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When tax time rolls around each year, it's common for couples to discuss money matters. You kinda have to, right? You'll see where you stand — how much tax you owe or the expected size of your refund. Fingers crossed.
It's a good opportunity to benchmark your progress toward money goals, for sure. And you may not spend a lot of time discussing how to improve your financial position. Tax time is more of a "get it done" moment.
But improving net worth and financial security are built on the foundation of small, consistent moves. That requires ongoing communication.
Merging finances: plenty of reasons for and against
The clearest path to a continuous exchange of financial information between couples may be to marry your money.
Merging bank accounts, investments and most everything else is a true leap of faith. But some are reluctant to do that, particularly Generation Z adults (those roughly in their late teens to mid-twenties). Almost half (48%) say they won't combine their finances with their partner or spouse.
The pros of merging finances include:
Simplicity. It's easier to keep one set of records rather than two. Managing a budget can seem more feasible, too.
Transparency. You can help each other get through tough times and celebrate financial milestones.
Accountability. You'll have a built-in checks-and-balances system of keeping each other on target with financial goals, such as buying a house, paying off debt or saving for retirement.
The cons may include:
Potential for conflict. Combining different attitudes about spending and saving money might create friction or a feeling (at least temporarily) of a loss of independence.
Possible complications, particularly if child support is involved, or one partner has a higher income than the other or brings significant debt or investments to the relationship.
Any of these factors can impact a couple's financial compatibility, whether they combine finances or not.
And a money merger might also occur organically over time. No rule says that you have to run your financial lives one way or another. The best solution for you might be somewhere in the middle.
A once-a-year conversation at tax time isn't enough
When I was a financial advisor, an older client came into my office with a dusty box of stock certificates her now-deceased husband had stashed in the attic of their home years ago. She had no idea what they were worth.
After researching each one, we discovered that they were all worthless for one reason or another. She was in tears. It was another financial disappointment she suffered by not knowing enough about how her husband had managed their money. Years pass, and important conversations are put off or forgotten.
Consider transitioning your relationship into an equal financial partnership, with some shared record-keeping.
A partnership works to the advantage of both
On a recent episode of NerdWallet's Smart Money podcast, a wife spoke about how her husband earned more than six figures running a small business. However, she also noted that he neglected to pay the estimated tax on that thriving one-person enterprise.
Now, the tax refund she was expecting on her separate income might get swallowed up in paying for the taxes, penalties and interest he owes. Or, she could stand resolute and have him work out the payments with the IRS himself. In the meantime, their financial well-being could suffer a significant setback.
Urging her spouse to conform to the IRS's pay-as-you-go tax system could possibly save the couple a good deal of money — and eliminate the stress of possible collection efforts.
Working as financial partners can lead to a sense of teamwork with a goal of both mates aiming to improve their overall money health.
Spouses or partners who are comfortable with — and perhaps even encourage — their mate taking the lead in financial management and decisions can still serve a more active role. And likely should; our tax-payment-delaying-spouse serves as a prime example.
Information to share with your spouse or partner
However the day-to-day and year-to-year management of money occurs between you and your significant other, communication is the key. The same goes for just about all aspects of living together, doesn't it?
Financial information to consider disclosing can include:
Account numbers and passwords for all banks, savings accounts, credit cards, mortgage and other loans, safe deposit boxes, student loans, retirement accounts, pensions, etc.
Investment and real property details.
Tax information, including income tax returns and property tax information.
Insurance policy information.
A list of beneficiaries for all accounts that require them.
A list of recurring charges, bills or payments that are debited from or deposited to accounts.
The location of wills, powers of attorney and other legal documents.
Contact information for employers, business associates, financial advisors, etc.
Remember to keep all of this information up to date and in a secure location known not only to your partner but perhaps to selected family members or important contacts. Consider a cloud storage service such as Dropbox, or specialized death-planning apps (yikes!) such as Everplans or Cake.