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Should You Combine Finances?

Couple discusses if they should combine their bank accounts and finances after marriage.The decision to combine finances after marriage is about more than whether you trust and love your spouse. Examine each partner’s debt, W-4 withholding and income to determine the least expensive options for taxes, health insurance, retirement and other potentially shared benefits. Set goals as a couple and do an estate plan, including a living will, to kickstart the money conversation.

Many couples choose to combine some, but not all accounts. So, what are the risks and benefits?

Debt and Marriage

Your partner’s debt from before marriage (credit cards, student loans, medical bills, etc.) don’t automatically become your debts. For example, your spouse’s student loan won’t show up on your credit report. However, if you combine your finances then your income and assets could be open to debt collectors wanting payment on your partner’s bills. If one spouse has great credit while the other is in serious debt, you might decide as a couple to keep things separate while the debt is being paid down.

Shared Accounts, Shared Accountability

Any time you make someone a joint owner on anything (investments, credit cards, checking account, real estate), then you agree to share equal responsibility for both your own and your partner’s activity. So, if your partner overdraws the account — even if you knew nothing about it — you are just as responsible for the fees and penalties. Before combining all your finances, opening one joint account for shared bills like household expenses can be a good trial run to see how your financial styles mesh.

Shared accounts mean equal right to assets, regardless of who contributed what. Even if one partner puts in most or all the funds, once in a joint account, it is shared property. This can become an issue when one partner loses their job, can’t work, or takes a planned absence (e.g., to go to school or take care of a family member).

Set goals and clear boundaries to prevent misunderstandings later on. A financial planner, coach or counselor can be an objective third party.

Marriage and Finances

Regardless of whether you decide to join bank accounts, there are a few things that you’ll need to do immediately after tying the knot.

  • Notify the Social Security Administration. Always make sure the name on file with Social Security matches what’s on your tax return.
  • Decide how you’ll file taxes. You are considered married for the entire calendar year in which you get married. Even if it’s a New Year’s Eve wedding, the IRS still considers you married for that whole year before. You’ll need to decide if you will file as a married couple, filing jointly (which is often cheaper) or a married couple, filing separately.
  • Start an estate plan. Even if you don’t have a house or many assets, an estate plan is part of combining finances. This includes drafting a living will — which states whether you want to be kept alive artificially if you’re ever mentally incapacitated — and updating the beneficiaries on investment accounts like your 401(k) and life insurance policies.

Separating Finances in Divorce

In a divorce, you and your spouse have equal rights to joint checking and savings accounts, real estate and other investments. When separating finances, you also will need to update Social Security, the IRS, and the beneficiaries on your retirement accounts and life insurance. The bottom line is, the more you combine your finances, the more there would be to separate if you break up.

There is no one-size-fits-all answer when considering whether to combine finances. Often, the best first step is to start the conversation with your partner as early as possible — and take the LifeValues Quiz to explore your money personalities more deeply.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]

Ver este artículo en espanol: ¿Es conveniente combinar las finanzas?