…factors to consider.
by Grace S. Yung, CFP
Being head-over-heels in love can often make it easy to overlook some of the differences that you have with your partner. Even though having the same favorite movie and ice cream flavor may keep things fun, as you consider marriage—especially now that it’s legal for same-sex partners in many states—larger issues such as finances need to be addressed. This is especially the case if you and your significant other have vastly different attitudes about money.
Agreeing Not to Agree—Conflicting Money Habits and What to Do about Them
It has been said that the biggest cause of divorce is money problems. So, with that in mind, it is essential that you not only have an in-depth discussion regarding money, but that you keep absolutely no financial secrets from each other.
This means putting all of your debts into full view, as well as any savings and investments that you own. This will be important going forward, as you work together to plan both short- and long-term financial goals. For example, you may have plans to save for a down payment on a home within the next few years, and to save for retirement over the longer-term horizon.
For those partners whose money views and habits are “on the same page,” these discussions can typically be easy. But what if you and your partner have vastly different outlooks when it comes to finances? There are some ways to handle this conflict.
First, by sitting down and working out a financial plan together, you can create a blueprint that you are both a part of. Then, by working on shared goals together, you may also be better able to work as a team in saving for the future.
You should also review your finances together often. By regularly going over your finances, things are not as likely to get out of control—and you’ll be making money a “regular” part of your life.
Does Saying “I Do” Mean that You’re Liable for Your Partner’s Debt?
Tying the knot can bring up many issues regarding your finances. For instance, your partner may not only have different thoughts regarding money, but also have excessive debt due to past business, real estate, or other issues. In this case, there would be a concern as to whether this debt would affect you as a married couple.
The good news is that in community-property states such as Texas, a spouse is not liable for the debts that his or her partner brings into a marriage. So, while some less-than-reputable debt collection agencies may call and tell you otherwise, you can stand firm in the knowledge that this is not the case. And because Texas doesn’t recognize same-sex marriage, unless the debt of your partner is also specifically in your name too, then you won’t be liable for it.
What about Taxes?
Because of the June 2013 overturning of part of the Defense of Marriage Act, income tax filing rules have changed for all same-sex couples who tie the knot. In August 2013, the Department of the Treasury and the IRS ruled that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. This ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.”
What exactly does this mean for you and your spouse each year going forward as April 15 approaches? According to the IRS, it means that legally married same-sex couples generally must file their federal income tax return using either the “married filing jointly” or “married filing separately” filing status.
Basically, under the IRS ruling, same-sex couples will now be treated as married for all federal tax purposes, including income, gift, and estate taxes. Therefore, the ruling applies to all of the federal tax provisions where marriage is a factor. This includes not only your tax filing status, but also your personal and dependency exemptions that relate to taking the standard deduction and contributing to an Individual Retirement Account.
The Bottom Line
Prior to making any type of major life change that will also have an effect on your finances, it is always a good idea to discuss such events with a financial professional who specializes in working with the LGBT community. This way, you can make any necessary adjustments to your savings and investments, insurance, and tax preparation techniques.
Personal finance-related questions may be e-mailed to [email protected]
Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly.