4 Unexpected Ways Getting Married Affects Your Personal Finances
I'm one of those people that keeps a running countdown in her head for her upcoming wedding. It's in less than 100 days, by the way. Now that I'm in the double digits and have planned and stressed about most of the day's events, it's time to start planning and stressing about what happens AFTER the wedding.
I'm not talking about the honeymoon, I'm talking about the moment you get back to real life and realize that you've just changed your life for good. And that yes, you did just join your life with someone else. For real.
While there are admittedly a lot of changes that come along with marrying the love of your life, you might not think about the financial changes that will occur after you tie the knot, and that's a big mistake. So I decided to look into how my finances will change after my wedding. Here's what I learned.
First, your credit report is still yours and only yours after you get married. If you change your name, your new name will be added to your current report as an alias. According to Credit.com, you may see some errors arise on your report when you change your name and it is good practice checking your report frequently during the name-swapping process. Your spouse's credit report will still be theirs and only theirs, as well. It is tied to your social security number, not bank accounts or credit cards.
Your credit score will not be affected by your spouse's once you marry. You will always have a separate credit score. However, when you open a joint account, anything from that account can affect both of your scores. Take this into account when applying for a home mortgage. While your credit scores are separate, the lender will look at both when you apply. So while your personal credit may be great, keep in mind that your spouse's problems could still affect you.
Key takeaways: Your credit report is still yours and only yours; you do not 'start fresh' with a new last name; if one spouse has bad credit, it may be beneficial to apply for loans and credit individually.
On the day you get married, regardless of which day, the IRS will consider you married for that entire year. My wedding is in October 2015 and when I file, I will file as married for the 2015 year. Now, let's talk about why that might scare some people. Before this year, I'd never heard of "the marriage penalty." Have you? It's pretty basic: Combining your incomes mean your household has a higher total income, which can bump you up into a higher tax bracket, requiring your to pay more in taxes. The more similar your income is to your spouse's, the higher your chances of receiving the penalty.
It sounds a lot scarier than it actually is. Since 2001, the penalties have been greatly reduced or completely eliminated for some couples. Even better, some married couples receive a bonus, which means they pay less by filing together. Unfortunately, this is going to vary from couple to couple, but to ease your mind a but, many couples receive the bonus rather than the penalty. To get a general idea of your tax status by using this Marriage Penalty and Bonus Calculator from the Tax Policy Center. While you may not be able to avoid the penalty or secure the bonus, having a clear understanding before you're married is always a good idea.
Key takeaway: Know what your combined income will be and learn about filing joint taxes before April, so if you do incur a "marriage penalty", you'll know about it in advance.
Have you discussed with your future spouse whether you'll have separate or joint checking accounts? You should. There are basically three options here.
1. Keep accounts separate - For those couples who value their financial independence, this is an option. Each spouse keeps track of their own spending, which can result in fewer overdrawn account issues and bounced checks, and also helps in keeping personal debt separate, which we'll cover later.
2. Merge accounts into a single joint account - This alleviates any stress of splitting bills and costs and also allows you access to any and all money if anything were to happen to your spouse.
3. A mix of both - You each keep separate accounts for spending cash and open a joint account for bills, savings and whatever else you need as a couple.
My fiancé and I currently have separate accounts, but with the same bank. We both have access to each other's account and can make transfers whenever necessary (to pay joint bills). It works for us now, but when we get married we've discussed keeping our separate checking accounts and adding a joint account to make bill paying easier. We dream of the day we can skip dividing everything by half every single time we get a bill and making transfers to and from accounts. We both like our financial freedom; the joy of treating ourselves with our own hard earned money, but we also want to feel like we're doing some financial things together. Take the time to talk to your spouse about what is right for your own situation.
Key takeaways: Talk with your spouse about how to handle joint bills, savings accounts, and how money will be handled if something happens to one of you. If one spouse is uncomfortable with joint accounts, there are other options!
Please, please, please talk about your personal debt with your husband or wife-to-be before getting hitched. Debt should not be a taboo subject between couples. Getting married doesn't mean you will automatically take on your spouses prior debts, but that doesn't mean you shouldn't talk about them. There are going to be debts you incur while you're married and you can be sure that the lenders will be looking at both of your personal debt histories. Additionally, if one spouse incurs debt during the marriage, in Community Property States the other spouse could be responsible for that debt as well.
Even if you live in a Community Property State, you can eliminate your spouse's liability when it comes to your debt. That is where pre and post-nuptial agreements come into place. They sound off-putting to some, but if one spouse is planning to come into debt (starting a business, for example) it might be advantageous to discuss this agreement.
Key takeaways: Learn whether you live in a Community Property or Common Law State as it will affect how your debt is treated.
Do you have any advice for soon-to-be married couples (aka me) when it comes to their finances? Let me know in the comments!