It’s hard enough managing one’s own money, but navigating through the financial issues with another person can be even more frustrating. I often get questions about marriage and money during my weekly online chat discussions. Following are answers to two I received recently.
“What happens when someone with a FICO score of 800-plus marries someone with a FICO score of 400? I anticipate getting engaged soon but am not sure where to start with dealing with financial matters. I love my boyfriend, but financial management is not one of his strengths, though it is one of mine. I want to ensure my credit and other related finances are not impacted. Planning to prepare a prenuptial agreement is one first step. What else should I plan to do?”
Your credit files aren’t merged after a marriage. Couples don’t have joint credit reports or credit scores. You are scored by the credit bureaus based solely on information in each of your individual credit files.
So if you marry a credit-challenged man, you don’t inherit his bad credit. You don’t, that is, unless you co-sign with him. If you do, and his bad history of handling his bills continues with the new accounts, then, yes, his behavior can impact your credit history.
Still, you are right to be concerned about your future husband’s financial readiness. If you apply for credit together — for a home, for instance — your spouse’s credit does matter because lenders will want to see both of your credit scores if you need the joint income to qualify.
I recommend you take a premarital class that has a good financial component so the two of you can work out how and why you handle your money differently and develop strategies to handle those differences.
This question concerned marriage and money as it relates to taxes: “What do you think about the ways married people are penalized by our tax code? I finally make a high salary, and got married around the same time of my pay increase. All of a sudden we are hit with enormous tax liability! We have a child, but we don’t get the tax credit, which is only $1,000 anyway. I did the math and if we were not married and split housing/day care/health care expenses equally, we would pay $8,000 less in taxes. I want a divorce on paper, because the tax code does not seem to think working families are important.”
Do I think the tax code is overly complicated and often unfair? Sure. But I’ve been married 23 years and don’t regret for a nanosecond my decision, even though it created a larger tax burden.
You mention you have a child. This year, in its annual report on the cost of raising children, the Department of Agriculture said a middle-income family — parents who earn between $61,530 and $106,540 yearly — with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, child care, education and other child-rearing expenses up to age 18. A family earning more than $106,540 can expect to spend $407,820. By the way, this figure doesn’t include the cost of college.
Please consider that there are a lot of financial benefits to being married. When it comes to your estate, the tax law favors marriage. So does the gift tax. If you have a traditional pension, retirees can opt to have payments made to a surviving spouse.
There’s a plus to being married when it comes to Social Security. What if at some point you want to be a stay-at-home parent? A lower-earning spouse is eligible for benefits up to 50 percent of the higher earner’s work record. In the case of divorce, if you were married at least 10 years, you can collect retirement benefits on your former spouse’s Social Security record if you are at least age 62, unmarried, and if your former spouse is entitled to or is receiving benefits.
Michelle Singletary welcomes comments and column ideas.
