Even if you’ve talked to your spouse or future spouse about children, politics and sex, can you tackle the really difficult subjects like money, credit and finances? When you marry someone, you marry his or her credit history too. Unless you earn enough to pay for houses, cars and other big-ticket items on your own, your spouse’s credit will be “married” to yours when you apply for a home loan or credit card.
Before you say “I do,” it’s a good idea to get a copy of each other’s credit history, which you can do at http://www.annualcreditreport.com (free once a year). Use the reports to talk about the debts you each bring to the marriage and how you’ll pay off those charges. Don’t kid yourself into thinking that a future spouse with bad credit won’t taint your financial life. If your fiancé has unpaid child support or court-ordered judgments, his or her creditors may try to take joint assets, such as a home you own together. If your fiancé has poor credit and you pay your bills on time, try to convince him or her that you should be in charge of all bill paying. If you both have poor credit, sit down and plan your post-wedding monthly budget, and don’t add to your money troubles by financing an expensive wedding. Is this your second marriage? Ask an attorney to set up a pre-nuptial agreement and a trust for assets you want your children to inherit, otherwise your spouse's children may inherit the assets if you die before your spouse. Even if one of you covers the mortgage and all the home-related bills, your home may still become a joint asset in a second marriage. If you each have a home, consider turning one of the houses into a rental property instead of selling it when you move in together. Owning a rental property can help balance your savings portfolio, and since rental income usually rises over the years, a property can be a good source of extra retirement income. For a bit of extra insurance, have the house you bring to a marriage appraised just before the wedding, and tuck the appraisal away should you need to prove the home’s value in case of divorce. If you have two houses and decide to sell one, consider the capital gains consequences. You will not pay capital gains taxes on your home sale profit (up to $250,000 for singles and $500,000 for married couples) if the home has been your principal residence for two of the past five years. So you may want to sell first and marry second. You can then move into your new spouse’s house, wait two years and qualify for the capital gains tax rule again if you want to sell. Married couples usually own their homes as tenants by the entirety, meaning that if one of you dies, the other automatically inherits the house without having to go to probate court. Throughout a marriage, couples face many decisions that affect when, where and how they may buy a home. At different points in time, different approaches may need to be taken.
If you haven’t already bought your first home, get going. A home that appreciates can earn thousands of dollars in equity. With all the first-time home buyer plans today, it costs less than you think to own a home and start building wealth. If you’ve already purchased your first home, start saving for your move-up home.
Your home is a great retirement savings plan, but you’ll need more than just home equity to finance your golden years and your children’s college education. To make sure you’re saving enough, go to http://www.choosetosave.org where you’ll find retirement and college savings calculators. Reduce your spending by eating out less, buying fewer clothes or waiting to buy a new car. A few hundred dollars a month saved now can turn into hundreds of thousands of dollars by your retirement years. If having one parent stay at home with your children is a goal, depending on interest rates, you may want to consider refinancing your home to reduce your monthly expenses. You may not want to gamble your entire retirement nest egg in the stock market. A balanced retirement savings plan includes real estate, so consider buying a second home or an investment property. If you move up to a new home, instead of selling your old home, turn it into a rental property. You’ll get a nice deduction on your income taxes. If you have a child heading for college, the rental income can help cover the cost of education.
If you purchased your first home in your 20s and you’ve been there long enough to build substantial equity, it's probably worth much more now than when you bought it. Borrow against your home only for major asset purchases such as your child’s college education. Avoid the temptation to spend the equity in your home on assets that won’t last, such as credit card bills from clothing or dinners out. To avoid the cost of probate, put your properties into a living trust so they will pass automatically to your heirs. If you don’t already have a will, get one. It is best to consult an estate planning attorney or certified financial planner.
If you find yourself deeper and deeper in debt to credit card companies each month, it’s time to put your family on a budget. To see where your money goes each month, get a notebook and write down every penny you and your spouse or family spend for one month. At the end of the month, figure out what you can cut to live within your means.
The arrival or pending arrival of a child or children often signals to parents that their current living arrangements may no longer meet the family's needs. This is a good time to meet with a lender and assess purchasing power and comfort levels. Ask your mortgage banker to let you know when interest rates fall. If you can refinance a 30-year mortgage into a 15-year mortgage when rates fall, you’ll save thousands over the life of your loan.
If you know you’re going to have to borrow money to furnish your home or purchase a new car, you may want to ask your mortgage banker to set up an equity line when you refinance or purchase your home. With an equity line, the interest on the money you borrow is usually tax deductible. Again, use that money wisely — it is the savings you are building in your home. If the house goes down in value, so will the equity.
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