Remember, Financial Ties Will Bind Too

If you’re among the more than 2 million Americans who are either newly married or about to get married, you need to consider a financial make-over.

Marriage changes your financial life in a host of ways, from making both of you liable for each other’s bills to saving a few bucks on health insurance. The liability issues are particularly important in community property states such as California.

Savvy couples should set aside a few hours to work out the financial details. It won’t spoil the romantic mood.

The following are some tips.

Assemble your records. Collect all financial records. That includes checking, savings and investment account records, tax records--such as copies of previous years’ tax forms--life insurance policies and information about employee benefits.

Write down your goals. It is often helpful to independently scribble down what you want over short periods--five years or less--and over the long haul. Also, jot down when you expect to accomplish these goals.

For instance, your top short-term goal might be to buy a house within three years. Your top long-term goal might be to retire by age 50.

Then swap lists.

If you’re lucky--or if you’ve talked about financial goals before--your lists will be similar. If not, you’ll need to discuss whether your disparate goals can all be met, or if one or both of you will have to compromise.

Create a status report. You and your partner should give each other brief descriptions of where you are financially. That would include your debt, savings, monthly income and continuing monthly obligations.

Naturally, those who combine households are likely to save money on rent and, possibly, grocery and transportation expenses too. However, if you’re both working, your combined federal income tax obligations are likely to rise a bit because of something known as the marriage penalty. (That tax law quirk is designed to benefit nonworking spouses--if one of you stays at home, you’ll probably save money on federal income taxes.)

To estimate how your tax obligations will change, get a 1040 form from the IRS and fill it in. You can get these forms by calling (800) TAX-FORM or you can download them from the IRS Web site at https://www.irs.ustreas.gov

Assemble a budget. All this information should help you put together a budget that allows you to pay your bills and set aside some money to meet your short- and long-term goals. But make sure the budget includes some discretionary money for each spouse--cash that can be used for luxuries, gifts or lunches. Planning a small slush fund gives each partner a modicum of financial independence and can vastly reduce friction between individuals with disparate spending patterns, planners say.

Evaluate employee benefits. If one or both of your employers offer benefits, you should coordinate your coverage.

Often, marriage provides opportunities to mesh coverage and effectively get more for less money, especially when the company benefit plans are flexible.

Note that a defined-benefit pension plan might include survivor benefits for a spouse.

Newlyweds are likely to find themselves with some duplicative coverages and a short window of opportunity--usually 30 to 90 days--to change their choices to accommodate the new spouse.

Revise documents. If you have a 401(k) plan or a life insurance policy, you may want to change beneficiary designations. These designations supersede wills and other estate plans.