Best Practices for Young Professionals Combining Their Finances
For young couples planning to marry, one of the first practical considerations is how they will bring their finances together.
Money is often at the root of many marital problems when we counsel people seeking a divorce. Nobody preparing to tie the knot is simultaneously planning how to divide assets when a marriage unravels. However, with the median marrying age increasing every year, young professionals have more time to accumulate assets, and therefore more to think about, before walking down the aisle.
Here are three steps toward a firm financial footing for couples who are getting ready to make the leap:
1. Have the conversation
It’s vital for couples to communicate early and often about their financial status and their shared financial goals. Ideally, couples will begin those conversations before walking down the aisle to make sure they’re on the same page about what they want their future to look like.
Couples should identify their goals for one year, five years and farther in the future and work on how to accomplish them as a team. These goals could include buying a house, paying off debt such as student loans, saving to raise a family or investing for retirement
Honest talk about “for richer, for poorer” isn’t confined to the wedding vows. Couples should be upfront about how much debt they have and plans for paying it off. Once a couple is married, whatever debt is brought into the household affects both parties’ credit scores.
2. Get a clear picture of where you stand
Couples who already have assets, such as retirement or investment accounts, should make note of their statement balances before getting married. Retirement accounts and investment accounts built up prior to the marriage are separate property. People who get divorced after 20 or 30 years rarely have records of what their retirement accounts were worth when they got married. Unraveling joint finances can be one of the most complicated parts of a divorce settlement.
Money contributed to a separate retirement account during the marriage is part of the marital estate. One option for individuals with pre-marital investment accounts is to stop contributing to those accounts but keep them open so they can continue to gain value and interest on their own. So long as the growth in the account can be attributed to market forces and not individual efforts from one or both spouses, those accounts likely will not be subject to equitable division in a divorce.
3. Set a budget and make a plan
Couples may decide to combine everything or keep their finances entirely separate. Most, though, fall somewhere in between. Often, couples establish a joint account for household bills and shared expenses while maintaining separate accounts for personal expenses, such as separate hobbies. One option for married individuals making the same amount of money is to contribute equal amounts to the shared account and spend the excess how they choose. If one person is making more, the amount contributed may be proportional to his or her income, depending on the couple’s financial goals.
No matter how the finances are handled, any earnings during the marriage are part of the marital estate under Georgia law. Even if partners decide, as they often do, that one party isn’t going to work in order to take care of the kids or the home, the stay-at-home spouse should make an effort to understand what is going on with the household finances so the couple can make informed financial decisions. We encourage couples to talk openly about their financial status and goals prior to getting married to avoid much more difficult conversations if the marriage comes to an end.