Merging Your Finances with Your Significant Other

Every couple is unique and so are their finances. If you’re considering merging your finances, there is  important information to consider before you make any changes. 

Banking and the Day-to-Day 

Money is an important part of any relationship, especially when two people share expenses. When you and your significant other get serious, you have options when it comes to managing your money. 

Many experts recommend having a joint banking account to combine finances, but that doesn’t mean it is your only—or even your best—option. You’ll want to start by having an open conversation about money, your income, expenses, and expectations. You can keep your banking separate, merge all your finances into a joint account, or have a few accounts with different purposes. It’s totally up to you and your partner! 

Filing Your Taxes 

Every married couple has the choice to file their taxes jointly or separately. The IRS offers several tax breaks for couples who file together, like: 

• The Earned Income Tax Credit, 
• American Opportunity and Lifetime Learning Education Tax Credits, 
• Exclusion or credit for adoption expenses, and 
• The Child and Dependent Care Tax Credit. 

Joint filers also have a higher income threshold for certain taxes and deductions and a higher IRA contribution deduction.  

There are certain instances when filing separately makes sense, like if one of you has a lot of out-of-pocket medical expenses to claim. The IRS only allows you to deduct the costs that exceed 7.5% of your adjusted gross income. If you and your spouse together have a high AGI, it will be tough to claim most of your expenses if filing together. 

Buying a Home: Community Property vs. Common Law States 

In a community property state, everything you come to own during your marriage is owned by the both of you. This includes property, but does not include the mortgage associated with it. If you want to apply for a mortgage without your spouse, you can, but your spouse will still end up owning 50% of the home. 

There are certain advantages to applying for a loan without your spouse; for example,  if you have an excellent credit score but your partner does not. You may have access to better rates with a higher credit score, as opposed to the lower combined average of both parties. 

What you cannot avoid is your partner’s debt. Even if your spouse is not part of your loan application, on an FHA or VA, the lender will have to take their debt into account.  

In a common-law state, you can apply for a mortgage on your own. The lender will not be able to look at your spouse’s finances when considering your eligibility for a loan. You can choose to add your spouse’s name to the title, but it is not required. 

Your financial decisions should reflect what works best for you and your partner. Whether that’s a joint bank account or two separate accounts, the choice remains yours. 

Disclaimer: Kwik Mortgage Corporation and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.