When you get married, there’s an array of things that change for you and your spouse. You now address each other as husband and wife, you come home a little earlier from work to see your companion, and you spend time making plans for the future together. Additionally, maybe you have moved into your spouse’s apartment or home, or perhaps you are considering buying a new home together. No matter what your future plans look like, marriage will undoubtedly impact your finances. Below we have broken down five financial changes that newlyweds should be prepared for.
5 Common Changes That Happen to Your Finances in Marriage
- Taxes: Knowing how to file your taxes with your new spouse can be quite confusing for some couples. According to IRS.gov, there are two options when filing taxes - jointly or separately. Depending on your financial situation, you may find one option more beneficial than the other. In a recent article published by Forbes, a CPA discusses the difference between filing your taxes jointly or filing separately, and uses three lifestyle scenarios to help couples weigh their two filing options when it comes to taxes. Here is a short explanation of each.
Married Filing Jointly vs. Married Filing Separately:
Married Filing Jointly - both you and your spouse will report your income, deductions, credits, and exemptions on the same tax return and you are both responsible for each other's tax liability.
Married Filing Separately - both you and your spouse will report your own individual income, deductions, credits, and exemptions on different tax returns and you are only responsible for your own individual tax liability.
Both filings have their own set of pros and cons, so to ensure you select the correct filing status, it’s recommended to consult a CPA for advice.
Insurance: Getting married can have a huge impact on your insurance policies. When you get married, you may begin to consider purchasing disability insurance, life insurance and maybe overhauling your dental and medical plans. For physicians, having disability insurance is crucial. In fact, according to the U.S. Census Bureau, More than 50% of 37 million disabled Americans are in their working years, from 18 to 64 years old. With disability insurance, your and your spouse would be protected while you are unable to work.
You also may have the opportunity to join your spouse’s health insurance policy or vice versa. For many couples, this could be a benefit as employer-backed health plans may be less expensive. Although, if you’re a physician just starting out, your practice may not carry health insurance yet. Or, your spouse’s company may not provide insurance for staff. In this case, you will want to consider an individual healthcare plan. Prices for individual healthcare plans vary widely depending on the level of coverage you select. In 2014, the average cost for individual health care coverage is $271/month. However, you can work with an insurance advisor to shop around for appropriate plans for you and your spouse.
- Household costs: In some Texas cities, the cost of living expenses can be pretty high. Today, a 900 sq. ft. apartment in Houston can cost around $1,350, which doesn’t account for personal care items, or medical coverage, car payments, renter’s insurance and food costs.
However, for those planning to start a family soon, a home will lend more room for an expanding family. In 2013, the average price for a home in Houston was $230,000. With the national average of 3.67% on a 30-year mortgage (assuming 5% cash down), your monthly principal and interest payment would be approximately $1,002. Property taxes could add another $500/month. Homeowners insurance will run $100/month on average, mortgage insurance another $100/month, bringing the entire payment to $1,702/month.
Determining whether you want to rent or buy is a big decision for most couples. While buying may seem cheaper, you have to ask yourself how long you plan to stay in the same area, and for medical residents, you have to consider where you will be practicing after residency.
- Loans: With higher education comes student loans. According to a survey conducted by Liberty Street, there are approximately 37 million Americans with student loan debt. The survey also states that there are 14 million student loan borrowers under the age of 30, and 10.6 million student loan borrowers with ages between 31 to 40. Since there are roughly 50 million Americans within the 20-40 age range, the odds are pretty high that at least one you may have student loans. And the cost of those student loans can really put a damper on the future. According to Business Insider, the median student loan debt for medical student grads reached $170,000 in 2012 - a pretty substantial amount of money for those just out of school.
The trouble with still having student loans when you’re first married is the effect it can have on your ability to get other loans, like those needed for a home, car or other big purchases. For that reason, many couples decide to have the partner with the best credit apply for loans. As a result, only one partner will incur the loan debt, and will need to ensure they have adequate income to qualify for the loan on their own. Additionally, some couples opt to apply jointly and start to incur debt together. When incurring debt together, communication is key. It’s paramount to ensure you can both cover your responsibility for the loan payment.
- Credit Scores: Many myths surround marriage and credit, such as merging credit reports and lower credit scores. The truth is that your credit doesn’t automatically change when you get married. This is affirmed in a Forbes.com article, which outlines the myths about credit scores. The only way your credit score would change is if you decide to take out a loan with your spouse. In this case, all payment history will be reported jointly. So when potential creditors generate reports, they will report information on a joint account in both of your names. For this reason, many couples decide to keep their accounts separate.