Are you newly married (or thinking about popping the question?) Either way, congratulations are in order, and for more reasons than you think. Entering into marriage results in significant changes to your finances -- taxes, insurance, property, credit, and retirement are all things to reconsider.
Regardless of what your future holds, you'll want to take some time and consider these five ways that marriage changes your finances!
Taxes. The big one, the one change that almost everyone knows about. At long last, you can file taxes jointly and reap the rewards, right?
Well, not exactly. Marriage does, in fact, allow you to file taxes jointly. Whether you should is up to specifics of you and your spouses' finances.
When you opt to file jointly, you and your spouse file a single, combined federal tax return. That means you need to combine your incomes, deductions, credits, exemptions, and everything else on the same return.
When you file jointly, you also agree to take on responsibility for the combined tax liability. In other words, you acquire liability for you and your partner's tax obligations.
Here are just two of the tax credits you may qualify for when filing jointly (or, tax credits you may not be able to claim if you file separately):
Earned Income Tax Credit
Child and Dependent Care Expenses
American Opportunity Tax Credit
Lifetime Learning Credit
Student Loan Interest Deduction
Of course, a combined tax return means a much higher standard deduction. For 2018, the IRS lists the standard deduction for filing as Single or Married Filing Separately as $12,000. For those filing jointly, that amount doubles to $24,000.
Depending on your specific financial situation, filing jointly may result in a lower tax obligation. You'll want to take the time to sit down and figure out exactly which option is best for you (consulting with a professional CPA is never a bad idea!).
Married Filing Separately.
If you are married, you may still opt to file separately. This protects each individual from their partner's tax obligations. The choice to file separately or jointly is one you'll want to consider with professional advice.
Now that you're married, insurance changes seemingly overnight. Let's consider the easy ones first.
It's common for auto insurance rates to drop after marriage, but usually only for younger couples. Remember, auto insurance is a numbers game -- the numbers say that married drivers crash less. As a general rule of thumb, you can expect lower auto insurance rates after marriage. Now, to pre-empt a common question, yes, you do need to put your spouse on your auto insurance policy. You may be able to exclude your spouse from your policy, but just being married is does not guarantee full coverage. You'll want to make sure you and your spouse are both on each other's policies.
Marriage is a "qualifying life event" that enables you to make changes to your health insurance plan. You will want to check with the specifics of your plan, but it's a good idea to add your spouse as soon as you have time. Of course, you may not want to add your spouse to your plan -- sit down and decide which plan is better for both of you!
For example, if your current health care plan is perfect for you (and your spouse is happy with theirs), there is no need to make any changes. If you could sneak away with lower monthly premiums by combining plans, however, you may want to consider that instead. Health insurance is brutally complicated. We recommend taking some time to sit down, write out the benefits and drawbacks of each plan, and work from there.
In common law states, marital property is pretty simple. For example, if a house lists only you as the owner, you are the sole owner. If that house lists you and your spouse, it's joint property and you each control "half" of the house.
In community property states (California, Texas, Washington, Arizona, and others), it's more difficult to figure out property rights. In broad terms, assets or income acquired during the marriage are considered joint marital property. That also applies to debts and tax obligations.
You can still own your own property, but it needs to be inherited by a single spouse or given as a direct gift. There's a lot to cover in terms of community property marriage rights, so take the time and research your specific state's requirements.
First off, no, credit reports do not magically combine after marriage. You and your spouse each retain your own credit reports and credit histories. On top of this, the act of marriage will neither raise or lower your credit score.
In many ways, your credit does not actually change after marriage. However, there's one big "if" -- if you open joint accounts or consolidate accounts, you become equally responsible.
For example, let's assume you open a joint credit card after marriage. That account is in both of your names -- missed payments, collection notices, and so on will appear on both of your credit histories.
Consolidating financial accounts is a move that may make sense for you, depending on your unique financial situation. It's recommended that each spouse keep a single separate credit account (in the event of divorce). Consulting with a professional is never a bad idea at this point!
Individual Retirement Accounts (IRAs)
If you're single (and depending on your income), you can stash away a nice $6,000 (for those under the age of 50) a year in an IRA. If you file jointly, that amount doesn't change. So, if you file a joint return, you and your spouse can both put money away in your own IRAs. However, your total contributions to both IRAs cannot exceed your joint taxable income (or the annual limit, doubled).
The IRS does not care which spouse earned the income.
There are limits, of course. For married couples making more than $194,000 per year, no Roth IRA contribution is permitted. Income between $184,000 and $194,000 allows for a partial contribution, and any income under $184,000 guarantees full contribution up to the legal limit.
Retirement accounts are, by and large, held by a single person. For 401(k) retirement plans, the 401(k) account itself belongs to whoever works for the employer holding the plan. In practical terms, this means the following:
If you and your spouse both have 401(k) plans, each of you may participate up to the legal limits of your plan
There are no federal limitations on 401(k) contributions when married (besides the standard maximum amount)
When it comes to maxing out 401(k) contributions for married couples, it's a good idea to sit down and look at the details of each plan. If one spouse's plan allows for greater employer-matched contributions, for example, it may make sense to max out that plan and retain more liquid cash.
Marriage is a really important event in your life. You're committing to another person for the rest of your life, and that commitment extends to many aspects of your financial life. Taxes, insurance, property, credit, and retirement all change the moment you get married.