three: How are the shared monthly expenses, like rent and utilities, going to be split. Some prefer 50/50, while others prefer splitting according to income. For example, this would mean if Sophie made 60% of their combined income, she would pay 60% of their rent. In the end, no matter what you decide, just be sure you decide together. Finally, although it’s well beyond the scope of this video and definitely too personal, this conversation is also a good time to have a serious talk about your relationship: where do you see it going, what do you want out of it, and so on, but don’t worry, we won’t say anymore. We’re financial educators, not your mother. Hopefully you, Mark, and Sophie, now better understand how to navigate dating and finances. Be sure to check out our next video, which covers marriage and finance, and be sure to check out our website, where you can find more educational material and great financial products.
Meet Mark and Sophie. They’ve been together for two years, and are about to get married! They’re very excited. However, they’re also a little bit nervous. They have no idea what will happen to their finances once they get married. What should they do? Well, we’ve got them covered. Let’s walk through the four most common changes:
One: The status of your money and property changes, but in a manner dependent on your state. So what does that even mean? Well, the vast majority of states follow Common Law Property, which just states that if an asset, like a house, is in the name of one spouse, either before or after the marriage, then it belongs to them alone. But if it’s in both their names, or it’s put into a joint-account, then it is co-owned. The same rule applies for income and for debt, such as credit cards or student loans.
However, if you live in one of the nine states that follow Community Property Law, while everything earned or acquired before your marriage is still yours, everything after is equally shared property, even if you name is nowhere to be found. If you’re really worried about this, follow these three rules: Don’t co-mingle separate and marital assets Keep exact records of your pre-marital property And hire a lawyer a create a prenup, which is a document specifying how your property should be divided during your marriage.
Two: You now have the option of filing your taxes jointly, as opposed to just separately. This is the better option for most couples, as it comes with higher income thresholds, multiple tax deductions, and the ability to contribute to each other’s IRAs. However, with that being said, filing jointly isn’t always the best case, especially because it can prevent some couples from using income-based repayment plans for their student loans. For more details, check out our video “How to Repay Your Student Loans”, and remember, any tax-filing software we recommend will do much of this “filing jointly vs. separately” math for you. Three: If you want, you can now join your partner’s health insurance policy. Plus your new marriage may even qualify you for better rates on other types of insurance, like car insurance. To be sure, shop around, or ask your insurer.
Four: Although morbid, once you tie knot, you probably should change the beneficiary of your 401K, IRA, and life insurance policy to your spouse, so in the event of your death, they can get the money. Plus, at this point, you should really create an estate plan, a collection of legal documents covered in our video, “Estate Planning 101” Finally, now that we’ve covered all of the legal details, we just have a few more things to say.
One: The average cost of a wedding is around $30,000, so although we know it’s a once in a lifetime event, consider scaling back if you can, and definitely avoid going into debt over it. Two: Be sure to keep or open your own credit card, as this is vital for maintaining your own credit history.
Three: At the risk of sounding mothering, we’re just going to close with this. Marriage requires total financial transparency, especially around sensitive topics, like spending or pre-marital debt. So, please, bite the bullet, and have the “money talk” with your spouse. For details on this talk, be sure to check out our video “Dating and Finances”.
Hopefully you, Mark, and Sophie, now better understand how to navigate marriage and finance. Be sure to check our next video, which covers everything you need to know about estate planning, and be sure to check out our website, where you can find more educational material, personalized financial products, and great legal solutions.