It’s a proverb that, while uncomfortable to think about, also contains a lot of truth: “There’s no romance without finance.” As much as we might not want to admit it, the topic of money—whether spoken or unspoken—takes up a lot of room in the mind of anyone in a serious relationship. After all, living requires money. So, it just makes sense that how decisions, priorities, and actions around a household’s finances are going to be handled would be front-of-mind, in one way or another, for all parties concerned.
Research bears this out. For example, a 2021 study by the American Institute of Certified Public Accountants (AICPA) found that 73% of couples identified money decisions as the leading cause of disagreements. Even worse, a recent study published in the Journal of Consumer Psychology indicated that the more financial stress a couple is under, the less likely they are to communicate openly about it. In other words, when money becomes a problem in a marriage, we tend to stop talking about it, which typically only makes the problem worse.
The fact is, there are financial implications for just about any important life event: education, dating, marriage, becoming a parent, getting or changing jobs, and so on. The better news is that some of the financial implications of marriage can be positive for everyone. But, as with most things in life, it all comes down to developing good communication habits. Let’s take a look at a few financial implications of marriage and consider the best ways of handling them.
Insurance
Marriage offers a few financial benefits, and one of them is in the area of insurance. Specifically, getting married may save you money on auto insurance premiums. Statistically, married persons tend to have fewer accidents, and this actuarial data can allow a young couple to obtain as much as a 20% discount on auto insurance premiums.
Of course, the responsibility of providing for a family typically makes it advisable to own life insurance to provide a level of financial sustenance in the event of the passing of a spouse. For most families these days, the income of both partners is essential to maintaining the family’s lifestyle, so both spouses should investigate the purchase of sufficient life insurance coverage to manage this risk.
Third, because marriage, for many, also leads to home ownership, property insurance is important. Even if you don’t own your place of residence, you should probably investigate the cost of renter’s insurance to protect your valuables, furniture, and other possessions against theft and also to provide for the expense incurred if your living arrangements are disrupted by fire or some other natural disaster (i.e., the cost of moving to a new rental). Many landlords are now requiring tenants to maintain renters’ insurance policies.
Then, there’s health insurance. If both spouses are covered by an employer’s plan—great. But even if not, a family health plan may be less expensive than a policy purchased for an individual. And if one spouse has coverage through an employer, adding the non-insured spouse to the company plan is often the most economical way to secure coverage.
Taxes
Though married persons can still choose to file separately, filing jointly as a married couple typically results in less taxes payable. However, there are exceptions. In certain situations—if one spouse has student loans, high medical bills, or simply because the two individuals want to keep their finances separate—it can make more sense to file separately. Especially for those whose situation may be more complicated for the above or other reasons, it’s a good idea to consult with a qualified tax expert to see which way is best for you.
Separate property—or not?
Especially for two-income couples and those with more complex financial situations (i.e., bringing significant assets into the marriage), it’s important to communicate clearly concerning matters like marital property vs. separate property, debt and the responsibility for paying it, joint tax liability, and other financial issues that arise in many marriages.
Even if you don’t live in a community property state, it’s important to be clear on the difference between joint marital property and separate property. Most assets acquired during a marriage are legally considered to be equally owned by both spouses, even if one spouse earns a disproportionate amount of the household income. On the flipside, debt accumulated during a marriage is generally considered to be the joint responsibility of both spouses. For these reasons, if no other, couples owe it to each other to practice open communication about household income and expenses.
Separate property, on the other hand, encompasses assets that are owned by only one spouse. Typically, these would be assets acquired before the marriage or an inheritance received during the marriage. Often, those going into a marriage with significant assets are well advised to use a pre-nuptial agreement that specifies the understanding of both partners that certain property held by one spouse is not joint or community property.
For those with separate property, it’s important to maintain separation between those assets and marital assets. For example, if one spouse inherits an investment account that pays interest and dividends, the earnings from the account should be deposited in a separate account; they should not be deposited in an account holding jointly owned funds. Doing so could create the appearance of commingling of the assets, which could potentially lead to the inherited funds being declared community property.
“Who’s on first?”
It is common for one or the other partner in a marriage to be the “money person.” That’s fine, but it is still crucial for the other spouse to have at least a working knowledge of household income, bills that have to be paid, and other day-to-day financial matters. If there is separate property owned by one spouse or the other, this should be thoroughly discussed and understood.
JFS Wealth Advisors understands that changing life circumstances—including marriage—creates the need for ongoing assessment and re-evaluation of financial goals, resources, and priorities. We know that clarity and understanding comes with defined communication around one’s own personal beliefs and desires, and finding common, unified grounds when there is more than one party involved in the decision making process, like in a marriage. Our fiduciary standard of care means that we are obligated to provide advice, guidance, and recommendations that put the client’s interest foremost. To learn more about how we work with individuals and families to deliver customized financial planning solutions, please visit our website.
