Getting Married? Here’s What You Need to Know about Credit

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 credit conversations every couple must have before mailing “save the date” magnets.

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 Network 1 explains that in most cases, getting hitched to a partner who hasn’t met their tax obligation means you could become co-owner of the debt—especially if you live in one of the nine community property states 2. Aside from the debt itself, owing taxes can 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 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 registry

Wedding research by the publishers of The Knot.com in the Real Weddings Study4 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 far more 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), 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 5 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 four 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 (starting with the highest interest rate first)–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, and 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, you’ll be credit savvy partners in crime.

1 Original source; email interview

2 http://www.irs.gov/publications/p555/ar01.html

3 http://www.experian.com/blogs/ask-experian/2013/08/17/tax-liens-and-credit-scores/

4 http://www.xogroupinc.com/press-releases-home/2014-press-releases/2014-03-27-real-weddings-study-average-cost-of-wedding.aspx

5 Original source, email interview

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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