“I’m in a new relationship. How should we manage our finances?”
Congratulations! New relationships are a big deal these days. Just talk to your single friends and you will hear stories about how hard it is to find a compatible partner. So let’s point out a few financial things to consider that can help address how to go about managing the budget, savings, and expenses for your household.
My partner makes more money than me. How should we do our banking?
In our opinion, how to decide your banking accounts for your cash-management and savings needs should depend more on the type of relationship and the couple’s personal preferences. For married spouses, having a joint bank account for emergency cash is highly important. That way if either of them becomes incapacitated, or is unavailable any reason, both spouses can access the account immediately to pay monthly bills and expenses without having to get the other spouse’s approval first.
I’ve worked with many happy couples that keep a joint account, along with separate bank accounts and investment accounts. Other equally happy couples hold and manage all their finances from joint accounts. If you choose to hold separate accounts, couples can consider adding their partner as the beneficiary on their separate account, so that the person would be entitled to receive a certain percentage of that account in case the owner of the account passes away. This also helps avoid the process and fees associated with setting up a trust.
What if I’m more responsible than my partner when it comes to money?
Oftentimes one partner is better at managing the monthly budget, and paying bills on time than the other. It is wise for the more responsible one to be the chief financial officer of the household. But that doesn’t mean the other partner should turn a “blind eye”. Studies show that relationship partners who have discussions with each other about their financial goals and objectives, and stay knowledgeable and up-to-date with any changes in each other’s financial situations, are more likely to have healthier, longer-lasting relationships.
Should we file our taxes together or separate?
If you are a newlywed, there are additional things to consider like your tax filing status. You and your spouse should consider how you will file your tax returns: together (Married Filing Jointly) or separately (Married Filing Separately). Married filing jointly is typically the most beneficial filing status for a married couple. When you file a joint return, each spouse is wholly liable for the tax consequence, so if you suspect that your spouse is not being truthful with the information on the tax return then filing separate returns may be best for you.
Couples that are unmarried sometimes choose not to marry for tax reasons, such as if either spouse can claim Head of Household status, or if they would lose certain benefits being received by a former spouse when remarrying. Unless a couple has significant separate property or income considerations, there is rarely any tax advantages for married couples to file their tax returns separately in community property states like California.
It’s also important to know that legally married same-sex couples are considered married for tax purposes. On the other hand, civil unions and domestic partnerships presently have no legal standing for federal tax purposes, meaning if you are in one of these relationships then you will file under one of three “unmarried” filing statuses (single, head of household, or qualified widow/er). All taxpayers should talk to a tax professional to ensure that they are filing tax returns under the proper and most preferential status.
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