Together you said “I do.” The hopes and dreams to build a future and a family together are alive. But now what? One of the hardest things couples do when joining their lives together is merging their finances. How do you combine financial bliss with marital bliss? Good communication is a fundamental skill in the process. The good news is, most of the time, marriage leads to more wealth accumulation. Unfortunately, financial stress is a leading cause of divorce.
Beneficiaries and Benefits
The first step is ensuring all beneficiary information is correct on IRAs and 401(k)s. The beneficiary information on these accounts will supersede any wills or directives. Also, if life insurance is already in place, make sure it is going to the appropriate person. While you are in this process it would be a good idea to put together a will, medical directive and a power of attorney. This way if anything unfortunate happens, your significant other is prepared.
Next, if both members of the couple have employee benefits, the couple must evaluate and decide which plan to continue and which plan to drop. One person might have stronger benefits than the other. Evaluating these and picking the best one can be a complicated task. This doesn’t mean to stop contributing to your 401(k) or current retirement plan. Funds still need to be directed to these plans for multiple reasons. (For related reading, see: Making Spousal IRA Contributions.)
Joint or Separate Accounts
As for daily finances, I find most couples enjoy a little bit of independence. No one enjoys being questioned or ridiculed on every purchase. I like my things, my wife likes her things. How do you maintain some financial autonomy without disrupting financial bliss?
I operate under the belief that "one plus two accounts" is best. If both partners have jobs and a steady stream of income this is easier. The idea begins with setting up one main account for all communal living expenses such as a house, car, groceries, etc. All income from both parties ideally goes into this account. When the main living expenses are met, two individual accounts are funded with an agreed amount. (For related reading, see: Should You Open a Joint Account?)
These two "freedom" accounts are just that—accounts for no-questions-asked spending. This way when you bring home something expensive, the only relevant question is if you stayed within your freedom account amount, not the cost of the item. If one partner chooses to save and the other to spend, there can be no hard feelings for personal choice. He or she might be saving it for something special together or for a getaway with friends.
Now if one or both of you is self-employed, or income is sporadic, this can be tough to do. Communication is key. Setting the eventual goal of combining finances is a great way to enjoy successes together.
At the end of the day, marriage is about communication and understanding. With financial stress being the leading cause of divorce, eliminating some of the financial pressure leads to greater wealth and less trauma to a relationship. In effect, keeping the wedding bliss. (For related reading, see: 6 Ways Marriage Can Improve Your Finances.)