A host of financial variables can make the knot feel more like a noose. Here's what you need to find out before you get hitched.
It’s easy to forget that marriage is more than joining two lives and two families — it’s also a business contract.
That business contract can benefit you financially, but there are ways that it can also torpedo your finances now and in the future. It’s imperative that a couple discuss finances before marriage — well in advance, not the night before — and decide if they should enter into that contract or if domestic partnership makes more sense.
Or looked at from another angle, this discussion, while sometimes uncomfortable, is a way to achieve goals that really matter to you as a couple. As Rilla Delorier, SunTrust consumer channels executive, puts it:
Every couple shares dreams that require an open dialogue on finances – whether it’s planning for the future, opening a business together, buying a house, having a baby or taking a vacation … Laying the financial groundwork to make these aspirations a reality can be an uplifting process that strengthens the relationship.
“Talking about money before marriage may not seem romantic, but it is part of life and it is vital,” said Leslie Tayne, who specializes in financial legal matters at Tayne Law Group in New York. “What happens to you financially if your significant other or your spouse dies or leaves? You have to have that conversation.”
What’s your money style?
Doing so may help you avoid pitfalls that can unravel your marriage. A survey by financial services company SunTrust found 35 percent of married couples cited money as the No. 1 stress in marriage, well before the second most common stressor — annoying habits — which was cited by 25 percent of respondents.
A report by the Institute for Divorce Financial Analysts noted that “money issues” are responsible for almost a quarter of divorces (22 percent).
One way to lessen money tensions is to discuss basic attitudes about finances before marriage. Are you both savers, spenders or a combination? Will you have joint accounts or individual accounts? Who will be responsible for bill paying and other monetary duties? How will the spouse who is not the main money point person stay abreast of important financial issues that crop up?
What are the tax and benefit implications?
But that’s just the start. It’s important to determine if your joint income as a married couple will subject you to a marriage tax penalty, which takes effect when the taxes you pay jointly exceed what you would have paid if each of you had remained single and filed separately, according to U.S. News & World Report.
Many people falsely believe that marriage will lessen their tax burdens. That is generally only the case when one spouse earns significantly less than the other, according to U.S. News & World Report.
And most couples don’t need to marry to receive benefits from their partner’s employer.
“Years ago many couples had to get married to receive health care benefits from their spouses’ employers,” Tayne said. “That was a major consideration. Now that is more and more not the case. If anything, we see domestic partner benefits increasing especially in larger companies.
What are your debts, assets and credit histories?
Beyond that, though, Tayne noted that it’s imperative that you disclose your debts, assets and credit scores to each other. It’s also important to understand how marriage might impact loan repayments and other obligations.
“What if a man married a woman who is supported by her ex-spouse? How will that impact them?” said Tayne. “What if one of the partners has a child in college, a child who needs extensive medical care or elderly parents? Do you feel comfortable taking that type of obligation on?”
Depending on the state in which the couple lives, they might be responsible for each other’s debts.
For a moment, consider the numbers alone
It’s important to look at all of the variables and consider various scenarios.
Tayne offered as an example one person earning $40,000 a year while the other person attends medical school. In that case, she said, the math — such as a student loan interest tax deduction and access to education credit — works out for them to marry. But when the student graduates, presumably he or she will earn a healthy income — and perhaps have exorbitant debt. So the math will change regarding benefits, debts, credits and repayment of financial obligations.
“It’s important to look at all of the variables,” she said. “If the math works out today that doesn’t mean it will work out in a year.”
Of course, it’s not all about money. We get that. Nor are the answers to these questions necessarily deal killers. They’re just the basis for conversation, and making a decision that’s good for your relationship and for your financial union.
What’s your experience mixing finances and relationships? Share with us in comments below or on our Facebook page.