Love & Finances: Questions to Ask in a Relationship
Tomorrow night many couples will be celebrating Valentine’s Day with candlelit dinners and declarations of love, while thoughts of financial expectations and responsibilities will most likely take a back seat. Though it may seem like love and finances have no place even standing in the same room together, most relationship experts would agree that honest communication and transparency about your spending and saving habits are essential to a healthy relationship. Staying open and honest about your financial goals and desires can help build trust and intimacy while preventing future problems.
As you and your partner build a life and future together, you should also be discussing the important financial aspects and responsibilities you will face. Some questions you should consider may include:
As a married couple, how should we file our taxes?
The most common knee jerk reaction to this question is “jointly, of course!” Filing jointly could provide the greatest advantages. The IRS gives joint filers one of the largest standard deductions and partners that file together can usually qualify for multiple tax credits. Credits such as:
• The child and dependent care tax credit
• The adoption credit
• Tax-free exclusion of Social Security benefits
• The credit for the elderly and disabled
In 2018, taxpayers who were married but filed separately, on average, will receive a standard deduction of $12,000. Comparatively, those who are married and file jointly will receive an average $24,000 deduction.
In some cases though, couples may want to consider filing separately. If one spouse has very high out of pocket medical expenses to claim, the IRS allows them to deduct the amount of these costs that exceed 7.5% of their adjusted gross income. If one spouse has high medical costs and a lower income, the deduction may be higher when applied to their sole income.
Many tax experts would agree that when debating which filing status to choose, have them prepared both ways and see which one provides the highest deduction.
Should we sign a prenuptial agreement?
In the past, there has been a stigma around prenuptial agreements, and many couples have forgone them with the mindset that signing one signifies a doomed relationship. While it is understandable to be hesitant, this couldn’t be farther from the truth. A prenuptial agreement allows you both to fully disclose your assets, income, and any debt and allows couples a chance to face their finances together to start planning for the future.
With this in mind, a prenuptial agreement may not be right for every couple. Most prenuptial agreements can take a few weeks to negotiate and finalize, and there are some legal fees that are required, but discussing it can bring forward any concerns you may have regarding finances and alleviate these worries. It may be a difficult conversation to have, but once the information is out in the open, you can decide together how it should be handled.
How will we budget/invest/maintain our finances?
For many couples, an avoidance of the topic of money can seem like the right move to preserve relationship harmony. Ask any marriage counselor what is the most common cause of problems in a relationship and they will tell you: lack of communication. In the short term, avoiding the topic of money may keep the peace. If you wait until the day before you tie-the-knot to discuss your financial situation, you may end up spending your honeymoon in separate rooms.
Figuring out a financial plan together is one of the most important decisions you make as a couple and can ensure that you both have a plan for the future that you work toward, together. A great place to start is setting up a budget. Add up both of your after-tax incomes and expenses and compare the totals. You should generally be spending less than you make. Once you know these numbers you can break them down into categories such as wants, needs, and savings. You can make a list of long and short term financial goals you both have, a timeline for these goals, and then adjust your budget accordingly.
It can be a good idea to sit down with an advisor to discuss your financial habits and goals so you can build a comprehensive financial roadmap together. While these conversations may be awkward and uncomfortable to discuss, an advisor can assist in opening up the dialogue with you and partner, so that together you can build a sustainable plan that is in line with your vision for the future.
As we spend the day celebrating love, our team would like to extend our appreciation for allowing us to serve you and your loved ones. Happy Valentine’s Day!
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