If you're planning on tying the knot in 2016, congratulations! May your nuptials represent the start of a long, happy, and healthy life together. Other than perhaps the costs of your ceremony and reception, money may be the furthest thing from your mind at the moment. Still, it's important to understand the financial changes that come along with marriage so your money can be a tool to help you build your family, rather than a wedge that drives you apart.
Lots of money changes take place as soon as you say "I do," and it's up to you and your soon-to-be spouse to figure out how to manage them together. Some of those changes are clearly beneficial, such as the ability for most spouses to give unlimited gifts to each other. Others, like the tax changes that come along with getting married, may or may not be a plus, depending on your circumstances. Still others, like dealing with any financial "baggage" being brought into the marriage, could be problematic.
What to do before you say "I do"
Speaking of potential financial baggage, if you haven't done so already, you and your betrothed really need to have a serious money talk. It's critically important to let each other know what you're bringing into your marriage and what you expect from one another, money wise. It may not seem particularly romantic, but incompatible money views can very quickly derail a marriage. Key things you should cover in that discussion include:
- If you have children, former spouses, or any other major financial obligations that will impact the money you're able to bring in for your household.
- If you're hoping to have children, do you expect both parents to return to paid work, or have one become a full-time stay-at-home parent?
- What your financial priorities are, in terms of "must haves," "would like to haves," and "can live withouts," both immediately and over time.
- An outline of a budget that includes both your incomes, is designed around meeting those highest financial priorities, and includes money saved toward those priorities that take place in the future.
- How you plan to split your finances between "yours," "mine," and "ours," considering the things you own, the things you owe, and your expected monthly incomes and expenses.
What works for you may be very different than what works for another couple, but you both need to agree to the plans you come up with. If you don't know the answer to one of the questions, it's still important to have the discussion. Work together to come up with a plan that addresses what you know and your best estimates for what you're not sure of, and you'll help yourselves start off on the right financial foundation together.
Additionally, you should strongly consider a prenuptial agreement, particularly if either or both of you have children with another person. Should anything happen to split your marriage apart, the prenuptial agreement can protect those children's interests. Even if your marriage should last for the rest of your natural lives, the process of creating that prenuptial agreement can help you learn a lot more about your future spouse before you start that life together.
What changes are coming your way?
Once you tie the knot, your financial lives change. Perhaps the biggest way they change is with the tax code. Once you're married, you can choose between married filing jointly or married filing separately when it comes time to file your taxes. For most couples, married filing jointly works out as a better deal financially. Occasionally, it does make sense to file separately, though, so you'll have to run the numbers both ways yourself to make sure.
Besides the purely tax-related reasons, a key reason you might wish to file separately is if you suspect your spouse may be cheating on his or her tax or income reporting. If you sign as part of a joint tax return, the IRS can come after you, not just your spouse, for any back taxes, interest, and penalties owed. If you file separately, most of those concerns vanish for the innocent spouse, though the IRS can still go after key assets owned jointly by both spouses (such as a joint checking account).
On a lighter note, once you are married, you and your spouse can give each other gifts of unlimited size without triggering any gift taxes, as long as you're both U.S. citizens. This works for inheritances, too. If your spouse is a non-citizen, you can give gifts of up to $148,000 in 2016 without facing any gift tax concerns. In addition to the obvious benefits of not having to track details of who pays for what expenses around the home and regarding entertainment, that helps with other gifting plans as well.
For instance, in 2016 you can generally give $14,000 within the year to someone you're not married to, without facing gift tax costs or a claim against your lifetime exemption. However, you and your spouse can "split" a gift and effectively double that amount -- to $28,000. It's as if you gave $14,000 and your spouse gave $14,000.
Let your money help your marriage
As you plan your wedding and the start of your life together, know that your marriage is about far more important things than simply the money. Still, money can be either a tool that helps you enjoy that life together, or a wedge that drives you apart. Start off on the right financial footing, with a clear picture of what each of you is bringing into the marriage and your expectations of one another, and you give yourselves a great chance at success.