Saying “I do” affects more than just your personal life; It also means a change in the way you manage your money. After years of handling everything individually, you and your new spouse will have to figure out how to merge your finances after marriage.
To be clear, this doesn’t mean you have to pool all your assets when you get married. It simply means that you have to be on the same page and create a system that works for both of you.
The following approaches and tips may help.
Common Approaches to Combining Finances After Marriage
When couples marry later in life, you are more likely to marry with your own assets, income, and debts. When it comes to managing money with your new spouse, there are three basic options: combine all your assets and income, keep everything separate, or use a hybrid approach.
Fully combined
Pooling all your assets and income could be, logistically, the easiest method to manage money as a couple. Instead of using individual accounts, you and your spouse join everything together. Both of your paychecks arrive in the same joint bank account and all expenses come from your shared money reserve.
The 100% combined setup makes it easier to set financial goals together as a couple and get buy-in from both people. It also levels the playing field if one spouse earns less or leaves the workforce to raise children.
However, if couples have different attitudes and habits around money, getting on the same page can be difficult. And if a person has suffered financial losses in the past, this level of financial intimacy may be difficult to achieve.
Advantages:
Cons:
Read more: Should unmarried couples have joint bank accounts?
Completely separate
The opposite approach to a completely merged financial life is to keep everything separate. In some ways, this approach is easy: You don’t have to go through the hassle of setting up new joint accounts and you can (to some extent) continue trading as you did before you got married. If you spend and your spouse saves, keeping separate accounts can help keep the peace.
But since you don’t co-manage any assets, you may avoid broaching the important money conversations that could strengthen your relationship. Plus, deciding who pays for what and maintaining “what’s fair” can be exhausting.
Advantages:
Cons:
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Paying for joint expenses, like housing and food, can be a logistical challenge when you don’t have a joint account
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Setting and working toward joint goals requires more intentionality
Read more: More Couples Ditch Joint Bank Accounts, Experts See Benefit
hybrid model
Also known as the “yours, mine, and ours” approach, the hybrid system for merging finances maintains some level of separation, but also involves at least one joint account.
With this strategy, you will be able to keep your individual bank accounts when you get married, but you will also be able to open a joint account with your spouse. You can use the joint account to pay household bills and save for shared goals. In the meantime, you can continue using your individual accounts for personal expenses.
This setup can create a healthy mix of autonomy and shared responsibility, but it requires a lot of communication from the beginning. You’ll have to decide how much money goes into the joint account, which can be complicated if one partner earns more than the other.
Advantages:
Cons:
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It can become logistically complicated, especially when one partner earns dramatically more than the other.
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The system may need to be modified each time expenses or income change.
Factors that can influence how to combine finances
When thinking about how to combine finances after marriage, consider the following:
Income disparities
The amount each spouse earns can affect what each of you considers “fair” in the marriage. If one partner earns more, the fully combined approach might be the easiest to manage. If you take the completely separate or hybrid approach, you’ll need to determine how much each person contributes to shared expenses and goals.
Existing debt
Some couples want to tackle debt together, regardless of who owns it. Others treat it as an individual responsibility.
For example, if one person comes into the marriage with a lot of debt while the other has worked hard to become debt-free, it might make sense to keep things relatively separate until the debt is paid off.
Spending habits
It’s not uncommon to have different spending habits than your partner. If that’s the case, maintaining some degree of financial separation could reduce the tension.
financial confidence
For someone entering into a marriage with a history of financial abuse or trauma, fully combining finances can be uncomfortable. But if you and your partner value transparency and trust each other to act in your best financial interests, shared finances could strengthen your relationship.
Read more: What is financial infidelity? Why lying about money can be just as bad as cheating.
Long term plans
If you and your spouse plan to have children, care for aging parents, or leave the workforce for any reason, think about how this will affect your finances. These situations can complicate fully separate or hybrid approaches if one partner stops generating income for a period of time.
Read more: 8 financial questions to ask your partner before considering getting married
Legal and tax considerations
Whether you combine your money or maintain separate accounts, marriage comes with legal and tax implications to consider.
For example, if you live in a community property state, any assets you or your spouse acquire during the marriage are generally considered jointly owned. But in states with equitable distribution, assets acquired by one spouse are generally considered his or hers individually, unless both spouses are named owners.
Debt is another important consideration. In some cases, both spouses may be responsible for repaying a debt, regardless of who took out the loan.
Finally, married couples can file taxes jointly or separately. It doesn’t matter how you manage your finances within your home; You can file a joint return even if you maintain separate accounts. Filing jointly can offer more tax savings, but there are exceptions.
Because taxes and laws vary by state and circumstances, it may be worth consulting a tax professional or attorney before walking down the aisle.
Tips to balance finances after marriage
Whether you keep things separate, combine everything, or take a hybrid approach, use the following tips to help you and your spouse manage your finances successfully:
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Be proactive: Don’t wait until after the honeymoon to decide how you will handle money as a married couple. The sooner you start talking about it, the more time you will have to create a plan that works for both of you.
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Set up regular checks: No financial plan (or marriage, for that matter) is perfect. Regardless of how you handle money management, you’ll probably need to course correct along the way. Schedule regular check-ins to review financial goals, progress, and any issues that arise.
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Review your plan with each major change in your life: The birth of a child, a career change, or receiving an inheritance may require you to change your financial setup. Don’t be afraid to recalibrate as necessary.
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Consult a professional: Even with the best intentions, combining finances can be difficult. Don’t hesitate to consult a tax professional, financial advisor, or attorney to help you and your spouse get on the same page.
After all, there is no one right way to combine finances after marriage. The best system is one that both partners agree with and feel good about.
Read more: 4 common financial mistakes couples make that lead to divorce