11 Common Mistakes Couples Make When Combining their Finances

Most couples come to me because they have a lot going on.  They’re getting married, having children, combining finances and/or paying student loans. Often these pairs have been together for a while, yet they still don’t have an idea how to plan for these events together.

Or maybe they do have an idea, but they’ve reached an impasse. Sometimes one spouse is more motivated than the other (or more scared than the other). Couples may fight because of previous baggage with money discussions (that was the issue for me and Ben and why we saw a financial advisor).

Today I want to explore 11 common mistakes that I see and offer some solutions.

1.  Failing to take into account both spouses’ goals

Set aside some time to discuss your values around money.  Why is money important to you?  What are your short-term and long-term goals? What keeps you up at night worrying? What would you like to accomplish with your finances in the next year?  These issues are hard to talk about.  To get you started, I’ve created a step-by-step guide to this conversation that you can get here.

2.  Not establishing a plan for combining finances

If you don’t have a plan, it’s time to start talking about one. There’s no single solution.  Every couple has to find the approach that works best for them.  Some people like to lump everything together.  Others like to keep things separate.  Many like to have some joint expenses and other separate expenses. You have to find what makes you both comfortable and empowered.

3.  Leaving credit card rewards on the table

You’re spending for two now.  Why not get the benefit in larger credit card rewards?  Make sure you’re taking advantage of cash and travels rewards to start.  You might also want to consolidate accounts, so you’ll get more rewards on high-earning cards.

4.  Buying a home without running the numbers

Don’t let your mortgage company decide how much home you can buy. Just because you qualify for a certain size loan doesn’t mean you can afford it.  Spend time figuring out how much you can actually afford by looking at what’s coming in and what’s going out. Additionally, you need to make sure you’re both on the same page as far as the proper budget to set. I have more tips for first-time homebuyers here.

5. Filing their tax return without reviewing if it’s best to file MFJ or MFS

Most people have heard about the marriage penalty, but aren’t quite sure how it affects them. However, getting married means you either have to file Married Filing Jointly (MFJ) or Married Filing Separately (MFS), so the penalty or bonus is theoretical unless you’re researching before you marry.  For most couples, MFJ fits benefits you the most. But here are some reasons why you may want to file MFS.

6.  Failing to research the cost of starting a family

Expanding your family is a big and expensive step, especially for LGBTQ couples.  For example, the cost of having a child can exceed $100,000, if you’re doing gestational surrogacy. You need to make sure you have a plan for meeting these costs.  Additionally, you should take into consideration other costs like one spouse staying home with the child, tax deductions and other government incentives.

7.  Not combining health insurance and taking advantage of HSAs

Getting married gives you twice as many options when it comes to finding the best health insurance and taking advantage of tools like HSAs.  Yet many couples don’t take the time to figure out which policy benefits them the most. I offer a guide here on how to analyze each policy to figure out which gives you the most bang for your buck.

8.  Putting your insurance strategy on autopilot

Health insurance isn’t the only important type of coverage.  You also have to navigate things like life and disability, which become more important if a spouse and other people depend on your income. Take the time to make sure you have the proper coverage for car, home, life and disability.

9.  Keeping retirement plans separated

Getting married also allows you to determine the best place to put your assets strategically. Maybe one spouse has a high-cost, high-fee retirement plan, so you figure out a way to max out the other spouse’s account. Additionally, when you get married, your spouse must be the beneficiary of your retirement accounts, unless he or she gives you permission otherwise. Make sure to check your beneficiary designations on your retirement account, as well as other financial tools like your bank account, insurance policies and wills.

10.  Avoiding estate planning

Speaking of a will, you need to have an estate plan. Very few of the couples I see have this in place. But by not doing proper estate planning you run the risk of having your assets go to the wrong person or not having your wishes met if you become incapacitated.

11.  Not considering a prenuptial agreement (prenup)

This last issue makes many couples uneasy. But a prenup is just like any other financial planning tool. It allows you to prepare for the worst-case scenario in a time when you want to take care of each other the most.  At the very least, bring up the idea so you can both get your feelings out regarding this type of document. And make sure to leave yourself plenty of time to do this before the wedding.

One last piece of advice: these issues challenge a lot of couples, which is why people come to me. If you get to a point where you feel stuck, consider getting a fee-only, fiduciary advisor to help you plan. Some advantages of using an advisor include.

  • Getting you organized and on the same page. Both on a macro level with investment, taxes, insurance, estate planning etc. But also on a micro level with cash flow and net worth.
  • Keeping you accountable to the financial goals and making sure you are taking the proper steps. We all get to a point where things come up, and we get side tracked.
  • Having an objective third party that can help you avoid emotionally-driven decisions.
  • Proactively anticipating and preparing for life changes.
  • Educating you on important financial concepts like cash flow, net worth and asset allocation. Also providing proper resources and advising of certain risks.
  • Providing a true partnership by taking time to understand what’s most important to you and where you want to be and working collaboratively to get there. Also by offering transparency about his or her costs, compensation and conflicts of interest.

I would love to hear from you what you and your spouse struggle with and how you’ve dealt with the issue in the past. Email, message or tweet me at the links below.