Financial Planning for Newlyweds: Part 1

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, [email protected]

Personal Financial Management program staff often counsel military families about the financial implications of lifestyle transitions. This includes the decision by service members to get married and merge their financial life with a spouse. When a couple gets married, they usually commingle at least some of their personal finances.

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Some of the biggest challenges a couple will face include joint goal-setting, establishing accounts at financial institutions, deciding how to pay bills and manage money together, and filing income taxes as a married couple. Both spouses also need to review existing financial documents, such as life insurance policies, IRAs, and 401(k)s, and change the beneficiary designation to their spouse, if desired.

Marriage is also a good time to draft legal documents such as a will, which stipulates how each spouse’s assets will be distributed. Older couples with substantial funds and/or children from a previous marriage may consider a prenuptial agreement to make decisions in advance about financial matters in the event of death or divorce.

Below are six recommendations to share with service members who are about to get married:

Set Joint Financial Goals- Make a list of short- and longer- term needs and wants. For example, one spouse may need a new car within a year and, together, a couple wants to buy a house within three years. Determine the cost of each goal and the amount that needs to be saved each month to achieve it on time. As an initial financial goal, plan to save at least 3 months living expenses for emergencies such as car repairs.
Develop a Spending Plan– Prepare a spending plan (a.k.a., budget) that includes savings for financial goals. Review and revise it as needed. A simple spending plan includes monthly net income, fixed expenses, flexible expenses, and occasional expenses that are paid less frequently than monthly (e.g., quarterly insurance premiums, college tuition, and vacation expenses).
Develop a Cash Management Plan– Decide if and how you want to merge financial accounts (e.g., savings and checking). Some couples prefer one joint account while others prefer two separate accounts or a combination of separate and joint accounts. There is no one “right” way for married couples to handle their finances. Factors to consider include convenience, a desire by each spouse for some personal “spending money,” and the minimum balances required by financial institutions to avoid fees.
Develop a Payment Plan-Decide how to divide household expenses. If the incomes of two working spouses are fairly equal, bills can be split 50/50. If there is a substantial difference in earnings, bills can be pro-rated. For example, the spouse who earns 70% of household income would pay 70% of the couple’s expenses. The other spouse who earns 30% of total income would pay the remaining 30% of the bills.
Come Clean About Credit– Review each other’s credit reports prior to marriage. If a spouse-to-be has a poor credit history, don’t apply for a joint loan (e.g., mortgage) or credit cards. Keep your credit histories separate until negative information drops off the poor credit report, usually in 7 years (10 years for bankruptcy). If one spouse co-signs a loan for the other, he or she becomes legally responsible. Similarly, if financial accounts are merged, assets of the spouse with a good credit history can be seized by creditors.
Adjust Your Tax Withholding– Complete a new W-4 form (available from each spouse’s employer) to reflect your new marital status. Two-paycheck working couples may need to have more tax withheld to cover the higher taxes that may be due on their combined income. Instead of claiming one withholding allowance, one or both spouses may want to claim zero or even have an additional amount withheld so they don’t fall short of what they owe. Conversely, couples with one earner may experience a “tax bonus” as a result of marriage and need less tax withheld than before. This is because they will benefit from the higher dollar amounts on tax brackets for married couples versus singles.