Credit and Marriage: What You Need to Know
Money isn’t exactly the most romantic topic, but there’s a lot to consider when you’re preparing to join financial forces with someone. For example, are you willing, prepared and able to deal with your partner’s financial past—and what it means to your present and future? Here’s a look at some of the important conversations every couple must have about credit and marriage before mailing “save the date” cards.
1. Are you current on your taxes?
As the adage goes, there are two certainties in life: Death and taxes. But don’t assume your partner subscribes to that logic until you ask. Joe Rehm of Tax Defense Network1 explains that in most cases, getting hitched to a partner who hasn’t met their tax obligations means you could become co-owner of their debt—especially if you live in one of the nine community property states.2 Aside from the debt itself, owing taxes could seriously impact your income, and credit.
“Popular Internal Revenue Service (IRS) tactics include wage garnishments, bank levies and even property seizures to satisfy an old debt,” says Rehm. Additionally, experts at Experian say that unpaid tax liens may remain on a credit report for 15 years, and paid ones may stick around on your credit report for seven even after the debt is paid.3
In the case of tax obligations, your best defense is to be informed before you ditch your single status. “If you live in a community property state, you accept the good and the bad once you’re married,” warns Rehm. As for a prenuptial agreement? Rehm says it may not hold up during IRS collection efforts. “Much like a divorce agreement, separation of debt does not always apply to back taxes, even if a local court judgment says otherwise.”
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2. Spend as much time reviewing your credit reports as your wedding registry
Wedding research by the XO Group in their Real Weddings Study indicates that the average couple is engaged for about 14 months. Though it’s certainly more fun to focus on what you’ll wear, eat and dance to on your big day during that time, it’s also important to assess where you stand financially as singles, so you can strategize how to work as a financial team once you’re officially linked for life.
Though you are entitled to one copy of your free annual credit report (via annualcreditreport.com) per year, it includes information from the three major credit bureaus (and is three separate reports). Lisa Decker, certified divorce financial analyst and CEO of Divorce Money Matters 1 suggests each spouse-to-be pull one bureau report every four months, to monitor changes in your respective credit histories.
Designate one day within each of those time periods in the months leading up to your wedding to lay your reports out on the table (literally). Discuss the accounts in your report, and any history of missed or late payments, accounts with high balances or an excess of accounts. Ask honest questions about ‘why’ those issues exist, and how you can tackle them. Does one partner struggle with the temptation to overspend, misunderstand how to manage credit, or struggle to live within a realistic budget? If so, what money management approach will work best in your household as a married couple?
Despite whether you’ll keep your finances separate throughout marriage, your credit histories will impact your shared future—including where you’re able to live, your lifestyle, when or if you can have a family and even when you retire.
3. Create a record of ownership
Though it may not seem in the spirit of marriage to “keep score” of who owes what kind of debt, the debt a spouse brings into the marriage belongs to him or her alone—provided that the account belongs only to that spouse. Decker says to use the account and balance information on your credit reports to record loan balances before you wed. Create a budget for how the rightful debt owner will resolve what’s owed.
“Don’t commingle your names on the account (which you might do by adding the other spouse to the credit cards or refinancing a mortgage in both names), and don’t payoff those loans with shared marital funds,” says Decker. “Keep bank accounts and debts as ‘yours’, ‘mine’—and then work to establish ‘ours’ during your lifetime together.”
4. Establish a plan of shared action
If one partner has debt but you intend to co-apply for ownership of a car, home, or even an apartment, devise a timeline for the debt owner to reduce balances even if it means the other partner must postpone plans to “upgrade”. If debts are about equal, Decker says to review balances and determine who is using more of their total available credit line. Prioritize paying down that spouse’s debt first (while paying at least the minimum required on all debt). Because debt utilization (total amount owed relative to credit lines) is the second most important factor in how your credit score is tabulated, you may see a more immediate impact to credit worthiness with that strategy.
If one or both of you lacks credit history, open a store credit card, or perhaps a secured credit card (in each of your individual names). Charge no more than 30% of the credit line, and pay the balance in full each month by the due date. Eventually, if you diligently work at paying down your debts, you’ll be credit savvy partners in crime.