Whether you’re getting married for the first time or considering a second marriage, you and your partner need to be proactive about financial planning. Talk of marriage finances might not be the most romantic activity but a little planning now will make a big difference later.
A fresh start
It can be tough to know where to start. Financial experts recommend starting early. Plan to set aside some time for you and your partner to sit down and discuss money. It is absolutely critical that both parties be honest and judgement free when discussing marriage finances. Couples should discuss their assets, debts, and incomes with each other. If there is a wide disparity in incomes, then couples should talk about that and make sure each is happy with the solution.
Marriage finances: The big three
To help guide the conversation surrounding marriage finances, here are three key items to discuss:
- Set financial goals: First of all, every couple should discuss their shared and individual financial goals. Do you want to buy a house in the next few years or begin saving for retirement early? Do you plan on having children? If yes, then will one spouse stay home or will you need childcare? Consider the long-term prospects for each of your careers.
- Make a budget: Once you discuss and agree to your shared goals, it’s important to plan for them. The next thing every couple should do is set out the household budget. A household budget is just a simple list of how much money you expect to be available and what your spending needs are. Couples should discuss whether they plan to combine their finances totally or maintain separate accounts. If there’s a big disparity in incomes, then some couples may prefer to keep things separate and pay bills in proportion to their incomes. For example, the higher income spouse may pay the mortgage while the other pays the utilities. Others may prefer to combine everything and work with one account.
- Develop a spending plan: A household budget is a blueprint for your finances but you also need a spending plan to actually make your budget a reality. Consider what your expenses are and plan out how you will pay those expenses. How much do you and your spouse want to save? Do you want separate savings and joint savings?
What to expect
Finally, it is essential that both spouses understand the legal and tax implications of marriage finances. Most states treat property as belonging to the person named on the title. Debts incurred during marriage in the name of one spouse remain that person’s debt. Nine states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — are what is called “community property” states. In these states, debts acquired during marriage are the equal obligation of both spouses. Assets owned or debts incurred prior to marriage will remain the individual asset or debt of that spouse. As you can see, it’s important to know the laws of your state and understand if you’re going to be responsible for debts incurred by your spouse.
Married couples can choose to file joint or separate tax returns. It’s usually better to file a joint return but some situations might call for separate returns. For example, if one spouse would like nothing to do with another spouse’s business, it may make sense to file separately. In some circumstances, filing a separate tax return can lower student loan repayment for those enrolled in income driven repayment plans. You’ll want to check the specifics of your loans and repayment plan if that applies to you.
A partner in the process
Marriage is a wonderful commitment steeped in emotion and romance; however, it also has practical consequences. Couples that are proactive and plan in advance are setting themselves up for success. Discussing marriage finances early and often can help make your joint dreams a reality.
If buying a new home or refinancing your current home is in your financial plan, then contact the experienced mortgage loan officers at First Centennial Mortgage today to see how they can help you achieve your goals.
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