Marriage...it's when two become one. This includes mind, body, spirit, and more often than not, finances. But are joint accounts really the way to go? If you're giving up your financial freedom in order to preserve harmony in your relationship, be careful. Letting your husband control the purse strings could leave you in a vulnerable position if ever your marriage were to hit a rough spot.
Granted, this isn't purely a women's issue. Men are just as susceptible to financial hardships. However, women are far more likely to give up their career in order to raise children, leaving the husband as the sole breadwinner and financial expert.
Saying 'I do' doesn't mean having to say 'I don't' to personal financial fitness. Each of us has the ability to be the CFO of the family, so why not take on that responsibility — or at least share in it? To get you started, here are five financial mistakes that every newlywed woman needs to avoid ...
1) Never having an account of your own
No one enters a marriage expecting it to end. Even so, don't let your newly wedded bliss blind you from the dangers of combining your assets with your husband's. Financial experts across the board insist that combining banking and credit card accounts is one of the single worst decisions a young couple can make. Why? The minute you deposit your paycheque into a joint account or make a purchase on a joint credit card, it becomes a shared financial burden. Your husband can easily drain your bank account or max out your credit card, and there's nothing you can do to protect yourself after the fact.
Combining all your assets and debts could have a long-reaching effect on your credit score if a divorce were to occur. If you're simply an authorized user on your husband's credit card account, you're effectively helping to build his credit, not yours. This lack of an active personal credit history could make it extremely difficult for you to secure financing once you're on your own.
In addition to keeping separate accounts, remember to keep copies of all your banking and financial statements as at the date of your marriage. This will provide you with a record of your assets prior to marriage, if ever you need proof. Furthermore, if you purchase a home with your spouse, call your realtor and ask them to have a CMA (comparative market analysis) drawn up. It may seem like overkill, but it never hurts to be prepared.
2) Giving up your money making potential
While there's nothing wrong with leaving your career to be a stay-at-home mom, the financial repercussions can be quite severe. Not only will you stop earning an income, but the longer you stay at home, the harder it will be to find a comparable job in the future.
Being a stay-at-home mom doesn't mean you have to give up on your passion. Consider what would happen if you had to support yourself down the road? This doesn't mean you need to hold down a full-time executive position while raising your children. Consider working part-time or starting a small home-based business. Think of it as an investment in yourself.
3) Being reckless with retirement savings
If your spouse earns a significant salary, you may be tempted to stop saving for your retirement. One word: don't. What happens if the relationship ends someday and your personal retirement savings are less than sufficient?
Furthermore, don't siphon off your retirement savings simply because your spouse has a sizeable nest egg. A collective investment account doesn't have to be split 50/50 in a divorce. Drawing down your own retirement savings because your spouse has a more practical portfolio could cause you considerable trouble 20 or 30 years from now.
4) Not understanding your taxes
It's your responsibility to know and understand the details of the tax forms you sign every year. Sure, it's a boring proposition, but blindly filing with your spouse could come back to haunt you. Not only could you be putting your finances in jeopardy, you're now legally liable for any fraudulent activities that your spouse could be committing.
Reading through and understanding just what you and your spouse are claiming is critical, including any tax breaks you're taking advantage of (or should be). Sit down with an income tax expert to review your return and make sure everything is in order.
5) Not knowing your property rights
Husbands and wives don't need to share everything. If you owned an automobile prior to getting married, there's really no reason to change the title to a joint one. The same goes for inherited assets. Money or property that is received as a gift or inheritance is considered non-marriage property. However, the minute you comingle it into a joint account, the line becomes blurred and your spouse could have grounds to a claim. If you have a lot of property or assets prior to marriage, talk to your lawyer before you make any major changes. You may even wish to consider a pre-nuptial agreement as an added level of protection.
What to do if your marriage ends
Handling the fallout from a failed marriage is extremely difficult, both emotionally and financially. Data from the Social Science Research Council shows that women suffer a 27 percent decrease (on average) in their standard of living following a divorce. If you're going through a divorce or a separation, make sure you sit down with a financial expert and determine which assets will help you to remain financially stable. For example, too many women fight for the family home in order to avoid uprooting their children, only to find out afterwards that they don't have the financial resources to maintain it.
At the end of the day, it's okay and expected that you plan your financial life together with your spouse (and despite some of the warnings herein, most spouses are honest and have your best interests in mind). Opening a joint account to handle shared expenses and costs makes complete sense. Just make sure that you're not handing over all of your financial freedom. Be open and honest with your spouse about your financial plan, and your marriage — and bank account - will be stronger for it.
GoldenGirlFinance.ca is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial or legal strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances, as well as fully aware of current laws and regulations.