Getting Married
When you tie the knot, finances and ownership can get tangled.
Marriage is a big step in terms of emotional commitment, and it often means a big financial change as well.
Merging your financial lives can be easier than splitting up the closet space or deciding who takes out the garbage. Or it can be a source of constant tension. The bottom line is that being financially compatible—or finding a way to work out your differences—is essential to a happy marriage.
Merge Ahead?
Many married couples own most, if not all, of their investments and possessions jointly. Among other reasons it’s so popular is that sharing ownership of the things you acquire can make your marriage more equal. And if you both have a stake in your assets, you may both be more inclined to handle them wisely.
Merging your property and finances isn’t always the smartest thing to do, though. If either of you works in a profession that might make you vulnerable to lawsuits or has had trouble with creditors, it may be a better idea to keep your assets separate. That way, if one of you finds yourself in financial trouble, you’ll be able to keep the other person’s finances secure. Similarly, many financial advisers suggest you each keep the assets you had before getting married in your own names.
Managing Money
You’ll have to work out a way to handle your household finances. You can adopt one of the conventional methods or experiment until you find a system that works for both of you—recognizing that it might mean surviving some fairly intense discussions. You can try:
Pooling your earnings in a joint account and paying all bills from that account, including your individual expenses
Keeping separate accounts but splitting the common expenses, with one of you paying rent or mortgage, for example, and the other making car payments and buying food
Contributing a percentage of your income to a household account to cover the bills and putting the rest in your own accounts
What happens if one of you makes a lot more money than the other, or if one of you isn’t working? It can be a problem, but it’s one you should try to discuss frankly, especially if the alternative is nursing feelings of inadequacy or resentment. It might help to acknowledge that your roles could switch if the current breadwinner got sick or lost a job.
Who Owns What (and How)
There are four ways to own property. Each comes with its own rules, which govern ownership for just about every kind of property, from bank accounts to investments and real estate.
Sole ownership. As the name suggests, with sole ownership you alone own the asset, and you’re free to sell it or give it away as you wish, including by way of a will or trust. But if you’re married and buy an asset, the story is a little different even if you pay the full cost yourself. In a community property state, it is considered marital property. In a divorce its value is included in the amount that must be divided evenly between former spouses. In other states where marital assets are also, in principle, divided equitably, the asset may be considered as marital property.
Joint tenants with right of survivorship (JTWRS). With this form of ownership, you own the property equally with one or more other people—typically but not necessarily your spouse. A joint owner automatically inherits the property when the other owner dies, whether it’s cash in a bank account, securities, the family home, or other another asset.
Joint owners must agree to the sale of an asset and the proceeds must be shared evenly. Alternate arrangements can be made, though. For example, one owner may keep an asset, such as real estate, and relinquish claim to assets equal to half the value to the other owner. However, with jointly owned bank or securities accounts, it is possible for one owner to act in his or her own self-interest and withdraw or sell without agreement.
Tenants by the entirety. This arrangement, which is an option in some but not all states, is available only to a married couple. The two own the asset, typically real estate, together. Neither owner can sell without the other’s agreement. If one owner dies, the surviving owner automatically becomes the sole owner. If the couple divorces, they become tenants in common. Either could sell his or her half without the other’s agreement. However, other solutions are possible, such as offsetting the value of the asset with the cumulative value of other assets.
Tenants in common. Owners who are tenants in common each own a share of the property, either in equal proportions or in proportions that reflect their investment in the asset. While this arrangement can apply to two people, it can, and often does, involve more than two. Each owner can sell his or her share independently and keep all of the profits or leave it by will to a new owner.
Difficulties may arise if various owners have different ideas about whether to sell because the property is indivisible. For example, if a six-room house has three owners, each owner holds one-third of the total value of the house. But there’s no way to sell just two of the six rooms.
Community Property
You might want to be extra wary of switching your premarital assets to joint ownership if you live in a community property state. In these nine states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—you give up the right to own something exclusively in the future once you designate it a joint possession. And anything you earn during your marriage is automatically part of this joint pool. But you can protect what was yours beforehand if you keep it in your own name.