Getting married? Time to talk about money with your fiance
If you just got engaged, probably the last thing on your mind is how you pay your future bills together or handle everyday budgeting. But it's an important conversation to have with your future spouse. That's because your relationship as a couple extends to his or her relationship with money -- and vice versa. Marry the person, marry their financial habits.
From combining incomes to paying down outstanding debt, there's much to consider. Here are the most essential things to know and discuss before tying the knot.
Credit cards
Most financial planners say knowing where your partner stands on credit is an essential part of combining households. It's important -- having low credit scores can add 5 to 20 percent to the cost of loans. This can be an unwelcome surprise if you plan to apply jointly for car loans or a mortgage. Discuss your past credit or debt history openly and do your research on what impact high debt loads or bad credit scores might have on your lifestyle.
In most cases, you won't be held legally responsible for credit card or loan debt your spouse incurred before you were married. Depending on the state, you will be held responsible for any debt taken via joint loans or credit cards after you are married, and in some states for debt held by your spouse and not you.
Tax status
Once you are married, you will be required to change your marital status on your taxes, but can plan to file separately depending on what makes the most financial sense. Certain retirement vehicles, like IRAs, have different income restrictions on contribution limits for married couples who file jointly.
"The vast majority of the time, filing jointly results in paying less taxes," Nick Holeman, financial adviser at Betterment, told CBS MoneyWatch. "There are lots of rules, especially around IRA contributions, that make filing jointly the best option for most people. There are of course exceptions depending on your personal situation."
Student debt
Student loans can also be a big financial hurdle. If you plan to jointly file taxes, and your loan repayments are income-based, those payments could go up once you are married. As for responsibility, federal student loans belong only to the student -- but if you choose to refinance those loans, spouses can be on the hook to pay them. And if you co-sign loans as a spouse, many states will hold you accountable for the payments.
"Almost every couple that I work with has at least one spouse with student loans. This is why it's especially important to have a conversation about what kind and how much debt each person has before getting married," financial adviser Brian Thompson told CBS MoneyWatch. "While I haven't seen this conversation lead to more prenups, I do see loans preventing couples from purchasing property, having children or achieving other goals."
The big reveal
The most important thing to do is be honest about where you both are financially -- and to know your money habits. Are you spenders or savers? Do you have a budget and stick with it? Have you made plans to reach financial goals like buying a house in five years or taking a vacation every year?
Whether you decide to combine all your finances or keep separate accounts, "the most important thing is that both people are on the same page," Ryan Frailich, financial planner at Deliberate Finances, told CBS MoneyWatch. "I've had times when I asked one member of a couple how they were sharing bills and got a totally different answer than I'd gotten from their spouse. This spells disaster!"