Marriage gives you a legal partnership, and the ideal time to combine your personal finances is after you get married. However, you can begin to work on combined finances before marriage. "I encourage them to begin making decisions as if their funds were combined, therefore learning how to make decisions together, while managing their own funds," says Jerry Mick, pastor of Bangor Baptist Church in Bangor, Maine, with more than 20 years of experience providing premarital counseling.
If you choose to combine your finances before marriage, try to maintain some legal boundaries. Consider maintaining separate ownership of larger assets, such as homes or cars, particularly if you brought these items into the relationship. If you lease or buy a home together, or plug your partner's name on the title of your own, have a contract outlining what happens if the relationship ends. Clear expectations will make the process much smoother.
When you begin to consider combining your finances, you need to sit with your partner and have a serious talk about each person's complete financial condition. This is particularly true if you are getting married. "You need to disclose to each other everything about your financial situation. Marriage should be one of complete intimacy and openness leading to success." Mick advises. "If a party is not honest about finances, they are probably not honest about other areas of the marriage." While this holds true for marriage, it also is good advice for unmarried couples considering this level of financial intimacy.
The disclosure should including your actual monthly living expenses and all of your income. Even more importantly, you must list any debt that you carry, and be clear about obligations that you have, including alimony and child support to former spouses and children from previous relationships. To begin a life with combined personal finances, it is a good idea to plan through these obligations and know what to expect.
Counseling before combining finances can help work through many issues that may come up, leading to future problems. This type of counseling is traditionally done before marriage. Mick says premarital counseling should discuss "budgeting, retirement (and) proper spending." He further defines proper spending as "deciding what amount a spouse can spend without the other person's advice." These are personal decisions, and depend on the age of the couple, their level of financial expertise, and obligations that they may have to former spouses and children from previous relationships. A counselor can help the couple with this discussion and the necessary decisions.
You must determine what to do about pre-existing debt before you put your finances together. If the two partners have different philosophies on what is acceptable for debt, this will be a problem. If you choose to make yourself liable for your partner's pre-existing debt, how will you feel if the relationship ends and you are left on the hook for your former partner's debt? Having a plan in place before combining finances can help avoid problems when it comes to debt issues.
A budget also provides an opportunity to work together through shared struggles and shared goals, building unity in the relationship. Take the time to plan for each dollar that comes in to your household, in an attempt to ensure that your spending priorities are met. Don't forget to budget for fun items or wants. If one of you loves to shop for shoes, make sure that you plan that expense. This helps eliminate money fights later on. Mick also says that couples should learn "who is the spender, who likes to spend more or less, and, ultimately which one likes control of the finances."
Combining personal finances often means combining two incomes. If you are combining two households in addition to finances, you will probably experience an increase in your disposable income as well, due to the consolidation of expenses. Consider using this windfall in ways that align with your joint values, such as by increasing your charitable giving or increasing the value of your emergency fund.
As you start your road in life together, don't forget that you will likely grow old together as well, and someday will want to enjoy life in retirement. Make sure that you take advantage of all of the retirement savings options available to you. For example, if your spouse inherits an IRA or 401(k) account from you, he can treat the account as his own, which can mean that he can continue to defer taxes and allow the account to grow until he retires.