Married-couple families now just barely make up the majority of U.S. households - a razor thin 50.2% according to the Census Bureau's 2005 American Community Survey. Since 1970, households - with or without children - headed by unmarried couples, same-sex partners or divorced/never-married singles have become far more common. Each situation affects household finances differently, so read on for some financial strategies that will work best for you.
Managing marital money matters is key to fully realizing the financial benefits of marriage. (For more on this, see The Benefits Of Having A Spouse.)
Financial Compatibility: Much like finding personal compatibility, couples can now find out how to create financial compatibility with a partner. Extensive research by Kathleen Gurney, Ph.D., for the article, "Understanding Your Financial Personality" (1999), has identified distinct financial types that may have great difficulty coexisting, such as a reckless, risk-taking "high roller" with an "achiever" who tends to hoard money. Finances are also likely to suffer if a "perfectionist" who over-analyzes every money move couples with a "producer", whose income reflects hard work, but whose lack of confidence hampers financial decision-making. Assuming you've chosen a partner who is a good match for your money personality, once each partner's spending and saving habits have been revealed, both can start making joint financial decisions that respect the wishes of both parties.
Communication: Even the AmericanAcademy of Matrimonial Lawyers (despite acting against self-interest) publishes material that emphasizes the importance of good communication for marital success, regardless of a couple's financial well-being. In fact, some top financial advisors earn their keep based more on how well they facilitate communication about financial issues and stresses than by any slick financial moves they deliver.
Character: If one partner doesn't disclose financial problems that the other discovers through a mandatory credit/background checks (i.e. when applying for a loan or mortgage together), the financial action should be stopped until both sides are "in the know". Both partners should be able to give an acceptable explanation for any financial problems and be able to honestly review the other's finances without condemnation or accusations. The financial act should not be completed until both sides are confident that their financial goals are in line.
Yours and Mine: Depending on your circumstances, it may be wise to keep the financial accounts and assets each spouse owns pre-marriage in their separate names. Any separate gifts to either spouse should go into those accounts accordingly. This will protect each spouse's share of assets and future income-earning capacity (possibly supplemented through a settlement) should the marriage fail. (To read more about this, see Get Through Divorce With Your Finances Intact.)
- Ours: If the couple has agreed on some percentage split of financial responsibilities, then a good way to deal with this is to set up "inner-marital" or "joint" accounts for depositing paychecks and other income. Each spouse could then occasionally supplement those inner accounts from any separately owned accounts - all without the outside income being considered a joint asset should there be a divorce.
Note: Family law in most states regards any accounts established within marriage as joint marital assets, regardless of how they're titled.
Future Plans: Although the thought of separation or divorce may be unpalatable, it makes sense to periodically evaluate both your joint financial situation - including current and projected future net worth - as well as future projections should you separate. Look at how each spouse would afford providing for themselves, any family members and their retirement. It will probably be wise to contact a financial planner to help you with any of these details or decisions. This may be a worst-case scenario, but with the way marriage statistics are heading, it might not hurt to talk about it, if only fleetingly.
- Joint Management and Separate Vigilance: Regardless of relative financial skill, both spouses must be involved in the finances - ideally as active participants, but at least to understand what the couple has, what's coming in, what's going out and how savings are being invested. This includes any businesses or other ventures either party owns or is involved in. Furthermore, for possible emergencies or divorce, both should know where all financial records and documents are kept, including backed-up computer data.
Permanent Singles and Other Couplings
The unmarried financial autonomy available today comes with additional challenges.
Single: For singles, tax rates on a given income are higher than on that same level of income shared by a married couple. Therefore, well-paid singles should typically put higher percentages of incomes in salary-reduction 401(k) plans to take advantage of any tax-lowering deductions. Other routes for tax reductions, such as home ownership, should also be pursued. Running a household on a single income has its own challenges as well, and a strict budget should be adhered to to ensure that current spending is in line with your goals.
- Unmarried Partner: The freedom this arrangement offers doesn't always transfer into the financial world. A knowledgeable CPA can help some unmarried couples lower their joint tax liability, and divorced or surviving spouses can sometimes avoid losing spousal support, Social Security, or other benefits that cease with remarriage. However, unmarried couples can't receive estate-tax-free unlimited spousal transfers (gifts) or inheritances from their partners and they do not they qualify for spousal Social Security or survivor-pension benefits. Furthermore, they can accrue considerable attorney fees arranging financial and healthcare powers of attorney and related documents that give them the rights automatically afforded to spouses. In situations like these, it is paramount to get the advice of both legal and financial advisors to ensure both parties will be covered in case of accident, divorce or death.
Whether you are enjoying a committed relationship or a single lifestyle, getting to the bottom of your bank book should be top priority. Once you have figured out where you stand financially, they can begin to plan for whatever dreams lie ahead. Exploring the far reaches of the financial world should be a stepping stone in life, not a roadblock, so be sure to research all the financial opportunities (and pitfalls) that apply to your situation.