Come correct on money stuff when you get married
Hi Friendos,
This week, I wanted to think about a nice thing that is nice: when people are in love and want to get married. It’s so nice!
I was thinking about this because of a recent “Tax Tip” newsletter I got from the IRS called “Tax checklist for newlyweds.” I thought it was a solid checklist but I have so many other ideas! Especially if you broaden it out a bit to include people planning to get married.
Here are the four items the IRS put on its checklist for newlyweds:
- Report any name changes to the Social Security Administration to avoid a mismatch with your tax return, which could delay any tax refund. I agree that if you changed your name, this is a priority to do right after the wedding.
- Update your address with the post office, employers, and the IRS. Yep, if you moved, I agree that this is also a priority.
- Check your tax withholding and update any employers with a new Form W-4 within 10 days. Definitely this will help with a smooth tax filing process in the spring.
- Review your tax filing status. Married people can choose between “married filing jointly” and “married filing separately.” Jointly is usually better (resulting in less federal income tax paid across the two people), but not always. An example of this could be where one person has a lot of student loans and is on income-based repayment – the couple might pay more in federal income taxes by filing separately but more than make up for that with lower student loan payments. This could be different in community property states, though, so run the #’s for where you live.
I’m imagining a person that just got engaged, and is thinking about money-related things to help them prepare for a solid financial future. Here’s what I’ve got for them – maybe you have other ideas too!
Before the wedding:
- Develop a plan for paying for the wedding if you are having a party. Ditto for a honeymoon trip. Don’t go into debt for these!
- Have some money conversations. Open communication around money is key! Here is a loooong list of topic ideas to consider:
- Each of you should disclose your overall financial position to your partner: all assets, all debts, credit scores, all sources of income and how much that income is. Also discuss how you think any of these may change over time (income trajectory for your occupation, plan for debt paydown, plan for saving, etc.). This can be a difficult conversation but it is very important.
- Does your partner have their own emergency fund? Is it fully funded?
- Disclose your list of investment accounts, checking accounts, savings accounts, credit cards to each other and if either of you plans/wants to make any changes to this. This provides insight into how each of you organize your finances.
- Do both of you track your spending or perhaps just one of you? Do each of you do a monthly budget and if so, how do you determine the planned spending amounts? Overall, how do each of you keep tabs on your finances and will that change after you are married?
- What do you think about merging finances? Separate, fully together, or a yours/mine/ours approach? As a couple you can change how you do this over time, so any merging need not take place immediately.
- If you are merging finances in part or fully, will you have a $ amount above which you always discuss purchases with each other in advance?
- How will you split any shared household expenses? 50-50? Based on each person’s relative level of income? Another approach? Do you have a logistical plan for this? E.g., a joint checking account (with a debit card) out of which you’ll pay joint expenses.
- Will only one of you be responsible for paying each bill or both of you? Do you and your partner always pay bills on time? Consider the benefit of each of you having a utility bill in your own name (e.g, one person on the electric bill and the other on the natural gas bill), as this can come in handy at the DMV and other places where you need to provide proof of residency.
- How will you approach gift-giving for each other, such as birthday or holiday gifts? Will the other person know the exact cost? Will gifts be paid for out of joint accounts? In general, how do you feel if one person is making decisions to spend any “shared” money?
- Do either of you currently have family financial obligations, like supporting parents, kids, or other family members that are not currently living with you? If not currently, do you have reason to think this may change in the nearer term or perhaps further into the future?
- What is your vision for the future, vis-à -vis big things with a financial component? E.g., having children, possibility of one person becoming a stay-at-home parent, goals of early retirement, homeownership, loads of travel, charitable giving. Maybe your current goals are simply to pay down debt, build some financial security, and improve in your career – fine! In any case, do you and your partner have a shared vision for goals and will you work together as a team with your finances to reach your goals?
- What about other choices that may impact finances, such as doing unpaid household chores (e.g., cleaning yourself vs paying a housekeeper), travel plans, amount of dining out / takeout food? Are you on the same page?
- Do you both have investments? How are you investing your money and what is your investment philosophy?
- Do you have any apprehensions/fears around money?
- How did your parents/family members handle money when you were growing up? Was it a source of tension in your family? Do you want to emulate your older family members, or maybe do exactly the opposite of what they did?Â
If you and your partner talk through all that, you’ll be the best prepared couple in the history of personal finance!
3. Consider getting a prenup. If so, you want to get that handled asap, ideally at least a month (or more) before your wedding date.If your employer offers a legal benefit, that could help pay for it. Some employee assistance plans (“EAPs”) offer a small amount of free/discounted legal services.
- If you both have similar levels of assets, debts, and income, you may not feel the need for a prenup. If either you or your partner has kids or their own business, you should absolutely consider one.
- If you get a prenup, you and your partner need to each have your own lawyer. If one of you has a lot more assets than the other, I think the person with more assets should cover the cost of the other person’s lawyer.
- Do memorialize your premarital assets and liabilities, such as by saving copies of account statements to your own computer or cloud storage – financial institutions usually only keep records going back 7 years and sometimes they charge you to provide copies of older records. Overall, just save copies of account statements each month/quarter and you’ll never have to worry.
After the wedding:
- Getting married is a qualifying life event for medical insurance. You can consider having both of you on the same insurance plan vs. each being on your own plan. It’s not fun but you’ll want to run some numbers to figure out your best option. This article I wrote lays out how I think about this analysis. This is also an opportunity to change FSA contributions or other employer benefits that usually can only be changed during annual open enrollment.
- Both people need some level of involvement in financial matters regardless of affinity / knowledge / skill with personal finance. If there is a less-involved spouse, they have a critical role to play as the “oversight committee.”
- Consider updates to investment account beneficiaries (401k, IRA, regular brokerage accounts). Similarly, you may need to update your emergency contact information at employers and other places.
- Don’t forget about other aspects of financial planning such as: getting a will, medical power of attorney, financial power of attorney, obtaining/price shopping relevant insurance policies (renters/homeowners, auto, disability, life).
- At some point, consider creating a version of a Family Finances Binder. I wrote about that in this article and this one.
Phew! That’s my big we’re-getting-married list. Do you think I missed anything? Let me know!
-Stephanie
Frequently Taxed Questions 