Whether you’re newly married or just moved in with your significant other, there is a lot to consider when you’re deciding how to handle your household finances. Figuring out how you will divide everyday responsibilities is easy compared to questions about your finances!
Many people find dealing with the financial issues that arise as a result of living together bewildering. Your income becomes one, and the debts can pile together to form what could be a colossal undertaking. Discussing finances can be one of the most difficult aspects of marriage.
If you’re thinking about merging your finances, consider these pros and cons.
Pros
Teamwork
When you’re one the same page, and your short- and long-term financial goals sync up and your financial priorities are aligned, there’s nothing more fulfilling than knowing you and your partner are in this together through a complete financial union.
When you merge your liabilities and assets, you are both looking beyond your personal needs and wants and making the commitment to prosper or fail together.
Simplicity
When you live together or are married, you share many expenses like mortgage, household items, food, utilities, etc. It makes sense to keep the cash that pays these bills in one account that you both fund. Merging your loan accounts, like credit cards, can help you secure other loans in the future.
And, if you both make timely, consistent payments, both of your credit scores will improve. If you had kept the credit account separate, only one of you would benefit from the higher score. That could hurt you later when you apply for additional credit.
Taxes
In some circumstances, filing separate tax returns might be advantageous. For example, perhaps one spouse has high medical bills and can meet the deduction threshold by only considering his or her income.
But for some couples, merging finances and filing jointly will help save time and can result in substantial savings. This is especially true when one spouse earns more than the other. Since the joint tax filing brackets are double those for married-filed-separately brackets, more of the income of the higher earning spouse will be taxed at a lower rate. Filing a joint tax return is normally beneficial for couples who do not have excessive personal casualty losses, medical expenses, or other itemized deductions. Your accountant can help you figure out how to minimize your tax bite.
Cons
Attitudes
Some couples don’t agree on certain financial issues, like creating a saving/spending plan, setting retirement goals, or the amount of debt they should carry. It’s true that opposites really do attract, and in most relationships, there’s a spender and a saver.
If your financial philosophies don’t match, merging your financial lives can bring challenges and unwanted relationship conflict.
Dependence
Someone who has been managing his or her own cash for many years and been successful in doing so may not want to give up their financial autonomy.
There will be more bookkeeping if you decide to keep your finances separate and set up a yours-mine-and-ours account arrangement, but it might give you the comfort and independence you want.
Disentangling
No one plans to end their marriage or for a long-term relationship to break up, but life is full of surprises. You’re happy now, but what happens if the relationship fails in the long run? Bank accounts, joint mortgages, and credit cards can be hard to separate, even with a formal court-ordered divorce decree.
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